First Mover Disadvantage

Getting to something first has tremendous advantages but also comes with a bunch of challenges.

I was thinking about this yesterday as I was setting up a couple iPads to be used around our house as smart home controllers.

The Apple identity management and app store systems feel like they were built for a different era. Because they were.

Comparing those experiences to Google, which is not a new company either, is eye-opening.

You can also see this in crypto. Companies that were built in the age of one crypto-asset (Bitcoin) have to retool their software to make it work well in an age of multiple crypto-assets. Companies that were started in the age of multiple crypto-assets have the benefit of starting day one with a different perspective.

If I had to pick first mover or second mover, I would still pick first mover because I think it is easier to attain a dominant market position when you don’t have any competitors.

Once the market opportunity has been identified, and there are multiple companies competing for market leadership, it becomes more difficult to win.

But if you are the first mover, you need to understand a few things:

1/ Life gets harder, not easier, when you have established yourself as the market leader.

2/ You need to invest in top-notch product and engineering teams because product execution and technical debt will become significant challenges.

3/ You need to use your market leadership to build a balance sheet and a team that can allow you to manage the transition from first mover to market leader.

4/ Many of the best ideas will come from your emerging competitors. Look at their product execution for inspiration (Facebook has done an excellent job at this).

It is not a given that fast followers will beat a first mover, but that has certainly happened time and time again in the world of technology, internet, and mobile over the last thirty years.

I think that bad management and weak leadership of the first movers has as much to do with that as anything.

First movers can and often do maintain their market leadership. But doing so is a lot harder than people think.

#entrepreneurship

Comments (Archived):

  1. LIAD

    And supportive directors.Innovators dilemma can be a real dog to get out of if you don’t have the support of the board at your back.

    1. William Mougayar

      But you can have supportive directors and a management that doesn’t listen or doesn’t execute well. Typically, it’s not the directors that will hold back on innovation, but the entrepreneurs themselves who are afraid of changing the status quo and rocking the boat.

  2. awaldstein

    It’s all hard Fred.

  3. William Mougayar

    When you’re #1, everyone wants a piece of you. Everyone wants to attack you. Everyone aspires to be what you are. But it’s always more costly to attack than to defend, and even if you do spend a lot and try harder, results aren’t guaranteed. Avis will always be #2, as they admit, “they try harder”. Look at EOS attacking Ethereum with their $4B ICO, 4 years after it cost Ethereum $18M to get their leadership.There’s a difference between a leader who maintains their leadership because they keep doing the right things (e.g. Facebook, Netflix, Amazon) vs. one that maintains it but gradually see it eroded for the reasons you mentioned (bad management, weak leadership, slow innovation, weak teams, technical debt, weak balance sheet, etc.)

    1. jason wright

      “Look at EOS attacking Ethereum with their $4B ICO, 4 years after it cost Ethereum $18M to get their leadership.”How is EOS attacking? A propaganda (information warfare) offensive,…?

      1. William Mougayar

        It’s obvious they are gunning for Ethereum, and full of jealousy about it.

        1. jason wright

          i’m looking elsewhere for interesting ideas. wars are a waste of time and energy.

  4. WA

    A Chronos buffet for the most dominant of first movers.

  5. kirklove

    Why do you still use iPads and not just Android tablets then? Apple TVs?Could you not switch out your own personal technical debt and flip to all Google/Android?

    1. kenberger

      The Huawei 8″ is pretty great for that, coupled with Google Home, Chromecast, etc.Caveat is you might want to root, lest the bloatware drive you nuts!https://www.techradar.com/r

  6. Pointsandfigures

    sometimes a huge educational hurdle for first movers with their potential target market.

  7. jason wright

    “…when you don’t have any competitors.” why the business of government is so inept. coordinated, but not motivated.First mover – Peter Thiel’s Zero To One thesis. Create a new market, perfect the product/ service, and then scale it, and dominate.

    1. JamesHRH

      Great book.Fred’s going down a rabbit hole here – he’s saying that crypto is evolving except crypto hadn’t crossed the chasm to mainstream users.His use of first mover, in relation to crypto, is faulty: there is no established First Mover in crypto, yet.And there won’t ever be one, according to some smarty pants pundits.

      1. jason wright

        which SPPs?

        1. JamesHRH

          Well, me…for one.

