FIRST-MOVER DISADVANTAGE

WHY PIONEERS END UP FACE DOWN WITH ARROWS IN THEIR BACKS

As an angel investor, I see loads of business plans that claim substantial competitive

advantage by being the first mover

They claim…

First to launch = marketplace winner

The reality is quite different

Despite urban myth, the reality is that for 98% of first movers…

first to market = first to fail

Why?

Actually, there is no market1

Actually, there is no market1

Here is a law of nature...

Actually, there is no market1

If there is money to be made in a market, within 24 hours, there will be 10 Chinese

companies and 7 Indian companies fighting for a piece of it.

Actually, there is no market1

If you don’t see that happen

Actually, there is no market1

then there is no market

Actually, there is no market1

The reality is that most first movers are actually solutions in search of a market.

It’s too expensive to be first2

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

Ka-Ching

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

Ka-Ching

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

• Teach your own team how to make & sell something new

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

• Teach your own team how to make & sell something new Ka-Ching

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

• Teach your own team how to make & sell something new

• Work with relevant regulators to create a regulatory framework / standards

It’s too expensive to be first2

If you have a truly novel solution, you will have to:

• Make customers aware, convince them to try something brand new, and then teach them how to use it

• Create totally new-to-the-market supply & distribution chains

• Teach your own team how to make & sell something new

• Work with relevant regulators to create a regulatory framework / standards Ka-Ching

Version 1 is never right3

Version 1 is never right3

Nobody ever gets it right the first time

Version 1 is never right3

No matter how good your market research* is, all products, and especially new ones, must develop iteratively based on client & market

feedback

* as if any of you entrepreneurs actually did market research properly

Version 1 is never right3

Fast followers & late entrants enjoy all the free iterative learning, that happens while

the first-mover is…

• distracted by providing customer support• burning it’s brand due to quality issues &

feature-need mismatch

Real innovators are rarely good business people4

Real innovators are rarely good business people4

Although there are, from time to time, rare exceptions

Real innovators are rarely good business people4

an entrepreneurial team staffed for truly disruptive, ground-breaking innovation

Real innovators are rarely good business people4

is rarely a team with the right skills to cross the chasm and scale up the steep slope of

the product lifecycle

Real innovators are rarely good business people4

So the first mover naively paves the way, but others jog down the path.

First-movers get locked in5

First-movers get locked in5

First movers tend to get locked in to an inertia because of the single-minded passion

required to be a first-mover.

First-movers get locked in5

The lock-in happens in product platforms, branding, pricing strategies, value chain

partners, or the specific requirements of lead customers, who supply cash flow at the start,

but then dictate features.

First-movers get locked in5

Finally, cashflow and time management realities make it impossible to stay at the

cutting edge and support Version 1

First-movers get locked in5

Whatever the case, as the market evolves, first-movers end up with the unsheddable

weight of their own initial successes.

First-mover opportunities are hard to capture & require immediate action6

First-mover opportunities are hard to capture & require immediate action6

While first-movers have the opportunity to create barriers to entry, many of these

protections (such as IP) are extremely weak, especially if the first-mover is a small

company.

First-mover opportunities are hard to capture & require immediate action6

Similarly, as a newcomer, it is not often that a first-mover can lock-in raw materials, or

suppliers, or distributors before it is too late. Value chain actors usually prefer to leave their options open in brand new markets.

First-mover opportunities are hard to capture & require immediate action6

The only realistic strategies I’ve seen is to design in switching costs.

Sometimes, taking advantage of this opportunity works, but mostly, not.

So, at the end of the day, as an angel investor I remain extremely sceptical about any plan that

relies on first-mover advantage

1. Actually, there is no market2. It’s too expensive to be first3. Version 1 is never right4. Real innovators are rarely good business

people5. First movers get locked in6. First mover opportunities are hard to capture

and require immediate action

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