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- Startup Myth: Is it Better to Be First to Market or Not? - June 2, 2020
The following is an adapted excerpt from “Startup Myths and Models: What You Won’t Learn in Business School.” Published by Columbia Business School Publishing. Copyright © 2020 by Rizwan Virk.
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You have to be first to market is one of the most persistent myths in the startup world and also one that is most often shown to be wrong.
Why does this myth persist? Because there are often advantages to being first, especially if you can establish yourself as being synonymous with a newly emerging market.
Unfortunately, there are often some disadvantages, as nascent markets often evolve and merge with other rapidly emerging markets, and navigating these waters can be difficult as new competitors learn from what you have done to date.
Understanding this myth isn’t so much about not being first; rather, it is about understanding the advantages and disadvantages of entering a market at a particular point in its evolution.
Second (and third) movers who dominated
There are many well-known examples of companies that were not first to market, but that came to dominate their markets. In fact, the history of the tech industry is full of these kinds of stories, such as:
Google wasn’t the first search engine for the web. In fact, some estimates say it was the 18th major search engine. But because of its algorithm, Google was able to convince customers that their search was better. Their success as a business didn’t really happen until they added search-based keyword advertising. This was an idea that was already in the market (having been pioneered by guys at Idea Lab), but Google was able to build a killer business with it, effectively overtaking rivals such as Yahoo, Excite, and Altavista and more or less cornering the web search market.
Facebook wasn’t the first social network. It wasn’t even the first successful one—both Friendster and MySpace had considerable success (MySpace was sold to Fox for over $580 million). Both Facebook’s early focus on a single target market (college students) and its ability to build network effects from those users as they graduated from college, combined with a clean user experience, helped it become the dominant player in the web 2.0 world and the world’s dominant social networks.
These are, of course, very famous examples that most tech entrepreneurs have heard of. In each of these cases, the eventual winners weren’t the first movers, they were often the first movers that did x. What is x? It could be a product approach—building from the ground up for a new platform/hardware—or even a new marketing approach.
Part of your task as an entrepreneur is to figure out what x is in your market.
Let’s delve deeper into lesser-known examples for insights that might be useful in new startup markets.
Path of a DiVA: A small, second mover
When I first graduated from MIT, I joined one of the very first startups to emerge from the MIT Media Lab, called DiVA (Digital Video Applications). DiVA made video editing software for Apple’s Macintosh computers, called Videoshop, which was optimized for working with Quicktime, Apple’s new video format.
DiVA Videoshop wasn’t the first video editing software that supported QuickTime. That was Adobe Premiere, which was DiVA’s biggest competitor. Adobe was a considerably sized company even in those days. They had introduced Adobe Premiere when Apple introduced QuickTime, and it quickly became the dominant player in the low end, newly emerging, digital video editing market.
There was another, higher-end editing platform already available on the market that was also built on the Mac—it was called Avid Media Composer, and it was meant to be an entire editing system for professional TV and film editors. Many TV show credits included the line “Edited using the Avid Media Composer.” It was a very expensive solution and not for “hobbyists.”
In those days, digital video was relatively new, and it wasn’t clear that ordinary people would want or need to do video editing. This was well before the days of YouTube (the internet was used primarily by academics, and the world wide web was still a few years away).
Did being second help DiVA?
By not being first to market, DiVA was able to build features and a user interface that let it leapfrog Premiere, and it was able to be a player in the low end of the market, for “hobbyists.”
However, the company was small and underfunded compared to Adobe. It ended up selling to Avid, the high-end player in the market, just before Avid’s IPO, and though the founders did well from the sale, the company never achieved market dominance.
In this case, it might have been better to be first, but not having as much capital as Adobe certainly played a role in its decision to sell.
When being first is actually better
The reason the term “first mover advantage” exists is that there can be advantages to being first. It really depends on the segment of the market you are attacking, the stage of that market, whether there is pent-up demand, and most important of all, whether you really take advantage of being a first mover.
Being first is a plus if you really take advantage of your position and watch how the market evolves.
In my very first startup, Brainstorm Technologies, we were the first to connect the products of the biggest PC software companies at the time, Microsoft and Lotus (Lotus later sold to IBM). There was pent-up demand, as customers had been asking Lotus for a way to use Microsoft’s Visual Basic as a development platform for Lotus’ popular Notes platform and ways to connect Notes to SQL databases.
We beat many of our competitors to market, and this allowed us to get traction. However, over time, we found that we had simply proved that there was a need for these tools to connect IBM products with other enterprise products. Seeing this opportunity, IBM eventually released its own toolkits and products for accessing Lotus Notes data by buying one of our competitors that didn’t have as much market traction as we did, but whose products may have learned from what we did in the marketplace.
So, it’s complicated. It depends a little bit on who the “later” competitors are, how much of a market lead you’ve gotten, and whether the competition is able to first match and then leapfrog your product.
Too early versus too late versus just right
So, is it better to be first to market or not? There is no single, best answer for every startup. The rules apply until they don’t.
If the market you are attacking is in the “nascent” stage, it’s possible you are entering too early. You are likely to be a pioneer if you grow fast when the market enters the “growing” stage.
Meanwhile, fast followers often enter during the “rapid growth” phase of the market and are able to establish serious traction quickly (because the market has been proven).
If, however, you start a company during the super-hot or maturing phases, it can be very, very difficult to catch up to first movers (or second or third movers that have displaced a first mover as a leader).
“Startup Myths and Models: What You Won’t Learn in Business School” is available now wherever books are sold and can be purchased via StartupNation.com.