How Much Does First Mover Advantage Matter When Starting a Business?
Coca-Cola, eBay, Xerox, and Tesla—what do these great companies have in common?
Not a lot on the face of it, but they’re all companies that have a first mover advantage.
Coca-Cola launched the first cola drink 130 years ago and is still considered one of the most valuable brands in the world.
Xerox was the inventor of photocopying and because of good patents they got a 15 year head start on the competition, which made them the king of photocopying for decades. Even now if you say “I need to Xerox something” it means photocopy.
eBay was the first developer of the consumer online auction process—and has been the king of that industry for years.
Tesla currently dominates the markets in both electric vehicles and battery technology for homes. That’s because they have a first mover advantage of being the first major American companies to bring these technologies to mass market.
Like it has been for these companies a first mover advantage can be very helpful in business, but usually only if you have one of three things going for you.
Three Ways Companies Can Leverage First Mover Advantage
1. Switching Costs go hand-in-hand with product loyalty. If a product costs a fair amount for consumers to move from one product to the other, then a first mover advantage can be significant. By being the first to the market with a product with high switching costs, you can develop brand loyalty— especially if your customers love your product.
If you can swing it, this can give you a huge competitive edge for decades.
But this switching cost advantage also comes with a few downsides. It’s hard to break into brand-new product lines where switching costs are an important factor. It takes a tremendous amount of resources and ingenuity. You have to educate your customers on what your product is, why they might want it, and then you have to get them using it. All of this is a tough thing to do. But if you CAN do it… it has the potential to bring big reward.
2. Scarce Assets: One of the obvious examples of this is crude oil. Countries with a lot of crude oil can currently create wealth just by leveraging their natural resources. If you can control scarce assets, then the first mover advantage might be super significant for you.
The downside to banking on the control of scarce assets is that there aren't many of them. You really have to be in the right place at the right time with the right amount of resources to take control of the scarce asset base.
3. Technological Leadership: Keeping a technological learning curve proprietary and exclusive to your company can make it hard for other businesses to copy you.
Procter & Gamble used technological leadership to become the premier provider of diapers in the United States market. They invested in a low priced synthetic fiber made in Europe which allowed them to bring these diapers profitably at a cheaper price and with a technological advantage.
Zappos is a great example of a company that uses technology and operations as a competitive advantage in business.
Of these three different first mover advantages, technological leadership is the easiest to obtain, because it relies on something humans are good at—ingenuity and innovation.
Do You Need a First Mover Advantage to Be Successful in Business?
The easy answer to this is no. As many examples as there are of businesses who have first mover advantages and were very successful, there are as many others that are extremely successful and knocked off the first movers, or worked in the same market space.
The reality is that better is better. And a better product, service or way of marketing will often beat the first mover advantage. Find a better way to position your products, or better way to reach your customers, or have stronger customer service—and you put yourself in a place to win.
If you do this, then you can break into nearly any marketplace.
Don’t let being afraid that somebody else has a first mover advantage keep you from moving into business. Go get what you want, and don’t let anyone hold you back.