          1. jason wright

            never in doubt 🙂

  8. TeddyBeingTeddy

    Motorola: “Amen…”

  9. John Revay

    Fred,”smart home controllers”Are you trying a specific eco system re: Alexa, Home kitPerhaps you can write a post re: current setupMine so far – Home Kit:> Honeywell Lyric T6 – tstat> Lutron Caseta> Considering Schlage / Sense

  10. Guy Lepage

    I personally feel that first mover, second mover is irrelevant. Teams need to first of all know their audience and build an appropriate team around that audience.1. Teams that highly value user experience first and foremost tend to win for consumer facing businesses because they know their audience.2. Winning teams that need to speak to more of a technical community seem to still be well-rounded but skew to a stronger engineering base.3. Teams that need to be highly technical and UX focused tend to win when they have to speak to both technical and consumer facing audiences.All three team sets require a strong talent / understanding / experience in; a). Productb). Engineeringc). Marketingd). DesignThese four elements are independent of one another but need to be balanced and equal then skewed slightly to appropriately appeal to their target audience.

    1. JamesHRH

      There is a terminology issue here: first mover typically means first established in the market: customers, users, brand recognition, operational experience, financing.It is just wrong to say it doesn’t matter – it’s the whole game.

      1. Guy Lepage

        I personally disagree. First mover does not mean you win. Apple was rarely the first to any of their products. They tend to win because of their simple understanding that designers understand people and they dictate to engineers.

    2. PhilipSugar

      No it needs to be orchestrated. When you have teams that value U/X over everything, it goes to hell in a hand basket if you scale.

      1. sigmaalgebra

        That’s one way to be stupid and a simplistic, high end, C-suite, uninformed way to try to avoid making that one mistake.It’s, say, the trap of simplistic nostrums from the WSJ, HBR, business advice books, business interview shows, etc.There are lots of ways to be stupid. The solution is not a list of 10,000 ways to be stupid to avoid. Instead the solution is to be smart or at least avoid being stupid in general.”Technical debt”? Gads, what total nonsense: You designed the software with eyes wide open, brain fully functioning, with all relevant information, plans, etc. considered.So, you designed a pick-up truck. Now you need a truck with, say, 6 wheels instead of just 4. Going with just 4 wheels instead of 6 was, should have been, a carefully considered decision at the beginning.Maybe a lot, a lot should, carry over: Nearly all of the SQL database tables. The server farm architecture. A lot of scaling with no more than just routine sharding. In a few places, maybe some solid state drives instead of rotating ones, etc.Then while getting the 6 wheel truck, you should be thinking about 18 wheel trucks, ….There should be no “technical debt” — a 4 wheel truck instead of a 6 wheel at the beginning is just a carefully considered decision; the need for a 6 wheel truck soon should be clear everyday.Now, if the first production code was sloppy, awash in obscurities, with poor or no significant documentation or testing means, patched over and over, etc., with a clumsy architecture for a lasting solution to the real but general problem, then that looks bad. But shouldn’t write such code — do such poor quality work — to begin with. That’s not technical debt, inevitable or otherwise, but just sloppy work to begin with.

      2. Guy Lepage

        Apple seems do manage. No?

        1. PhilipSugar

          Apple’s core kernel team is second to none. I bet if Microsoft didn’t blue screen and get viruses Apple would be done. But Apple absolutely kills it on their core.

          1. Guy Lepage

            To be honest, it’s what ad agencies around the world do on a daily basis. Except Apple applies their model to product. That’s what my friends at MetaLab in Vancouver did as well. That’s how they built Slack, Coinbase, etc.It’s not rocket science. But it seems to be something engineers have a difficult time with.

          2. PhilipSugar

            No it is mutual respect and you do not seem to have it. Why don’t you look up Tim Cook’s background. I totally respect U/X people, but I do not respect those that do not respect others.

          3. Guy Lepage

            Oh. Hm. I don’t quite understand how I’m disrespecting you. Not my intent at all sir.

          4. PhilipSugar

            Just so we are clear I am not a developer. I am not a U/X person, I am not a marketer, salesperson, or finance person either.I am a jack of all trades and a master of none. But what I do know is that when people say…….oh that it is easy, my part is what matters……they show not respect, and show they don’t know what they don’t know.

          5. Guy Lepage

            I have the utmost respect for my fellow engineers actually. And I live by a saying, “the more I learn, the more I realize I know nothing.”

    3. Drew Meyers

      “1. Teams that highly value user experience first and foremost tend to win for consumer facing businesses because they know their audience.”I personally think that was true 5-10 years ago, but not today. Distribution is getting harder and harder by the day. And without it, companies die. I don’t think the best product always wins a market.

