Advantages of Being Second: Explanation, Causes
Facing First-Mover Misfortunes: Why Being First Isn't Always Best
What's it: First-mover disadvantages refer to the challenging circumstances that can come with being the initial player in a market. Here's the lowdown on first movers and why they don't always have it easy.
The Perks of Being a Pioneer
Being the first on the scene has its benefits. The pioneer tends to snag a healthy market share due to a longer build-up of a customer base, enjoys high customer loyalty due to a strong company reputation, and benefits from more intensive distribution networks. Plus, first movers often forge long-term relationships with suppliers, snag quality inputs at pocket-friendly prices, and learn like a pro from experiential effects and the learning curve.
However, not all these perks last forever. Later entrants, known as followers, often learn from the mistakes of first movers and may end up more successful.
Why Being a First-Mover Isn't Always a Good Thing
High Startup Costs and Uncertainty
First movers bear the brunt of substantial upfront investments required to develop new markets. They gotta start technology, build distribution channels, and educate consumers. This can be a costly and time-consuming endeavor.
But let's face it — buyer loyalty towards early products is often weak. Customers may be more satisfied with follower products and gravitate towards them.
Costly Mistakes and Lack of Certainty
First movers are more likely to encounter mistakes as they wade into uncharted waters. The risk of rejection is high, as consumers are hesitant to try new products. However, the number of risk-takers — innovators and early adopters — is usually small.
Imitation of Skills and Knowledge
Followers can easily copy the skills and knowledge that first movers invested a pretty penny in. They can learn from first movers' mistakes and refine the product or sales strategy. By the time they arrive on the scene, they often offer superior products to capture more market share.
Older Technology and Slow Innovation
If first movers focus too heavily on older technology, followers can seize the day by taking advantage of the latest technology.
Wrong Focus on Strategy
First movers may direct their resources and capabilities towards the needs of innovators and early adopters. Conversely, followers may focus on the early majority, who represent a larger portion of the market. This can help followers rapidly acquire a large customer base, leading to high sales volumes and economies of scale.
Industries like nuclear energy, advanced technology adoptions, fast-moving tech and customization-based service industries, and others with high innovation and a fragmented market, demonstrate clear examples of first-mover disadvantages. Followers can benefit by learning from pioneer failures, adopting improved technologies, reducing costs, and refining market strategies to outpace the first movers.
Investing in a business as a first-mover can present some significant challenges, such as high startup costs and uncertainty, costly mistakes, and the risk of imitation. Conversely, followers can learn from the mistakes of first movers, leverage newer technology, and refine strategies to ultimately capture a larger market share. In the realm of finance and investing, understanding these first-mover disadvantages is crucial when evaluating potential investments, particularly in industries characterized by high innovation and a fragmented market.
