The First Mover Paradox
When stamina is more important than speed.
We celebrate first movers – at first. But being first out the blocks doesn’t mean you win the race.
Facebook wasn’t first in social. Google wasn’t first in search. Tesla wasn’t first in EVs.
The paradox. Being first gets you attention, which can be exciting. But it usually means you are selling into a market that isn’t ready yet.
Before Facebook there was MySpace, Friendster and (going way back) Six Degrees. While MySpace still exists as a site, it doesn’t register as a platform. And Friendster and Six Degrees are gone.
Before Google, there was Excite, Alta Vista, Infoseek, Lycos, WebCrawler, and of course Yahoo!. Why is Google (now Alphabet) the 11th largest company in the world, while Yahoo! has been sold off to PE?
And there were EV companies all the way back to the early 1900s and possibly before that.
Why do so many first movers not get the benefit of being first?
I went online in search of an answer.
Forbes was predictably unhelpful, saying that instead of being a first mover, be a first dominator. (Sure. Why not.)
Other pundits pointed to costs that first movers were burdened by compared to fast followers, such as:
the cost of taking on the entire investment in solving fundamental infrastructure problems, like EV charging stations and battery technology in Tesla’s case. But Tesla was not the first mover! And while it did have to bear the burden in investing in new infrastructure and new technology, arguably that helped drive its success.
the cost of creating the demand for a new product or service that hadn’t been introduced in the market before. But arguably Yahoo! created the demand, and the likes of Alta Vista, Infoseek, Lycos tried to capitalize on that as fast followers. There’s no data to suggest that Google won because of the demand that Yahoo! created. In fact, at an early point in Google’s journey, selling its technology solution to Yahoo! was what kept it alive!
the cost of tackling regulatory frameworks designed to favor an existing establishment. And yet first movers can mold proposed regulatory frameworks to their advantage over their fast follower competitors. Uber, the first mover, has invested more than Lyft, in lobbying efforts and still remains the leading athlete in the race.
Beyond the arguments that being first is more expensive, other top sites offer these additional explanations:
“everyone goes after the first mover” (no, everyone goes after the leader regardless of if they were the first mover)
as a first mover, you must put all your eggs in one basket (err, as a startup you must put all your eggs in one basket)
When being the first drags you down
Clearly, sometimes first movers win, and sometimes they lose.
When do they lose? When the following 3 elements combine:
The first mover carries the cost of educating the market to build demand
There is immature technology-to-market fit (TMF?)
There is not enough financial runway to survive the investment until the timing is right
This is how it played out with cloud storage
Box pioneered enterprise file sharing in 2005, spending years convincing businesses to trust cloud over on-premise servers. It burned $171M on marketing in 2014 to educate IT teams, hitting $124.2M in revenue with a $168.6M net loss. (Box S-1)
Enter Dropbox in 2008.
The market was primed.
The timing was right –broadband was surging.
Yes, Dropbox went after consumers instead of enterprises first. But it wasn’t its business model that singularly drove its greater success. Box had warmed up the audience.
By 2013 Dropbox hit 200M users, outpacing Box’s 20M. Its 2018 IPO was $12B, 6x Box’s 1.67B in 2015.
And when first movers win…
Tesla
Tesla also had to educate the market. And it was ahead of the technology-to-market-fit curve. Battery technology and charging infrastructure still needed to be developed.
But Tesla had the runway to invest in market education, technology development, and its brand building. Its runway helped it to survive until the market understood the benefit of EVs (when was the last time I had to go to a gas station), and the technology was ready.
UserTesting
While we were no Tesla, my time at UserTesting showed a similar pattern.
UserTesting started before cell phones and video everywhere.
There was a huge amount of market education that needed to happen. And UserTesting was the first mover and burdened the cost of that education.
In my book Sail to Scale, I recount the times early in its startup journey where it nearly died trying to weather the passage of time until educated-market met TMF. But during that time, its brand grew through influencers (before they were called that) and customer loyalists so that it was a known leading brand when the stars finally aligned.
So what do first movers need to win?
Enough cash runway to weather the Market Maturity storm (when there is an educated market and technology-to-market-fit)
A strong brand in the market built and maintained throughout the Market Maturity period.
The first mover race isn’t a 100m sprint. It’s a marathon and the closers win regardless of who is fastest out of the blocks. History rewards first movers with the stamina to stay in the game.
