Last Mover Advantage

Last Mover Advantage

‘First Mover Advantage’ is an often-referred-to business concept - essentially it means that the first company to enter a market has a set of unique advantages. They can credibly claim they were ’the original.’ They should have more market knowledge than eventual competitors. They are able to begin finding customers before their eventual competitors even put their shoes on to run out the door. Generally, FMA is seen as a benefit and I personally think it is generally a good one. The trick is just not to get caught relying on this advantage too much! Simply because you’re the first one to the party doesn’t mean someone else doesn’t arrive wearing a much more fashionable jumper than you, after all.

In markets where there isn’t yet much demand for a good or service, often the first movers are the ones who end up paying the price for educating the market. Then they end up running out of capital altogether. This is what Peter Thiel of PayPal and Founder’s Fund fame writes about when referring to the ‘Last Mover Advantage.’ Sometimes it’s actually better to let someone else pay for the cost of innovation and then you can be prepared to take advantage of the market that’s already created.

Going first is straight up risky. It offers the biggest benefits but also the biggest downside risk. Imagine a forager back in the caveman days looking for berries. They are the first person ever to encounter this particular berry. They’re hungry. They eat it. Turns out the berry is poisonous. They die. Pretty rough life of an innovator, eh? Or maybe the berry was actually the most nutritious one in the land and that particular person and tribe benefitted immensely from it. We can’t know. But that’s the risk of being a first mover. You win or lose hard.

Examples in the business world might be Osborn Computer, VisiCalc software, eToys, or more recently Groupon or Blue Apron. You’re the first success in the space, but others come in and, in the case of Blue Apron at least, eat your lunch.

All the time and effort and energy you spent innovation others put into commercialization. For every 100 RMB you have, 90 goes into making a great new product. Once you’ve sunk all those costs in and experimented through trial and error, another person comes along and takes your product and spends 90 RMB of their 100 on making it faster, better, and cheaper thus leaving you with the ‘best’ quality product that reaches fewer consumer.

It’s said that Google is the ‘last search engine,’ for example. There were plenty before it: many of us probably remember the pre-Google days: Lycos, Excite, Yahoo, WebCrawler(!), and more. But now everyone converges on Google, because they solved the problem the best and now they have a near monopoly on internet search in the countries in which they operate.

In China this dynamic is even more pronounced. Many companies here have no compunction whatsoever about copying and out-executing. Innovating on the business model with the same core product is a competitive strategy of countless internet companies.

Unless we continue to iterate and improve the way we do business, it’s possible that LearningLeaders might too become a victim of First Mover Advantage. Let’s embrace the changes that are to come. It’s not whether we like it or not. It’s whether or not they are necessary for us to survive and thrive.