What is a First-Mover Advantage?

A first-mover advantage is a term that refers to the competitive advantages associated with being the first significant company, product, or service to occupy a particular market segment.

The idiom, “The early bird catches the worm,” encapsulates this idea.

It’s important to note that first-mover advantage does not necessarily refer to the first company ever to occupy a given market segment. Rather, it refers to the first company to effectively capture a given market segment (which may or may not be the first company to launch in that space).

Benefits of being a first-mover

There are many rewards a first-mover may be able to reap, hence the term, “first-mover advantage.” Some examples include the ability to:

  • Become a market leader, especially if there is no comparable competition.
  • Establish industry standards.
  • Develop a brand identity and brand recognition early on.
  • Secure a loyal customer base over a longer term than competitors.
  • Lock in partnerships, contracts, and talent before any competitors do.
  • Develop new products and services, as well as tweak existing ones, over a longer time frame.
  • Minimize acquisition costs, due to the lack of competition.
  • Capture investor attention, if the product, service, or company is seen as a promising investment opportunity.

Disadvantages of being a first-mover

While it can be advantageous to be a first-mover, it isn’t necessarily a recipe for success. There are also many disadvantages first-movers may encounter. This includes the risk of:

  • Paving the way for new companies to improve and expand upon the company’s existing products or services.
  • Higher financial costs, given the need to establish a whole new market segment, among other first-mover costs.
  • Being knocked back by regulators, as well as banks and investors, as they may be hesitant to support an entirely new product, service, or company.
  • Failing to ‘keep up with the times’ if the company’s competitors are more successful with innovating and responding to customers’ demands.
  • Not being able to learn from the successes and failures of competitors, while competitors are able to do so with your company — even before they launch.
  • Being perceived by consumers as passé once newer, more advanced options become available.
  • Being scrutinized more acutely due to having a first-mover status.

Real-life examples of companies with first-mover advantage

The following are examples of well-known companies that are said to have benefited from first-mover advantage:

Real-life examples of successful companies that did not have first-mover advantage

Due to the possible disadvantages of being a first-mover, some experts argue that entrepreneurs and companies should instead aim to be a “second-mover,” rather than a first-mover.

Such experts assert that it’s easier to achieve success in the business world without the baggage associated with being a pioneer.

They point to the fact that many of the world’s most profitable companies were not first-movers and were therefore about to benefit from their predecessors’ successes and failures.

Some examples of companies that have enjoyed “second-mover advantage” include:

First-mover advantage is a concept that describes the benefits that may come with being the first significant company, product, or service to occupy a particular market segment. While there are indeed many advantages that first-movers may benefit from, there are also numerous disadvantages to keep in mind.