Good Business Ideas

Does First Mover Advantage Exist?

Written by James Garvin for Gaebler Ventures

Does your business have to be founded on a new idea? What if there is already a business out there doing what you want to do? Read about the First Mover Advantage. Find out if it is essential to be the first business to market.

Everyone has heard of the first mover advantage. It states that the first one to market with a new product will become the market leader for that specific product.

First mover advantage is for the most part a fallacy. First mover advantage only exists when the first mover is the mover who is the first to execute a specific process properly, not the first to market in a given industry.

Take Webvan, for example. Webvan was the first company to build an online grocery store, looking to forever change the way the world shopped for its groceries. Webvan raised an astonishing $1.2 billion in Venture Capital and even went public in 1999. It took merely 2 years for Webvan to go into bankruptcy and shut its doors.

Meanwhile, Tesco launched its internet grocery business in 2001, right when Webvan was undergoing bankruptcy. Today, Tesco is one of the largest online grocery stores with nearly $1 billion in sales through their online channel that finds itself well positioned to capture the growth of the market share in the online grocery store business.

How could one company with $1.2 billion in funding and be first to market go out of business in just 2 years, while another company launching only 2 years later see it's online grocery store business thrive? Tesco was simply the first company to execute the process properly.

Many times you hear people say that they have a great new idea for a business, but won't pursue it because a similar business or product already exists.

Laptops were around well before Dell entered the scene with its built to order laptops and today is a leading provider of computers and electronics. Dell was certainly not first to market, but they saw an opportunity to change the business processes to deliver laptops to consumers and executed perfectly.

Most thriving businesses in this decade have become successful, not from inventing a new product, but from new business innovation, by changing the rules of the game for a particular industry or product, much the way Dell did for laptops.

Southwest airlines is another classic example of a company that changed the rules of the airline industry by creating a point to point short-distance route map focused on quick turn-around time that disrupted the well established hub and spoke model of the giant airline companies. Today, Southwest is one of the few profitable airlines, even in the economic downturn. Southwest, was not first to market to offer commercial aviation, they were simply the first to execute a different operational strategy in the airline industry.

Next time you evaluate your business idea or business strategy, do not be discouraged because you are not first to market. Evaluate the opportunity to innovate your business processes in ways that existing competitors cannot compete. Look at how current competitors operate and find ways to exploit chinks in their armor.

James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.

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