The Real Dynamics Of First-Mover Advantage

Mick Liubinskas (Co-Founder and Web Product Director of Pollenizer) wrote a piece today on ReadWriteWeb as part of their ReadWriteStart channel that had some great points about the realities of “first mover advantage” that I’ve heard echoed by many battle-hardened internet entrepreneurs. The post is titled First-Mover Advantage Is About Compound Interest, Not Market Share. Here are some of best nuggets:

Typical “Eureka!” Moment Thinking That Gets First Timers Into Trouble…

Typical Thinking (vs)

“I’ve got an idea that no one has ever thought of. I’d better not tell anyone because as soon as I launch it, everyone will copy me. I’ll develop it in secret, and then when my vision is ready, I’ll launch it with great gusto and have a big sales and marketing campaign ready to go to snap up customers, who are all going to flock to me.”

Typical Reality

You’ve got an idea that 100 people have had, 10 have already started working on, and probably a few have failed at. If you don’t tell anyone or are so excited that you don’t do your research, you won’t find out about the 10 who have started working on it. You also don’t invite 100 experienced people to help you refine your product, all of whom are far too busy to steal your idea anyway. You develop it in secret, and then 30 seconds after you finally launch, 50 people tell you about little things that are broken or need tweeking (a “tweek” being any change that you think will take two hours but ends up taking two weeks: tw(o) (w)eeks, get it?). You spend the next 6 months scrambling to get the product up to scratch. Customers don’t come flocking. They come dribbling in like glue-covered sloths, whinging about every little thing you’ve missed.

Myth:  First Movers Have It Easier. Truth: It Should Be Called “First Mover (Dis)Advantage”

I always liked the saying that the early bird gets the worm. However, the second mouse gets the cheese. Breaking new ground means that you get to be the first one out there, but it also means you have no paths to follow, no wisdom to heed, and no mentors to be mentored by. You have to hack that sucker open. It’s harder. It really is.

Compound Interest Is About Education, Refining and Iterating

[First Movers are also] the first one to make [the big] mistakes, and so you’re the first one to learn the lessons…Keep your eye on your customers and their problems. Keep your eye on your metrics. Keep testing. What’s working? What could be better? What’s evolving now, and what will always be evolving? You have the opportunity to stay in front, and you have the challenge to not get caught up juggling those many brightly colored balls.

Like most good things, compound interest benefits from education. Everything you learn builds on and adds value to everything else you’ve learned. It expands, clarifies, and refines it and makes it better. If you pay attention and really test, watch, observe, and listen with an open mind, then you won’t have to learn a lesson more than once. Learn it, add it to your knowledge pile, and move on to the next lesson.

Time Is The Most Important Variable

The most crucial variable in compound interest is time. Initially, compound interest doesn’t appear to have much of an effect. It’s only over time that you start to build momentum and see the big positive impact. So, the longer you stay around, the better you’ll get. This is tough for young companies. They’re usually very short on money, which makes them even shorter on time. There is no avoiding it, though: you need enough time to make enough mistakes to become great…If you move into a new space, the market normally takes as long as you do to mature enough to become really profitable. Keep your team focused, be patient, create value, test, test, test, and you’ll get there. If your instincts are as good as you think they are, then it will come… if you can stick around long enough. Invest today.