My idle thoughts on tech startups
First Mover Fallacy
When we meet with entrepreneurs and ask about their competitive advantage or special sauce, one of the common responses is first mover advantage. “We’re the first company to do X in an rapidly growing market” or similar.
I’ve always felt being the first mover is a comparatively weak advantage and have been thinking about this more recently. While our portfolio at NextView is roughly equally weighted to consumer facing and B2B companies, it seems that for consumer companies in particular being first mover confers little benefit and the drawbacks probably outweigh whatever weak advantage might exist.
If you think back to the monster consumer software and internet companies that’ve been built in the last 2-3 decades, it’s actually far more likely they were fast and/or particularly innovative followers rather than first movers.
- Atari (home video game consoles)
- Twitter (microblogging)
- Amazon (e-commerce)
- Microsoft (OS – both text & GUI based, office productivity, game consoles)
- Apple (today’s Apple of smartphones & tablets… early Apple’s attempts at being first mover largely flopped like Lisa, Newton, etc)
- Facebook (social networking following in the footsteps of Friendster, MySpace, etc)
- Dropbox (cloud storage)
- Netflix (video streaming)
- Google (search… lots of predecessors)
- Square (card present payments on smartphones – predecessors like ROAM Data, et al)
The one segment of consumer companies where being first mover seems to have conferred real advantages has been “collaborative consumption” broadly. The final chapter has yet to be written for most of these companies but being a first mover does seem to have aided the likes of ZipCar, AirBnB, and Uber. I think this has less to do with network effects which are distinct from first mover (though the two are complementary) and more to do with locking up preferential access to supply.
So why might it be better to be a fast follower?
- Don’t Have to Evangelize – Perhaps the key downside of being first mover with a consumer product is having to evangelize a market and build it from a niche to broad adoption. This usually takes a lot of time, money, and energy. Evangelizing towards a mass market is arguably harder in consumer than B2B given individual consumers adopt based on a broader set of qualitative and quantifiable factors, where as businesses often attempt to quantify ROI more objectively. Google didn’t have to convince people that Internet search was needed… they just had to make it work better (via PageRank and subsequent innovations) and monetize it better (by copying GoTo/Overture with paid search advertising).
- Work Out Early Kinks – Dropbox wasn’t the first consumer cloud storage service. Companies like xDrive and others let you upload and retrieve files from the web nearly a decade earlier, and there were others like Carbonite that created hybrid local/cloud storage solutions. But Dropbox realized that one of the kinks of existing cloud storage services was that they were only well suited for alternate or backup storage, not primary storage. For the cloud to work seamlessly for primary storage Dropbox built client side products for an array of platforms, and worked very hard to make this client experience feel super native on every one. By finding a way to work out out this kink they’ve grown larger than all the other consumer cloud storage products out there.
- Wait For Complementary Technologies to Mature – Apple didn’t pioneer the smartphone but obviously the iPhone rightly deserves credit for defining the category and making it a global mass market. Of course Apple did some truly innovative things with the first gen iPhone launched in 2007 and also harmonized software and hardware better than anyone else. But part of their success was simply due to the vastly improved state of cellular data networks relative to when the first smartphones emerged. The Treo was a revolutionary device, but using one kinda sucked in the early days of digital cell networks. Similarly RIM had to build their own proprietary data network (after initially launching on Motorola’s ARDIS/DataTAC network) in order to get emails to Blackberries in a reliable and timely manner.
We sometimes think of being a fast follower in pejorative terms. Somehow first mover seems sexier, and to be fair some first mover startups have become category leaders or have successful acquisitions by larger companies. But the reality is that most fast followers are incredibly innovative companies, sometimes even more so than the early pioneers in their category. And at the end of the day most great entrepreneurs are focused on trying to build enduring, category defining companies. Being a fast, innovative follower might be the way to go…