At Tau and repeatedly over my career, as an operator, entrepreneur and investor, I have been extolled the virtues of first-mover advantage. And my counter-argument is that it makes sense, but only in very specific cases. Overall the world is much better suited for innovation rather than invention, and this post is a homage indeed to second-mover advantage.
1) Why Not First-Mover? The Market Is Scarily Yours To Tame
As a first-mover you have to potentially educate the market, convince investors, build the supply chain, and get to scale when it is much less tested, just to name a few. In fact, for the vast majority of technologies a second-mover or even a late-mover is the one who won. Nikola Tesla’s alternating current won over Thomas Edison’s direct current. VHS beat out Betamax. You could argue that the competitors were fundamentally different tech – and you would be right in a certain way. When there is enough tech differentiation then late entrants can and often do indeed beat out first movers.
But whether it’s incremental or disruptive innovation, many ideas come up over and over till the timing is right. Take cell phones – from the first patent (1917) to the first demonstration (1973) to the first commercially available (1983) to the first iPhone (2007) was a journey of 90 years. Could they have been created earlier? If the components could be sourced efficiently and bandwidth was available cheaply then sure. The iPhone arguably wasn’t an invention since the key features it showcased, including the multi-touch screen, had been part of other products. What it was is an innovation in that Steve Jobs’s genius and Apple overall struck the hammer when it was just hot enough. The nth-mover can indeed learn from the n-1 products that came before it and be better.
2) When Does It Make Sense? The Market Can Reward You Disproportionally
So is there such a thing as first-mover advantage at all? It is most prominent in networked businesses, an idea encapsulated by Metcalfe’s Law, which states the value of the network is proportional to the number of users squared. All social media platforms (Facebook, WhatsApp, Instagram, Twitter, SnapChat, TikTok etc) try to harness this – if you are using the platform someone else is more likely to join and you are less likely to leave. Same can be said for two-sided networks like Google (users and advertisers), Amazon (vendors and consumers) or eBay (buyers and sellers). So if you are looking to harness first-mover advantage go build a networked business, or vice versa.
Huge caveat: obviously there are other factors against this too, such as brand, feature parity and switching costs. Case in point, Google was the 17th search engine when it came out but it had a key invention around PageRank (how it displayed results), a clean UI and showing results very quickly. The combination of it all meant users migrated quickly to Google, but now that the platform is very entrenched it’s much harder to displace them.
3) First-Mover In An Accelerating World? Definitely A Limiter
The amount of data we are producing is growing exponentially. So is computational power. And of how fast tech is getting adopted, as the diagrams below show.
What does that mean practically speaking for entrepreneurs? That the first-mover advantage is increasingly rare. If the world moves faster then chances are you can stay ahead only through execution. And remember that first-mover advantage is simply not as relevant in markets that are so big for multiple winners. It’s arguably the norm, it’s just our perceptions are often dictated by consumer startups which grab disproportionately the headline. Bottomline: don’t worry if you are not the first right now, what you need to make sure is the track is long enough for you to run a splendid race.
Inspired by several conversations, latest with Ananya Zutshi. Originally published on “Data Driven Investor”. Amit is Managing Partner and Cofounder of Tau with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read). See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).
