First mover or fast follower for entering new markets?

Different studies in back-to-back issues of The Harvard Business Review make conflicting claims about the importance of being the first to market. Can they both be true?

In the article Being Early Beats Being Better, Henrich R. Greve, professor of entrepreneurship at INSEAD, and Marc-David L. Seide, associate professor of organizational behavior at the University of British Columbia, make the case that being a first mover provides significant competitive advantage.

The key points in their argument include:

• First-to-market companies establish customer relationships and can recover from technology stumbles. They cite McDonnell Douglas’ DC-10 which was inferior to Lockheed’s L-1011 TriStar airliners, but first to market. It kept its market share despite having a number of technical issues in production because airlines were already committed to the DC-10.
• Although businesses are supposed to make rational decisions they often behave like consumers, especially with new technologies where there is limited information about the technology and vendors. They look to see what other companies are using – if one technology or company appears to be gaining momentum they assume there must be a reason behind it.
• As markets play out over time there are a chain reaction of events that makes it easier to stay ahead if you are already ahead.

In Get Ahead by Betting Wrong, J.P. Eggers, assistant professor of management and organizations at NYU’s Stern School of Business, argues that for companies in technology fields coming from behind provides a long term competitive advantage. His examples include the classic Betamax vs. VHS and flat screen displays where the companies that had originally bet on the wrong technology (plasma) were able to play catch up and become leaders in the LCD space.

Mr. Eggers believes being the second to market provides two advantages.

• By not committing to one technology the company can watch the market to see which looks like it will win out and then go full-in on that technology. When companies make major commitments to a technology direction too soon it is difficult to change directions if market dynamics demand it.
• Playing catch-up forces a faster learning curve and enables the company to take advantage of the first mover’s learnings and mistakes. They can also take advantage of the market opportunity that the first mover creates.

We believe there is an explanation for the success of companies in both sets of research that has little to do with whether they were first to the market or came to the market later with a better product. Successful companies are the ones that have a better understanding of the market’s needs and dynamics than their competitors. Business do not make buying decisions in a vacuum of when a product is introduced or its technology. They select products and vendors based on which best fits their business needs.

McDonnell Douglas understood that its customers were not just buying planes. The planes and when they were delivered had to fit into the airlines overall strategic plans and operations. Having the planes sooner was more important than receiving a technically superior plane later. They also likely recognized that although complex products have thousands of features and benefits most purchase decisions are driven by a limited set of basic criteria and set out to meet those knowing they would have time to address the weaknesses they had in other areas.

Many software start-ups are first movers but fail to capitalize on this status. They invent the category and experience a growth spurt of early adopters. Their growth typically stalls as the market matures. First movers and their early adopter customers focus on innovative technologies. The mainstream market has a different set of needs, such as ease of use or integration with existing systems, which is better met by vendors later to the market. First movers fail to “cross the chasm” because they fail to lack understanding of why the mainstream market buys within the category. The Minimum Viable Product approach that has grown in use over the last few years mitigates this pitfall by providing market feedback before significant time and money are invested in a fully-developed product.

As a go to market strategy being a first mover and fast follower can provide significant benefits. However, as you sprint to the finish of a new product introduction your long term success will depend more on your understanding of the market’s needs than when you enter the marketplace.