Tuesday, July 25, 2017

In the Battle of First-Mover vs. Superior Product, Which One Wins?

You've probably been there...

Moved by an idea for the greatest product or service EVER. It may have been in an inspired moment while daydreaming or reading an interesting article. Or playing corn hole. Because that’s how ideas work. They show up when they feel like it.

If it’s a truly brilliant idea, you might have shared it with friends. And if they thought it was killer, you may have considered trying it out on Shark Tank. But you more than likely didn’t. Because if you did, and the big rollers bought into it, you wouldn’t be reading this right now but rather sitting by your pool and soaking in all the riches that come with the first-mover advantage. But then maybe you wouldn’t.

Because while the first-mover advantage does exist, it depends on a lot of factors. 

Depending on the situation, it works out great for some companies. But for others, not so much.

First-mover advantage is defined as the ability to edge out the competition as a result of being the first to market in a new product/service category. And sometimes it works. But it’s not enough to just cruise in with your dazzling new product, win over a bunch of people, then kick back and think you’ve got it made.

The idea is to become a durable first-mover vs. a short-term one. The durable first-mover will produce results that improve a firm’s market share or profitability over a long period of time. The short-term one is a flash in the pan and will soon be challenged and maybe even consumed by the competition.

There are two factors that influence the fate of the first mover. 

They are:

- The pace at which the technology of the product is evolving.

- The pace at which the market for the product is expanding. 

In other words, the success of the first mover relies on an understanding of how fast or slow the technology and the market are moving, and knowing when to strike. (When the coals are hot, ideally.) 

The evolution of technology.

Advances in technology happen at different rates in different industries. Take glass, for example. The first manufactured glass showed up around 3500 BCE when artisans were making glazes for ceramic vessels. Some three million years later, glass blowing came along. It then took another 1600
years before there would be lead glass. Meanwhile, a computer from thirty years ago looks like it should be in a museum of ancient history. 

And then there’s the WAY these technologies evolve. Things like computer processors evolve in a series of incremental improvements. But then there are other examples where the evolution is disruptive. This was the case with digital photography when it began to displace film. 

Basically, the faster or more disruptive the evolution of technology, the bigger the challenge for any single company that hopes to control or dominate it. The product or service can quickly become obsolete. 

But if the pace of change is more gradual, it’ll be harder for later entrants to differentiate their product. And even if they do, the changes aren’t fast enough to prevent the first mover from getting a mastery over its product and then putting it in the product line in a timely way.

Market evolution.

Market evolution can vary as much as the pace of technological evolution. For instance, look at the phone. It took 50 years for fixed telephones - you know, the old fashioned kind that are tethered to the wall - to reach a household penetration of 70%. Cell phones mastered the same feat in a mere 20 years.

When market growth moves at an initially slow pace, the first mover has time to cultivate and satisfy new market segments. Thus, it tends to favor the first mover. But if the market evolution pace is rapid, then long-term dominance is unlikely. A fast-growing market fosters the opening of competitive spaces for later entrants to exploit. This puts the first mover at a disadvantage because it often lacks the production capacity or marketing reach to serve this expanding customer base.

Still, a first-mover could get some worthwhile short-term gains in this situation, as long as it knows when to exit stage left.

And the more a product or service strays from the existing products or services, the more uncertain will be the pace of the market’s growth and its eventual shape.

Breaking it down.

Ultimately, a company will have the best chance of becoming a durable first-mover when both the pace of growth in technology and the market are slow and gradual.  Resources like product development, production, marketing and branding will not be as critical at this point - though having these in place could definitely up the ante.

But even under these so-called “perfect” conditions, there are still three things that a first-mover should consider - depending on the product or service.

1. Where applicable, create a technological edge. The first-mover doesn’t have to face competition (yet), so they have the luxury of time to gather and master technical knowledge.

2. Get primary access to scarce assets that later entrants will want. These could be things like a prime location, great suppliers and talented employees.

3. Build an early base of customers who would be highly unlikely to switch over to a later entrant because it would be too inconvenient or costly.  

Two companies took distinct advantage of this knowledge.  

Coca-Cola and Hoover admittedly got in at a good time, so they already had that going for them. But they knew how to build that early base of customers and, in Hoover’s case, get the technological edge. By a long shot.

So while today Dyson may arguably make a better product, it probably won’t put Hoover out of business any time soon. If ever. In fact, Hoover is such a durable first-mover, the good people of Britain use Hoover as a verb. As in, “Jolly good day to hoover the rugs.”

And having your company name transformed into a British verb is a real testament to the durable first-mover advantage. Wouldn't you agree?