      1. Guy Lepage

        Hence the equality of marketing.

  11. LE

    If I had to pick first mover or second mover, I would still pick first mover because I think it is easier to attain a dominant market position when you don’t have any competitors.If you are the first mover you also have to create the market for the product or the service since the market isn’t buying it yet and may not even know that they need it.Once you get competitors they start making all sorts of noise (spending on marketing and advertising) and that helps you greatly to sell your product. Stories and articles about the competition are written by papers, bloggers and so on and that enlarges the size of the market for everyone. We could find examples where this isn’t the case obviously but it would be where the market need is clear and everyone is already ready to buy what you have (cancer cure)

    1. PhilipSugar

      That is why when somebody says I have no competition unless it is a killer idea, it is a killer. A versus B is very much easier than A versus no decision.

      1. LE

        A good point. Often in negotiation you give a few options so that the other side focuses on comparing the options vs. deciding whether it even makes sense or not to do anything.

      2. JamesHRH

        Status Quo is the King. Unbelievable record, batting like .900

        1. PhilipSugar

          Bang on.

  12. BillMcNeely

    Like leading a footrace it’s hard because you are doing the hardwork. No drafting, finding the best angles and pathways etc

    1. JamesHRH

      Plus. Pioneers take arrows.GE ( Jack Welch ) put SUN CEO ( McNeely ) on his BoD to drain his brain. McNeely so star struck he never quite figured out what was going on.Welch ‘ we have the $ to make 2/3 mistakes , these startups only get one crack at it.’ You can hear how dumb he thinks it is to do a startup, in that quote.

      1. PhilipSugar

        I think that is totally wrong. If you are a big business the cost of making a mistake is so high you don’t do it, that is why you buy startups. They make mistakes and you can afford to pay the winner.

        1. sigmaalgebra

          If try to innovate in-house, that’s a current expense. If buy a startup, that’s a capital expense, often paid for with just stock.These facts are not the reason big companies don’t innovate but just an excuse for their being too dumb and lazy to make innovation work.

        2. Vasudev Ram

          Any idea how GE is doing lately? I had seen a video of their CEO (Jeff Immelt) talking some years ago. Don’t know how things are now. Seems he quit last year.Edit: Just saw this article:https://hbr.org/2017/10/why

          1. PhilipSugar

            You know what is funny? Jeff and I had a big dustup at U.S. Senator Carper’s Technology Roundtable in 1998 twenty years ago. I told him hie was a f’ing asshole telling people outsourcing was good for the U.S. economy. We would “just get those people better jobs” I wish I had it on video. I told him he was a liberal Dartmouth Asshole and that is why didn’t go there.

          2. JamesHRH

            Man, would I like see video of that.Sworn affidavits maybe?

          3. PhilipSugar

            I will swear on my Mother’s grave on that one.Hey look, it’s great if you want to learn high tech.But don’t tell me it’s great for you to get someone who is willing to take your job for a tenth of the price. We had this in the U.S. and that is why Union’s happened.

        3. JamesHRH

          See comment below, point 3 – control.

      2. sigmaalgebra

        Jack Welch is a world class blowhard.Here is his secret: He had someone, maybe his CFO, explain that (1) GE could borrow at low interest and (2) commercial banks had lots of restrictions and regulations.So, GE could borrow capital and lend it, be an unregulated commercial bank and often beat Citi, etc.Presto, bingo: GE Capital made Welch famous.Meanwhile, Welch neglected or even just abused nearly all the rest of his business, e.g., light bulbs, electronics.

        1. LE

          Might be hard for some people to believe but there was a time that Welch could probably sleep with any man he wanted to sleep with. He was so built up in the business press and people were in awe of him (press did the same with Alan Greenspan as only one other example).

