The pressure of being the first company in your industry is indeed taxing. However, many benefits can come with dominating a new market. First movers get an opportunity to define the market and set the standard for how it operates before anyone else comes into play.
Being able to establish your new business as the leader often provides these very profitable rewards:
1) Market Leadership & Brand Recognition –
The number one priority of any business is to make sure they remain competitive and relevant in their respective industry. If you want to be at the top of people’s minds, branding and marketing become critical success factors for growing a brand. It will take time, but if you’re consistent with putting out great products and services while establishing an excellent brand image, people will begin to remember you and your top-notch business.
2) High Margins & More Profit –
As a first mover, the competition is still non-existent, which means you pretty much have the market all to yourself. Even if you don’t come up with some revolutionary idea that changes the world, you’ll still be able to get away with charging premium prices for your products or services simply because there isn’t anyone out there who can undercut your price and take away from your margins. The high demand and low supply of having no competition allow businesses like this to make more money than their competitors would in a truly competitive market.
3) Low Risk & Minimal Competition –
As we have seen in many industries, being a first-mover means you have the ability to enter a drive while it’s still young and growing. You’ll be able to get in on the ground floor before any competitors can impede your operations or take away from your market share. If your new business turns out to be a bust, at least you didn’t put all of your eggs into one basket and spend years working on something only for someone else, later on, to come and destroy it.
4) Stable Revenue Streams –
It’s always good to have a steady source of revenue. If you are a first-mover advantage becomes successful, that means you can continue expecting consistent sales year after year without having to worry about other companies coming into the industry and squeezing out your profits.
5) You Don’t Have To Compete On Price –
Since there is no competition within the market, chances are your product or service will be seen as superior by new consumers entering into the space, which means you won’t have to worry about competing on price. If you’re the only game in town, anything you charge is essentially what the market will bear.
This means that your profit margins will be much higher than they would be if new businesses were entering into the space and trying to undercut one another while charging just enough so that they can turn a profit.
6) You Might Get Lucky –
It’s also always good to get lucky! Even if you have entered the industry at its peak in terms of growth, there’s no guarantee it’ll stay in this position forever. Maybe once everyone starts noticing how great your product or service has become, customers might begin flocking towards your company because of some intangible factor they can’t quite put their finger on.
Almost every industry has that one company that emerged seemingly out of nowhere to become a significant player. In most cases, these companies either have a great product or service and find themselves in the right place at the right time. In either case, distinguishing yourself from your competitors by being the first mover gives you a good shot at gaining a loyal customer base before everyone else can even enter into an industry.
For example, consider .com companies launched in the 1990s and became household names shortly after going public via Initial Public Offering ( IPO ). Pets.com and Webvan found themselves struggling very soon after their IPOs despite being popular with customers.
In this case, it turned out that these new businesses needed much more capital than they thought to stay afloat as demand for their products began to drop off due to increased competition. Although they may have done exceptionally well for themselves had they been able to survive independently, these examples prove that first movers do not always have the advantage.
“Being a first mover is something you need to consider carefully before entering into any kind of industry since there’s nothing more embarrassing than being the only business in your field that never turned a profit.”
First Mover Advantage vs. New Technology
First-mover advantages are only beneficial if they are sustainable over time. It may be difficult or even impossible to maintain dominance in an industry against new entrants with certain types of technology. For instance, BlackBerry dominated the smartphone market for business users throughout the 2000s but could not hold onto its position once Apple introduced its iPhone in 2007.
In BlackBerry’s case, they had a very high customer acquisition cost because their devices were so expensive. Once Apple introduced a much less costly smartphone (and also advertised its multi-purpose uses), customers began to flock towards the iPhone’s capabilities at a lower price. While BlackBerry still exists today as a brand, it has been relegated to niche markets where users prioritize security over advanced capabilities.
“First mover advantage is only applicable if you can maintain your business operations without too many changes.”
While first movers often enjoy certain advantages in new industries, there are also significant risks in being the first company to enter an industry. Suppose you fail to make suitable investments or do not correctly anticipate changes in consumer behavior. In that case, you may find yourself playing “catch up” as other businesses come to dominate your industry.
Before its bankruptcy in 2008, Blockbuster dominated the home video rental market for over two decades. However, many of its customers were increasingly choosing to use services such as Netflix that offered lower prices and more convenience. As a result, Blockbuster could not maintain loyalty among its customer base and eventually became unable to compete with more advanced forms of technology.
First mover advantage is only applicable if you can maintain your business operations without too many changes. Suppose any fundamental changes occur with either your product or consumer behavior.
In that case, it is best to be the second company to enter your market to avoid competing against more established businesses, which can hurt your chances of success. It makes sense why there are very few first movers in today’s markets because nobody wants to take the risk associated with being a pioneer in an uncertain space.
On the other hand, it is possible to be a first-mover even if you enter an established market. If no dominant companies are establishing themselves within this space or if you think that your product or service can capture a specific sector of consumers, the first-mover advantage might provide you with enough leverage to become one of the more successful early entrants in your industry.
However, instead of looking at how first movers have dominated existing markets, it may make more sense to focus on how new industries emerge, which provides brand new opportunities for everyone involved.
First Mover Advantage is not limited to business; we see it these days with people branding themselves as early adopters of technology. They begin using the latest gadgets and software long before anyone else does.