Ever Considered the 'Last Mover Advantage'?

Introduction

It is common parlance in business schools to hear about the first mover advantage and how being the first-to-market is the key to success. The logic is this: The first company to enter the market can easily capitalise on the absence of competition by establishing brand recognition, economies of scale and making it more costly to switch to another competitor. This, it is said, produces a competitive advantage that is difficult for other businesses to emulate.

That said, what if our logic on the 'first mover advantage' is wrong?

It might surprise you that household companies like Google, Facebook and Amazon were not the first-to-market. Despite this, they have still enjoyed radical success and enjoy monopolies in their industries to this day.

As I will argue, I think the idea of the 'first mover advantage' needs serious rethinking. Here's why.

Problems with the 'First Mover' Logic

Although first movers might enjoy having more space in markets because the markets have not been crowded with competitors, this in itself does not guarantee success. Here are a few issues with being the 'first' to move:

• You might be so ahead of your time that few people appreciate what you're doing. An example of this is Webvan which was a service that delivered peoples' groceries to them within a 30-minute window of the customer's choosing. Webvan filed for bankruptcy in 2001. It might seem hilarious today to realise that something like Webvan actually failed when Uber Eats and Menulog have become a part of our daily existence. However, "being right and too early is the same as being wrong." You won't succeed if there isn't any market need at a particular point in time.

• You're taking on most of the risk. While it might be exciting to forge the path ahead, don't forget that you're doing all the heavy lifting for competitors who can simply learn from you, copy what you're doing and avoid all your mistakes. You're opening yourself up to being imitated by competitors who can get to where you are in less time.

Why I Like 'Last Mover' Logic

In contrast to being the 'first mover', being the 'last mover' opens many doors and has many advantages. Here are a few:

• As hinted at previously, you get to learn from your competitors' mistakes. You don't need to do most of the grunt-work in learning 'elementary' things. Rather, you can observe what others in the space have done, copy them and avoid their mistakes. The more 'early movers' in the market, the more knowledge and mistakes you have at your disposal to build your business bigger and better than the others, all in less time!

• You take on less risk. You don't need to test a thesis to see whether a business idea will work; others have done that for you. If the first mover's timing was wrong, they're the ones that filed for bankruptcy rather than you.

• You're in a much better space to innovate. Unlike the 'first mover' who is building the first generation of product in the market, you'll be building the second, third or maybe even fourth iteration of the product. Already, you're innovating a better product with less time, resources or money.

• You can innovate faster and more effectively. Yes, it's true that the first mover may have captured a larger market share by the time you enter the scene. However, this says nothing about the first mover's cashflow or whether they have the capacity for future innovation. After a few years of being the first mover, the company might be fatigued or depleted of resources. In contrast, last movers can turbocharge their growth because they're avoiding mistakes already made and have more businesses to learn from. This way, last movers can grow exponentially.

Final Thoughts

It's time that we rethink first mover logic. Not only do first movers take on more risk as they 'plough the field', but they will also inevitably face competition from newer players in the market with potentially more resources and the capacity to learn from the first mover's mistakes.

Now, this is not to say that first movers can never enjoy business success. What I am saying is that strategically it makes more sense to be a 'last mover' in a market so you can enjoy success quicker, cheaper and more efficiently. This can often make a world of difference in start-up land.

References

[1] Gennaro Cuofano, 'Is First Mover Advantage A Myth? When The Last Mover Takes It All', FourWeekMBA (online, 27th July 2022) <https://fourweekmba.com/first-mover-advantage/>.

[2] 'Webvan', Wikipedia (online, 23rd April 2022) <https://en.wikipedia.org/wiki/Webvan>.