          1. JLM

            .Welch was CEO/demi-god for 20 years – 1981-2001. If you bought GE stock in 1981, you a saw a 4000% increase in value. Not too shabby.He knew how to manage GE’s reported earnings at a magical and mythical 15% annualized growth. Wall Street rewarded him.He walked away from GE with a $418MM retirement/severance plus more than $700MM in value already received.If you invested $1mm when he arrived, you walked away with $40mm when he left.GE was a hard goods manufacturer which was able to issue commercial paper to fund what became a very substantial financial services company.They had an A-1 S&P/P-1 Moody’s and enjoyed spreads over comparable Treasuriers from 10 bp to 100 bp through the 1990s. This was the key to their survival.The next guy did not have the magic.JLMwww.themusingsofthebigredca…

        2. JamesHRH

          So, three things:1. Never said I agreed with him, just that the quote revealed Welch’s disdain for tech founders who took a 1 in a million shot at being a billionaire when he was on his way to being a Centa-Millionaire with 1/1,000,000th the personal risk.2. He made GE one of the largest PubCo’s in history. You, me & LE, not so much.3. Control is the thing you are all glossing over. Try buying Tesla….fat chance. Or better yet, these guys: https://en.m.wikipedia.org/

          1. sigmaalgebra

            Yup.For the Swedish packaging guy:(1) I have a brother in law who got a degree, BS or MS, from, IIRC, U. Michigan, in packaging. He got a good job as a packaging engineer where that is life-death important — medical prosthetics, e.g., the ball and socket for a hip replacement. So, yes, there can be money in packaging.(2) Once I met some guys from West Virginia Paper — Westvaco. So, right, they made a lot of paper. But some of the paper at first glance didn’t look much like paper. E.g., they were big in paper milk cartons and kitchen counter tops.(3) At a wedding of a friend, I met a friend of his. This guy was a consulting expert in technology of production lines for packaging foods; so he was in the same industry at the guy from Sweden. There’s a lot to it: He’d leave home Monday morning or Sunday night, drive his sports car to the customer site, spend the week, help the customer on the architecture and details, e.g., products, for the production line, and get back home on Friday.For the Swedish company, the Wiki listing shows a founder: Good guess that, right, it’s his family business, and no way will he give up family control.Yes, the chances are 1/100,000,000. Same for the SR-71. But the SR-71 was successful right away, as planned, never got shot down, for years. How does this probability arithmetic work?Here’s how: The probability of success may really be 1/100,000,000, but the conditional probability of success GIVEN more information may be close to 1. The “more information” can be, the guy, e.g., Kelly Johnson who did the SR-71, really knows what the heck he’s doing.Sure, for me, standing at the plate, the pitch comes, I swing, and the chances I hit the ball are tiny; the chances I hit a home run are less than 1/100,000,000. There’s a good chance I pull some muscles in my back! But Babe Ruth pointed to a spot in the stands, the pitch came, and “WHACK” the ball went into the stands and he trotted slowly around to home plate. Ruth knew what the heck he was doing.

  13. LE

    2/ You need to invest in top-notch product and engineering teams because product execution and technical debt will become significant challengesThe other thing you have to do is figure out a way to not get your best people poached by new entrants.One of the things that is different about competing in the venture funded world vs. the traditional business world is that there is a boatload of money chasing things which would allow a new entrant to steal away the talent that you have identified or even cherry pick your best people. This is less of a problem in the traditional world where companies are less likely to spend like drunken sailors and a scorched earth strategy.

    1. PhilipSugar

      That is why it is easier not in Silicon Valley or Alley

      1. LE

        We can call this the ‘barefoot and pregnant’ strategy then. An example would be where Walmart is located. They are off the beaten path and certainly would not have to worry about any fancy city people poaching their employees in Bentonville AR. Or even Gates up in Seattle (or Bezos). But I think those are atypical.But likewise look at Dwolla. Not sure exactly how they are doing but my gut says they aren’t moving and grooving (never hear anything about them) and certainly part of that has to be the fact that they aren’t anywhere near where they can easily interact with people in either finance or tech.

        1. JLM

          .Walmart crushed it last quarter proving there is a huge economic boom in the US. Online sales up 40%.They also opened a tech center in the ATX in the last year and have hired 80 software engineers.The tech guys get it that Bentonville is not where the action is. Though, it has great trout fishing on the nearby White River.Do not underestimate or overlook Walmart. They are in the game.JLMwww.themusingsofthebigredca…

  14. Richard

    “AVIS, we try harder”

