First Mover Advantage Theory of Entrepreneurship
First Mover Advantage: Is it Better to be First or Fast?
Should entrepreneurs strive to be first? This question haunts every founder deciding when to launch. Given the option to implement two ideas—one with early entry potential and the other with late entry potential—which should an entrepreneur run with?
The Case for Going First
According to Kerin et al. (1992), "studies purport to demonstrate the presence of a systematic direct relationship between order of entry... and market share."
First Mover Advantage Theory posits that new entrants who capture a market niche earliest gain specific competitive edges:
- Brand Awareness: Being "the original" creates a reputation for innovativeness that followers struggle to match.
- Supplier Lock-in: First movers can "tie up factor markets" by engaging in long-term contracts with key suppliers. This makes it harder for followers to acquire the necessary materials to compete.
- The Experience Curve: By starting early, the leader rides down the experience curve (learning how to lower costs) ahead of rivals. This creates a barrier to entry, as followers must spend more to catch up.
The Case for Waiting (Second Mover Advantage)
However, there are strong reasons to question this dogma. Evolutionary theories of innovation argue that being first is often a disadvantage. This is known as the "Free Rider" Effect.
The First Mover bears the heavy costs of basic research, regulatory approval, and educating the customer. The Second Mover (or "Fast Follower") avoids these costs. They can:
- Benefit from the leader's R&D spillovers.
- Use reverse engineering to save on development time.
- Avoid the "fermentation stage" (Tushman & Anderson, 1986), where competing designs fight for dominance, by entering only after a dominant design has emerged.
The Deciding Factor: Teece's Framework
So, who wins? David Teece (1986) suggests that being first only matters if you can defend it.
Teece argues that First Movers usually win only if:
- Followers are blocked by Intellectual Property (IP) rights.
- The First Mover possesses Complementary Assets (manufacturing, distribution channels, and marketing) needed to scale.
If an entrepreneur invents a product but lacks the "Complementary Assets" to distribute it, a large incumbent can simply imitate the innovation and use their superior distribution to crush the First Mover. This is why many "firsts" are forgotten, while the "fast followers" become household names.
Video: First Mover Advantage Explained
References
Kerin, R. A., Varadarajan, P. R., & Peterson, R. A. (1992). First-mover advantage: A synthesis, conceptual framework, and research propositions. The Journal of Marketing, 33-52.
Teece, D. J. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), 285-305.
Tushman, M. L., & Anderson, P. (1986). Technological discontinuities and organizational environments. Administrative Science Quarterly, 439-465.
