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Lead Your Team Strategy

Being First to Market Rarely Pays, Researchers Find

Sometimes second place is the winner. Research by two university professors rebuts the “first-mover advantage” theory, which holds that it is best to be the first to market with a new product .

Instead, waiting and learning from the leaders’ mistakes can be a more successful tactic, the researchers say.

The best time to enter a new market "is usually right after the first movers have failed and when you have the experience of others to learn from,” said Stanislav Dobrev, a business professor at the University of Utah. “Think about computers like the Commodore and the Tandy or Internet browsers like Netscape. Where are they now? In most industries we never hear of the first movers because they are short-lived, obscure firms.

“A successful strategy is about fit, not functional excellence,” Dobrev added. “Entrepreneurs need to resist the temptation to be first to market based solely on a terrific product, an ingenious marketing strategy, or exclusivity in distribution channels. To be a successful ‘second mover’ means having all those things in place and making sure that potential customers, investors and regulatory agencies share some common understanding of what their business is all about.”

Dobrev and his co-author, Boston University management professor Aleksios Gotsopoulos, maintain that, when predicting success for would-be market pioneers, too much weight is given to being first out of the gate.

The “first mover” imperative, they argue, may push companies to launch unwisely when other factors are unfavorable, such as underdeveloped corporate infrastructure and soft or ill-defined markets.

“This is a symptom of the very prevalent bias for success in our society: 'If you end up being the first, then you end up being successful ... breaking through the scale where others are less likely to follow you,'” Dobrev said.

Dobrev said entrepreneurs considering new ventures can learn much by studying first-mover efforts that failed. “For example, there were 20 or so firms which initially toyed with the idea of making an automobile, but only a few were successful – and they were not the first movers.”

This “vicarious learning” advantage can identify common mistakes first movers make in overestimating demand for new services or products, or failing to accurately gauge the technological challenges they face.

However, Dobrev warned against entirely ruling out the opportunity to be a first mover. The odds for success are long, he said, but solid market research and taking care to safeguard capitalization of your research and development investments can improve your chances.

The paper appeared in the October edition of The Academy of Management Journal.