  15. LE

    We could also define a term also of ‘later mover’. A ‘later mover’ would be a company that isn’t burdened by all the baggage that a first or even fourth mover has. They can afford to cherry pick the best parts of the business without being bogged down by things that the original movers can’t shed. Like employees, expenses, fixed overhead and so on. [1]Which raises another issue and something that I feel strongly (and very ageist about). As a company gets larger the existing employee base typically gets fat and lazy as it ages and takes on adult responsibilities and isn’t anywhere near as hungry. Employees who were young get older and have families and family obligations. They also hire older people as well. Those older people simply do not move and take the risks that the younger people would or are able to take. The entire organization then changes. Also since it takes more to move or even maintain the ‘needle’ everything becomes drastically harder to do. It’s a big boat not a small boat and not very manageable. This is actually the direction that google is heading. Article yesterday from WSJ more or less saying similar things. [2][1] In traditional business an example of this might be Southwest Airlines vs. the legacy carriers (when they started out I mean) or even perhaps Fedex vs. the US Postal Service.[2] Simply compare even in your own firm how everyone spends there time vs. how you operated 20 years ago in the 90’s when you were starting out (and had very little money and were trying to establish yourself). https://uploads.disquscdn.c

    1. PhilipSugar

      That is why you need a mix.

    2. sigmaalgebra

      You are very wrong about age: See my post where I describe innovation in US national security, physics, and bio-medicine. There will find a LOT of gray hair but a LOT of understanding, knowledge, experience, accomplishments. That innovation totally blows away what nearly all of US big business does.US big business fails to innovate for other reasons, and I outline those.

      1. LE

        True but I am referring more to the poster boys such as the Grosse Point set at the big three auto makers.No doubt at all that in many businesses having experience is of great value. Also in any particular profession. Law, medicine, accounting, types of consulting and so on. Engineering, architecture, medical research. The older guy will always rule.On the other hand in businesses where failure is an option the younger guy will rule (typically) and the older guy will be stuck worrying about making things actually work and be right because he knows where the dead bodies are buried.What I am saying is that in certain businesses having experience prevents you from taking stupid chances that sometimes work out.An example is airbnb, uber and so on. No old timer would green light that they’d think of how impossible it would be to get past the regulation and entrenched interests because in the past (and without a boatload of money at their disposal <— key fact) they have tried and failed.

        1. sigmaalgebra

          For yourWhat I am saying is that in certain businesses having experience prevents you from taking stupid chances that sometimes work out.An example is airbnb, uber and so on. No old timer would green light that they’d think of how impossible it would be to get past the regulation and entrenched interests because in the past (and without a boatload of money at their disposal <— key fact) they have tried and failed.Sure.But:(1) Such shoot from the hip, full of hype, nothing but net, blind, over the back, from the back court, in a high wind shot is, for startups, e.g., Uber and AirBnB, and from all can tell, nearly everything in crypto and AI, as common as such absurd shots are, and as much as they dominate hyped startups, definitely not the only way to innovate.(2) The many innovations I mentioned in US national security, physics, and bio-medical seemed to make Uber and AirBnB look as solid as Bank of Morgan.E.g., DO watch the brief story of how we detected gravitational waves from the collision of two black holes:https://www.youtube.com/wat…The biggie difference: As we know now from the results and as we knew from the beginning as they got funded, the gravitational wave guys really knew just what the heck they were doing, right from the first back of the envelope calculations: As in the summary remarks in the video, note that really are looking for a short, a few seconds long, low frequency, ballpark 100 Hz, signal, make the arms of the detector long, make the laser power large, have mirrors of astounding quality, have the laser stable beyond belief, and in the end for a detection are down basically just to counting individual photons, left over from a laser pulse of 1 million Watts. At really low power levels, we actually can count photons!E.g., for the SR-71, it was all quite clear enough just from the first engineering drawings, and it worked just as planned right away.Compared with what I outlined for US national security, physics, and bio-medical, the technology in the main lines of US information technology startups looks like grade school kids mixing saltpeter, etc. to make a backyard rocket, and that’s being very generous to the kids.To be more clear, the relevance of such work examples for business is, generally it’s important to what the heck is being done, and, in particular, get a technological advantage, “secret sauce”, Buffett moat. I.e., have some technology that is powerful and valuable, both for the business, and difficult to duplicate or equal.Yes, I know; I know: The Silicon Valley culture believes that once a product/service is in the market, it’s easy for competitors to duplicate it. Right, it is, but only for relatively trivial Silicon Valley technology!!!

  16. Tom Labus

    This is like being in 1st place in baseball at the trade deadline. You make your moves for defense, bats and arms but them a key player or 2 goes down. You never know but everyone on a good team is always ready to play.

