Mar 26

On the First Mover Advantage

Questioning the wisdom of conventional axioms in early stage companies.

Many entrepreneurs believe they have a “first mover advantage.” While this phrase is regularly overheard in entrepreneurial conversations and stated in venture capital pitch presentations – it is often misunderstood.

Truthfully, the first mover may or may-not be in an advantageous position. In the Harvard Business Review article, The Half Truth of First Mover Advantage, Fernando Suarez and Gianvito Lanzolla argue the technology innovation trajectory and the speed at which the market is evolving determine if the first mover has an advantage or a disadvantage. Understanding these two factors can have a profound impact on a company’s product development, operational, investment and marketing plans.

While a first mover may have a learning curve cost advantage, meaning it may learn to produce the product at a lower variable cost faster, this advantage is often not sustainable. Over time, this may become a disadvantage as competitors have newer and potentially more efficient production technologies.

Business history provides many examples of industries where the first mover did not maintain a sustainable competitive advantage, including search engines, automobiles, the VCR and the PC. Clearly understanding competitive advantages and disadvantages is an important step in long-term strategic planning. Overusing catch phrases and axioms without thorough and thoughtful research can have a negative impact on the company’s long term viability.

— Ryan Orton

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