Second Mouse Gets the Cheese

06/01/2013 @ 5:21PM

Racing

Image courtesy of Rick Takagi and Flickr.

Strategy professors seem to love the first-mover advantage (FMA). I’ve encountered this phenomenon in both undergrad and grad school curriculum alike. The idea is that because a company is the first to enter a new market, it benefits from being the sole incumbent in a fresh, emerging industry.

Yes, there are instances where it helps to be the first mover. As a first mover, if you suspect you're in an industry that benefits from network externalities, it makes sense to focus on bringing people over to your platform first. Also, second movers are often forced to expend their resources toward convincing customers to switch over to them. Every industry is different, and some of them are more susceptible to benefit from FMA than others.

But there are many instances where first movers fall by the wayside. Often, the first iteration of a product doesn’t hit home with customers. Once the firm discovers what does sell, it has already sunk time and money into development. Second movers have the luxury of knowing they’re expending their energy on a market that actually exists. Second movers are also able to perform research on the industry created by the first mover to garner their own unfair advantages. What customer needs may still be unfulfilled? What is the incumbent doing that I can do better?

I’m not the first to make this argument, and many students of strategy will already be familiar with the second mover disadvantage. For startups, it’s important not to fall into the trap of believing the fact that being the first mover is of profound benefit. Chances are, someone has tried it before. In fact, you should probably be worried that there are no rivals within your space - it may mean that you’ve chosen a market not worth addressing. 

It's not the first movers who often prevail, it's the movers who best addresses customer needs. We’ve seen this happen time and time again.  Atari, even though it was the industry’s first mover, was displaced by Nintendo. Myspace, meet Facebook. BookStacks, meet Amazon.

Hopefully, the day will come when the FMA isn’t thrown around in strategy courses like it’s ironclad and bulletproof strategy.

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Chris Marin

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