  17. JamesHRH

    Terrific post.First off, every major opportunity that a startup captures is given to them by some established company. So, bad management is actually the root of almost all big wins.Second, let’s be honest about why bad management and an unwillingness to look outside for market direction occur: Founder as Superman Syndrome or Company as Founder Experince Syndrome.Elon Musk today using Ford – expertly positioned by CEO Mulally for the downturn – & Tesla as ‘only US car producers not to go bankrupt’ post 2008 as a reason why Tesla should not professionalize its operational leadership is a laughably obvious example of FaSS.Anyone who had ever been in a startup that never grew more than the ability of the founder(s) has experienced CaFES. The range of experince is vast – from Google or MS down to bankruptcy.

    1. JLM

      .Tesla does not get their recap done and they have huge problems by year end.It is a cult of personality and the personality is full of crap right now. That NYT interview felt like an intervention.Thanks, Solar City.JLMwww.themusingsofthebigredca…

      1. JamesHRH

        He’s juiced the valuation to the point that it’s an impediment to someone coming to his rescue,…

        1. PhilipSugar

          I don’t know if he juiced it, but as has been said here a ton, too high valuations are not always great.

        2. JLM

          .His latest outburst about taking the company public and his NYT interview are nails in the company’s coffin. Tesla stock will be sniffing $200 within two weeks.JLMwww.themusingsofthebigredca…

        3. jason wright

          hence the interview strategy? the art of total manipulation. we celebrate these people as heroes. they are sociopaths in disguise.

          1. JamesHRH

            No strategy at this point. Basic view of him:- told he was special since he could talk- has done special things for over 25 years- most special things occasionally need Herculean special efforts that only a special person can deliver- has too much going on- is almost 50- is not even remotely a professional leader or competent executive- a master recruiter, marketer.- 1/10 of Jeff Bezos, 1/8 of Bill Gates- blaming others for his mistakes ( like it’s the shorts fault, not his mind bendingly arrogant approach to automating vehicle manufacturing )- he relied on outside expertise at other ventures but went all arrogant all the time at Tesla- it’s personal, he’s so immature that he actually thinks it’s unfair that it might not work out- after all, he’s special and everything he touches should be amazing- regardless of his choices and job performanceHe’s a smartest guy in the room type when he fails ( Tesla, SolarCity ), master student when he succeeds ( SpaceEx ), but he only succeeds on University style projects businesses at nutty scale. He can’t operate a 7-11 ( operations doesn’t validate his specialness ).And seriously, this is off the top of my head but still 99% accurate 19 times out of 20.Been in the trenches with too many FaSS & CaFE cases. Not to mention the completely lacking confidence, scared shitless, can’t believe they’ve done this to themselves or the this business isn’t about the business it’s about me proving the idea I have must work, without alteration because it’s about personal validation not the business cases ( @jlm @ I had one of those roll through TX in the spring ). Good guys, tough to watch.

          2. jason wright

            beware the cult of personality. beware the god complex. beware the need to follow.- be antifragile.

  18. Michael K. Clifford

    Really sound. Have experienced both. For me it comes down to leadership

  19. Andrew Cashion

    a “preform” is the new “freemium”

  20. Emi Gal

    IMHO the Apple identity management system was not built for a different era. It was built to work seamlessly if you are fully invested into the Apple ecosystem.For example – I bought an iPad last week and setting it up was as simple as scanning a sort-of QR code displayed on my iPad using my iPhone. That automatically logged my iPad into my iCloud and everything magically started sync-ing and installing from there. It literally took less than 30 seconds.

