As a business owner, one of the most important decisions you will make is deciding whether to be the first mover in your industry. Being a first-mover has its ups and downs, as does any other decision. However, suppose you consider all the benefits and risks of being an early entrant into a market. In that case, it may help you decide whether it is a good strategy for your company.
What Is a First-mover Advantage?
A first-mover advantage is when a company succeeds because it was the first business of its kind. This often happens in new industries where the value of being an early entrant outweighs the costs.
First-movers can recoup their initial sunk capital and start making profits years before their competitors enter the market, if at all. To take advantage of this opportunity, companies need to be willing and pay the price for being an early entrant into a market.
Benefits of Being a First Mover
According to research conducted by the University of California, Berkley, there are many benefits to being a first mover in an industry. Here are some of the biggest pros:
1. Better Chance at Winning –
The more competitors you have in any particular market, the harder it becomes to win business from consumers. Research shows that when another competitor enters into an industry with two major players, there is only a 30any once that anyone company will achieve leadership within five years. As a result, if you enter an industry with no other direct competitors, you will see your chances of becoming #1 in that market.
2. First-to-Market –
New entrants into a mature industry tend to have the opportunity to learn from the mistakes of other companies in their space while being able to avoid pitfalls associated with being “first” in an entirely new product category.
3. Brand Building –
Early movers gain exclusive rights when using proprietary names, symbols, logos, or slogans in their industry when they are the first company to introduce a specific product or service under these differentiating factors.
4. More Time for Planning –
Being a first-mover allows you enough time for research and development before serving your customer base, which means that you can produce the highest quality products available when you launch onto the scene later down the road.
Risks of Being a First Mover
Being a first-mover in an industry can be a blessing and a curse depending on the circumstances. Here are some reasons why being the first company in your market might not be so great:
1. Risk of Failure –
Although benefits often outweigh the risks, you will face more significant challenges before entering a foreign market. If you choose to become a pioneer for that particular product or service. For example, when IBM was the first company to release its personal computer. They received much criticism from analysts. And other experts believed that “no one” would want to own a machine that didn’t have all of the hardware features. Found on more giant computers used by businesses at that time. Today, IBM is doing better than ever, even though they were the first mover.
2. Performance –
According to research conducted by the University of California, Berkley, the average first mover. Into an industry tends to take about ten years before achieving any success. This means that if you are not financially stable (or patient enough) to wait it out for this long. Then entering first might not be the best idea for your company at this time.
3. Too Much Competition –
The same study found that once two or more competitors enter into an industry. Where there was only one dominant player initially, most new entrants (67%) fail within five years. Even though they may have an opportunity to avoid some of the mistakes of previous first movers.
4. Legal Issues –
When you become a first mover in your industry, you will be the subject of everyone else’s research. And potentially “steal” ideas from other companies. That had been working on their projects before you entered into an emerging market.
5. Funding for Research & Development –
Although being the first company to develop new products or services may give your business some exclusive rights. It is also more expensive to do so when you are in a brand new category with no one to copy from at the beginning stages of R&D (research and development). Keep these risks and benefits in mind. When deciding whether or not your company should enter an industry-first or later on down the road.
How to Gain a Competitive Edge in Your Industry With the First-mover Advantage?
1. Create a Unique Selling Proposition (USP) –
Your USP needs to be fresh, innovative, and distinct for you to have the best opportunity of being the first company in your field.
2. Keep Innovating –
Without an ever-changing business philosophy responsible for creating new products or services that your customers appreciate, you will lose out on opportunities to gain significant advantages over others in your industry when it comes time for them to enter the same playing field as yourself.
3. Business Size Matters –
The bigger your company is, the more resources you will have to get your business off the ground and run in an industry where it is difficult for smaller companies to compete against giant corporations.
4. Networking –
Since you will already be known for being one of the first movers into a new field, networking with potential customers interested in what you offer will make it easier to connect with them later on down the road when other businesses start joining you in that market space.
5. Perfectionism Isn’t Always Good –
Being overly perfectionistic about every aspect of how products or services are developed can also prevent you from progressing. At the same time, everyone else catches up to where you were during the early stages of R&D for your industry.
6. Stop Trying To Be a Hero –
To get ahead, you need to focus on building solid relationships with customers and clients to keep them coming back for more. If you try too hard to be the best at everything all the time, you will start losing customers and money in the long run.
7. Know Your Industry –
Without knowing what is going on in every facet of your business, it will be impossible to compete against other companies that have been around for much longer than yourself, who may already be gaining financial benefits from having years worth of experience within their niche markets.
Points To Remember Before You Enter the Market as a First-mover:
A. Know the Industry and Know the Customer –
This means that you should conduct a thorough research about the industry, especially if it is an entirely new market for you. What do customers want and what do they not?
B. Be Prepared To Invest Heavily in Infrastructure –
If your product or service requires an infrastructure before it can be made available to customers (say, a factory), you need to make sure that you have this prepared before breaking ground.
C. Be Ready To Face Competition –
Although there are many reasons why being the first mover helps, remember that competitors eventually catch up and use their marketing skills against yours.
D. Consider Partnering With Other Firms –
You might have a great idea but not have all the skills to make it a successful product or service.
E. Maintain Your Monopoly for as Long as Possible –
You will still benefit even if you lose market share later on, especially with the first points listed above.
F. Never Expect Your Competitors To Remain Quiet –
They will almost always try and copy you and come up with their unique ideas to gain customers.
Summary: First movers have an unparalleled advantage over late entrants in cost, information asymmetry, economies of scale, reduced competitive pressures, etc. However, there are many reasons why being the first mover is not necessarily the best strategy in every situation since prioritizing profits over customer needs is not always advisable; as a result, many first movers end up as the later entrants in some cases.
In addition, it is also essential to be prepared for stiff competition from other firms since they know your plans and might try to exploit any existing weaknesses of yours.
To truly gain a competitive edge in your industry, you will need to make sure that you have a well-thought-out USP that will intrigue potential customers into coming back for more.
Suppose you can develop innovative products or services that will be appreciated by buyers who want the best solutions possible. In that case, you will have a much easier time getting ahead of other businesses that enter upon your same playing field at a later time.