The general thought is that if you have a good idea and no one has done it just yet, or not in the way you’ve conceived it, then being first to market means live or die. For any startup founder, the pressure of launching first is real―especially when considering the possibility of your competitor beating you to the market, leaving you scrambling to re-evaluate your value proposition. I get it.
But research seems to suggest that this line of thinking is faulty. In fact, 47 percent of first-movers actually fail, according to research by the American Marketing Association. Look at most successful tech companies and you’ll find that they were not 2nd or even 3rd to market. More often than not, the first company who launches is too early or spends all their money proving the market exists only to find out that the market wasn’t ready.
Remember MySpace and Friendster? In 2002, social networking hit its stride with the launch of Friendster (which later turned into a gaming site, and ultimately is on a permanent hiatus since June 2015). MySpace launched a year later, and won the competition as the more hip alternative, appealing to the more music-inclined demographic. Both were ahead of their time by offering a social networking experience on the web. That was until Facebook launched in 2004 and completely tore up the competition, leaving MySpace and Friendster to a relegated world of early movers.
Facebook’s success can be attributed to several strategic decisions, like the launch of its open API platform back in 2007. More broadly, however, the market was already established and Facebook was able to perfect the product, augment it, and offer valuable add-on services. Subsequently, they made targeted strategic acquisitions of products, like Instagram and What’s App.
First To Market Failures In Other Industries
However, the case for not being the first mover extends beyond social networks. Take for example, search engines. In 1995 the major search engine players, like Archie, Lycos, Infoseek, and WebCrawl, launched their products. Yahoo!, which earlier this week was acquired by Verizon, was at one point valued at $128B USD. It also had in its early days a superior search product. Three years later it’s 1998, Google comes in, and the rest is history (funny side note, Yahoo! had a chance to acquire Google for $5B but passed).
What did Google do right that the others did wrong? The code behind Google had already existed prior to its launch, but Google decided to hold off a bit, unlike its competitors. Why? Well in 1995, equipment was too expensive and and connection speeds were too slow for anyone to really use the net outside of institutions. Google strategically decided to wait until Larry and David felt the market was ready. In 1998 the internet was just starting to reach critical mass, the 56k modem came standard with home PC’s and overall connectivity was cheap at about $19.95 per month. The timing was right; Google capitalized on it.
There are countless examples of 1st movers failing. In 1996, GM launched the EV1, it was the first mass produced electric vehicle and it failed. Today Tesla founded in 2003 just a few short years later has a market cap of about $34B, GM’s $47.5B. The list goes on.
What This Means
The point I’m trying to make is that first-mover advantage is overrated. Yes, at times one can reap the benefit of first-move advantage by gaining monopoly-like status on a market. But that success may be short-lived (again, think Yahoo!). More often than not, sustainable success boils down to market timing and sound strategy.
So the question entrepreneurs should really be asking themselves are: Is this the right time? Are we ready to launch? is the market ready? Are consumers ready for what our product has to offer them?
And to close, I will quote a friend, David Masó who recently told me during a chat “The good entrepreneur is he that resists and pursues their dreams in a smart way.”
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