  21. sigmaalgebra

    Let me get this straight: (1) Being a first mover is difficult. (2) Being a successful second mover or fast follower is still more difficult. But (3) for the first mover to beat the fast followers is still more difficult than being a fast follower?Here are some successful first movers: Project Apollo. The SR-71. GPS. The A-10. The B-2. The F-22. The Nimitz class aircraft carriers. Now the Ford class carriers. For each of these, so far, after some years, mostly after some decades, there are no successful second movers, fast followers, or meaningful competitors at all.Here are some first movers with market dominance that blew their position:(1) Xerox. Early on, it was not easy to compete with the technology, product quality, customer service of the Xerox electrostatic copying. Slowly Xerox tried to expand in “office products”, e.g., bought daisy wheel printer maker Diablo. Their Xerox PARC seemed to envision a lot of office machines, each operated with touch screens much like microwave ovens.But various other companies that were not direct competitors — Motorola, Intel, Microsoft, Epson, HP, etc. — that eventually so changed the situation in the core business, office document processing, i.e., getting rid of the typewriters, that Xerox shrank.(2) IBM. From punched cards to the last of the water cooled 370 family mainframes, IBM dominated back office data processing for large banks, insurance companies, manufacturing companies, government agencies, etc. There was the deeply rooted glass house culture, dedicated customers and technical workers, etc.But microprocessors came along. The main purpose was long, still is, document processing, e.g., word whacking, e.g., getting rid of the typewriters. At first the microprocessors didn’t directly threaten the mainframes, but the microprocessors had so many advantages over the mainframes that they grew much faster than the mainframes until they took most of the growth from the mainframes and, then, much of the business of the mainframes.In the IBM HQ in Armonk, there was a meeting room across from the office of the CEO, and the summary in that room was that “God ceased to smile on IBM”. IBM had everything in computing but let nearly all of it “slip through their fingers”.So, for the failures of (1) and (2), and maybe more first movers that became market dominators , seem to be much the same: Stay with the bird in the hand and neglect the different, cheaper, but rapidly developing little birds in the bush that are on the way to being serious competitors or even changing the nature of the whole market, neglect until too late.Supposedly one reason for this neglect is that the CEO is hired to manage the existing business, maximizing quarterly results, and the current stockholders don’t want the CEO to work on risky new products or directions, especially ones that might compete, at lower earnings, with the existing business. Apparently this observation has something in common with the “innovator’s dilemma”.A deeper reason is that it’s a lot easier to get rock solid, no nonsense, bottom line, results oriented, conservative business managers than business builders.Or, a major success like Xerox or IBM is something of an anomaly from a combination of whatever circumstances, rare, and the chances are small that the “lightening will strike” again in the same place.Well, it actually is possible for the lightening to continue to strike over and over in the same place, quite reliably:(1) Reconnaissance. In WWI the US had reconnaissance aircraft. But in WWII the US did not just continue with those WWI solutions but developed better solutions, e.g., the P-38.Early in the Cold War, the P-38 was not nearly good enough, and the US developed the U-2. Some years later, a U-2 got shot down, and the US developed the SR-71, never shot down.Eventually it was clear that a big reflective telescope in orbit could do better than the SR-71, and the US developed the Keyhole reconnaissance satellite, before the Hubble telescope but basically a Hubble but aimed at the earth instead of the stars.And there was more on electronic intelligence, ocean acoustic intelligence, seismic intelligence, an orbiting gamma ray detector (that also discovered from space gamma ray burst stars), etc.Net, although Xerox and IBM quit innovating, US reconnaissance kept going.And beyond reconnaissance, there are many other areas where US national security has innovated in ways that put Xerox and IBM to shame.(2) Physics. Theoretical, mathematical, and experimental physics keep charging forward. For centuries, physics kept charging forward — Newtonian mechanics, electromagnetism and Maxwell’s equations, Planck and Einstein and the photoelectric effect and the particle nature of light, special and general relativity, quantum mechanics, black holes, gravitational wave detection, etc.(3) Bio-Medical. Same song, third verse.Lesson: Business can keep charging ahead, too; from (1)-(3), we have lots of examples how to do that. It’s NOT that charging ahead is too hard in any sense. Instead, the key is just the ability and desire to charge ahead.Gee, it must be a really sweet life to be CEO of NYSE company UGE: Office interior decorating budget of $10 million. A palace style HQ monument to ignorance. Rows and columns of diligent, obsequious secretaries. Lunches from a private chef, on dishes with gold decorations, with solid silver knife and fork. A fleet of private jets and limos. Daily manicures, haircuts, and massages in the office, etc. Big staff to work out any business decisions. Lots of lawyers to set up defenses. Lots of lobbyists. Big PR staff of flacks to build public image of a heroic captain of industry.For innovation, if there are any little competitors, he just buys them, in an all stock or nearly so deal. And some nice stock options that will make him worth $500 million or so if he can just get the earnings up for a few quarters. Meanwhile, he neglects the future of the business.

