Study says being second to market may be best



A David Eccles School of Business researcher says when it comes to launching a new business, being the first to dive into uncharted marketing waters is not always the best move.

In his paper, “Legitimacy Vacuum, Structural Imprinting, and the First-Mover Disadvantage,” Stanislav Dobrev, a David Eccles professor at the University of Utah, takes aim at the “first mover advantage” mantra so common in business theory about the benefits presumed to come with being the first to market with a new product or service. The paper appeared in the October edition of The Academy of Management Journal.

Dobrev and his co-author, Boston University Management Professor Aleksios Gotsopoulos, maintain that too much weight is given to being the first out of the gate when predicting success for would-be market pioneers. The “first mover” imperative, they argue, may push companies to launch unwisely when other factors – such as under-developed corporate infrastructure and ill-defined or soft markets – may be unfavorable.

“This is a symptom of the very prevalent bias for success in our society,” Dobrev said. “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.”

Indeed, Dobrev argues, as much – if not more – can be learned by businesses considering new ventures 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.’”

Dobrev said savvy entrepreneurs benefit from studying first-mover failures. This “vicarious learning” advantage can identify common mistakes first movers make in either over-estimating demand for new services or products, or making fatal errors in gauging the technological challenges facing a new venture.

If not a first-mover, then what should new ventures look to do in hopes of increasing chances for long-term success? Well, Dobrev said, don’t rule out being a first-mover entirely; the odds for success are long, but solid market research and taking care to safeguard capitalization of your research and development investments can increase the odds.

Generally, though, “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,” Dobrev suggested. “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,’” continued Dobrev. “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.”