Prepared for Purdue Entrepreneurship Certificate Program

Team Analysis & Discussion

Spring 2007 © Hank Feeser

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Is it best to be first?

By Clint Chao 11.28.06 From: http://www.venturebeat.com/contributors/2006/11/28/is-it-best-to-be-first/

http://venturebeat.com/wp-content/uploads/2006/09/clint.gifClint Chao

Lots of entrepreneurs approach us addressing big market problems. Some are convinced they can redefine a category all together. But, is it best to be the first to market? Naturally the first has the first-mover advantage – the opportunity to understand and define market needs and early product implementations as well as manage the pace of an evolving market.

Sometimes a company that shows up with an offering too early can face customers that find its product too expensive or clunky, as in the case of Apple’s Newton, or a market with external complexities that stall mass adoption, as Napster or Friendster found for their respective markets. Early market entrants can face an uphill climb while they spend lots of money educating customers or breaking barriers with companies in its ecosystem.

But assuming the market is ready, would you rather be first? Or would you prefer to have someone else break out the gates so that you can draft off of their progress and refine your solution to pass them up? Did YouTube benefit by watching the early video sites break ground on the space?

The challenge for most first-to-market players is in learning how to address new entrants as they emerge while maintaining the lead over the long haul. The Indianapolis 500 presents an interesting anecdote. During its history, which spans more than a century, the Indy 500 has seen only 18 of the drivers who began in the pole position make their way to the winner’s circle. Only 7 of the last 15 winners were in the top five positions at the beginning of the race. And five of the last 15 winners even came from positions that started outside of the top 10 (33 cars participate in the race). A number of consequences may cause the leader to relinquish position, but every now and again, with steady drive and determination (not to mention some skill), they can hold on to the end. This is also true in the world of technology.

Wouldn’t it be cool to become an industry’s first leader? Imagine being part of America Online in 1985 or Netflix in 1997? I was fortunate to be a part of the C-Cube Microsystems team in 1990, pioneering the digital video and image compression industry. The pack behind tried to veer us off course with promises of lower cost or more flexible solutions. Fortunately, we were strong enough to retaliate with new features in our chips that caused competitors to swerve while trying to win customers.

The good news, as we learned at C-Cube, is that an early market leader is getting paid by customers while competitors are chasing behind trying to win business. It’s like getting fueled up without making a pit stop. If you can sustain your lead long enough to force the pack behind you to run out of gas, you can dominate the race from the get-go and win it all.

The key is not to take your eye off the prize – your car needs fuel at some point, and don’t forget a top-notch pit crew. Fortunately, you’ll have some experience on the track that others don’t, so take advantage of that knowledge and hold onto your lead while you have it – or someone might come up from behind and leave you in the dust.

READER RATING:

* * * *   (4 stars, 9 votes)

Clint Chao is a founding general partner at Formative Ventures. His investments and board leadership include Silicon Clocks, Smalltown, Marketocracy and Zyray Wireless (acquired by Broadcom in 2004). Prior to co-founding Formative Ventures, Clint served as vice president of marketing, sales, and business development at SkyStream Networks (acquired by Tandberg TV). Prior to joining SkyStream, Clint served as senior director of marketing at C-Cube Microsystems where he was responsible for marketing for the PC Division. Before joining C-Cube in 1990, Clint held numerous sales and sales management positions at Motorola Semiconductor.

4 comments on this story

Vishy Venugopalan   11.28.06 | 12:39 pm

The early bird gets the worm, but the second mouse gets the cheese.

keanu   11.29.06 | 9:25 pm

always keep eyes on global competition environment

Yossi Goldlust   12.5.06 | 1:10 pm

Lately, I’ve been thinking a lot about the first mover advantage and where does it matter. Clint’s metaphor is very true - very rarely does the winner start out in pole position. Just look @ Google or del.icio.us - they started way behind their competitors and just “magically” blew past everyone. My guess is that the answer depends on the market itself.

First mover advantage was a phrase that was thrown around a lot during the dot com frenzy, but I think most people who used it didn’t really know what it meant. In game theory, it refers to a condition where only a limited number of players can participate. Let’s say you’re trying to open an upscale Borders / B&N style bookstore in a city w/ 200,000 people located somewhere like Ohio. A place that size can only support 1 bookstore, so whoever opens a store second will have to take big losses to compete, which in turn gives the first player the “first mover advantage”.

Clint Chao   12.5.06 | 1:43 pm

Thanks for the comment.

I think a first mover has a great chance to win the race, because (1) they have the roadmap, while others may not, (2) they have the opportunity to throw rakes out of their windows to slow their pursuers, and (3) they typically control the pace of adoption by the marketplace.

I keep thinking of companies like NetFlix, who started a new race in movie rental during a time when there were monster incumbents naysaying their outlook on the startup. NetFlix redefined the race all together as a home delivery service as opposed to a rental store model, and as leaders of this new category, were able to set the standard for consumers on how it was to be done, and those chasing them had to keep second guessing as to where they would go next, all while not getting the revenues associated with the new market.

The reason that so many first movers end up succumbing their lead is that they either fail to read the roadmap or forget to throw those rakes out of the windows.