    1. LE

      Or, a major success like Xerox or IBM is something of an anomaly from a combination of whatever circumstances, rare, and the chances are small that the “lightening will strike” again in the same place.Exactly true. They executed well on the ‘low hanging fruit of opportunity’. And unfortunately and for a host of reasons you can’t just sit in a room and invent that type of new opportunity. Happens (iphone) but extremely rare. (And look at Apple Watch as a follow up or some other Apple products).And for sure IBM blew PC’s but you have to understand why. Back in the pre clone days when you built products you supported them and they had to last and there were adults in charge. Then PC’s came out and the clones and Bill and Microsoft. And Dell. Ever buy from them? I did and never again. [1] All the sudden everything changed. Those companies were willing to put out substandard products (and operating systems) and most importantly cut corners in any way they could. Not possible to be a company like IBM trying to do god’s work (just like the NYT, eh?) and then turn out a crappy product. I am sure Phil Sugar also understands this just like I do. You do good work and what you do matters to you. You don’t want to serve out a cheap product or service. You don’t want to deliver crap. It just feels wrong. Meanwhile though the market (and this is important) is cheap and buys crap on price (which is why premium is such a niche it’s more than just price being more it’s stupid buyers).I mean look Elon is building cars in tents. And Koch he don’t even give a damn. [2][1] Seriously it was founded in a dorm room and it found a market. How is IBM supposed to compete with that exactly?[2] Line from old SNL skit where whiny New Yorkers complain and the punch line is ‘and Koch, he don’t give a damn’.

      1. sigmaalgebra

        For the early PCs, the main, super important, 9000 pound gorilla in the market was, bluntly, plainly KILL OFF THE GD TYPEWRITERSThe amount of productivity increase and money available was astronomical.If used Microsoft’s PC/DOS and a PC clone, e.g., from Dell, Gateway, etc. and used it for word whacking driving a dot matrix or daisy wheel printer, and maybe some spreadsheet software, then the quality was plenty good enough. If tried much more, especially in screen graphics, various cases of I/O, and telecommunications, even just dial up, then got continual Excedrin headaches #958476094 and larger.IBM’s idea of selling their PCs and software, eventually OS/2, via the IBM marketing branch offices, etc. into the glass house culture DID encounter the standard IBM excuse — low margin business. But that was just an excuse from making a big mistake from being intellectually LAZY.

      2. PhilipSugar

        Here is the thing if you sell to dummies and those can be: the Public or Corporate PurchasingYou have two choices. Cut corners and be cheap. Or somehow be “hip”Otherwise be seriously ready to play the long game.

    2. Daniel Chait

      Are “daily haircuts” really a valued perk?

  22. chartreuse

    My favorite example of “First Mover Disadvantage” would be Jesus Christ. The ‘apostle’ model is much easier. You already have some true believers and creating miracles are no longer required!

  23. JLM

    There is only one way to play the game – RUN SCARED.In the jockey, horse, course business, the jockey is the indispensable element of success. A great jockey can saddle a mediocre horse and make it through a muddy course to the winner’s circle.The jockey has to use the whip.A great jockey keeps a current “list of horribles” and knows exactly what they intend to do the second one of them appears. One element is a personnel contingency plan wherein everybody knows what happens if somebody gets drowned in their smoothie one morning.A good C of the B has that chat with the CEO once a month. “What can kill us? What do you intend to do about it?”First mover advantage only persists if you keep moving. If you stop moving, the second guy runs you over because he can copy everything you did in less than half the time.RUN SCARED. KEEP RUNNING.JLMwww.themusingsofthebigredca…

  24. curtissumpter

    Hey Fred –I was wondering … I have a vision for my life which includes a business venture that I would like to get off the ground. However, I do my best work I’ve discovered when I have local personal accountability. I was wondering if you knew of anyone (sort of a business/career mentor) who’s local to New York that you could suggest in terms of maybe a weekly cup of coffee or something along those lines or even a place where I could meet people like that, a Meetup or some type of gathering.Just looking for advice (or a past blog post).

  25. Philip Martin

    What is the opinion people have on first movers being disrupted by another startup versus an industry incumbent? Are these two separate things, or one in the same?For instance, Uber versus Lyft seems to be like a straight forward example of a first mover startup being disrupted by another startup. Lyft originated rideshare that forced Uber to adapt, copying Lyft via Uberx. Lyft didn’t try to jump into international markets, food delivery, autonomous vehicles, etc. allowing it to learn the market adaption rates, distractions, and political battles Uber faced. Lyft now has 35% of the US market.Meanwhile, an example of an established company overtaking the first mover could be Betterment versus Schwab/Fidelity. Betterment moved first on creating a modern, more pleasant on-boarding experience to an old asset allocation strategy. In this instance, the fast followers were established players and since CAC is high, the established players could replicate the product more cheaply than the marketing and branding cost it would take Betterment to steal clients. Betterment has $15B in AUM versus Schwab’s robo having $100B.