First Mover Advantage and Entrepreneurship
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.
Sony Walkman: Riding the Experience Curve to Lock Down Portable Audio
When Sony unleashed the Walkman in 1979, they did not merely launch a product; they constructed an entirely new consumer category of personal, portable audio. By aggressively entering the market first, Sony successfully reaped massive brand awareness, making "Walkman" the generic trademark name for portable cassette players for over two decades.
Critically, this early volume allowed Sony to ride down the experience curve far ahead of prospective imitators. By mass-manufacturing millions of micro-engineered tape mechanisms early on, their engineers discovered structural efficiencies and manufacturing economies of scale that drastically lowered their unit production costs. When late-entering followers like Toshiba, Aiwa, and Panasonic attempted to capture the market, they faced an insurmountable barrier: Sony could match or beat their retail prices while maintaining premium margins, effectively blocking rivals from scaling.
Apple iPod: Letting Early Entrants Absorb the Fermentation Stage
Apple was distinctly *not* the first mover in the digital MP3 player market. Companies like Diamond Multimedia (Rio) and Creative Labs pioneered the space years before Apple entered. These early pioneers bore the devastating, non-recoverable costs of the industry's fermentation stage—spending millions to educate consumers on what an MP3 file was, building early digital compression algorithms, and wrestling with record labels over copyright infrastructure.
By waiting until 2001, Apple acted as the ultimate fast follower, capitalizing on massive R&D spillovers. They bypassed the early technological dead-ends (such as sluggish flash memory limits and cumbersome parallel ports) and jumped directly into a mature ecosystem. They observed that the dominant consumer frustration was slow device-to-computer sync speeds, solving it instantly by utilizing Toshiba’s newly invented 1.8-inch hard drive and FireWire connectivity. Apple rode the coattails of the first movers' educational efforts, executed clean reverse engineering of early market failures, and captured global market dominance with virtually zero exploratory R&D friction.
Teece's Framework in Action: The Power of Incumbent Assets
David Teece’s strategic framework proves that a first-mover innovation means absolutely nothing if the founder cannot defend it using complementary assets (manufacturing, logistics, and deeply entrenched commercial contracts). Consider a structural example within the diagnostics market: when an innovative startup attempts to commercialize a novel, rapid consumer testing method, they are immediately bottlenecked not by technology, but by distribution infrastructure.
Even if a first-moving startup holds strong intellectual property, the market is structurally controlled by legacy incumbents like Quest Diagnostics and Labcorp. These incumbents possess insurmountable complementary assets: thousands of physical patient drop-off centers, deep logistical courier networks, and exclusive insurance provider contracts. If an independent founder attempts market entry without partnering or integrating into this pre-existing operational engine, the entrenched players can quickly adjust their services, optimize their own digital software, and use their massive distribution channels to capture the mainstream majority before the pioneer can even scale.
First-Mover Advantages | From A Business Professor
Published: August 2021 • Source: YouTube
This academic overview breaks down the strategic mechanisms underlying first-mover advantages, examining how early entrants can secure technological leadership, control scarce assets, and establish buyer switching costs—while balancing these benefits against first-mover disadvantages like free-rider effects and market uncertainty.
Related Theories
Strategy is a matter of timing. These frameworks explore whether it is better to lead the charge or follow the "Free Rider" path:
1. Defense of the Lead
- Altertness Theory: You can't be first mover if you are not alert.
- Signaling Theory: Using the "First Mover" status as a badge of innovativeness.
2. The Waiting Game
- Crossing the Chasm: Why second movers often find it easier to win the "Mainstream Majority."
- Real Options Theory: Viewing entry timing as a strategic "Option to Wait."
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.
Video: First Mover Advantage Explained
The First-Mover Derby
Theory in Action: First movers gain a speed edge, but risk investing in "dead-end" technologies. The Fast Follower (Grey Horse) will copy your moves and learn from your mistakes. Find the right track to 100% Market Dominance before they do!