When you Arrive Late to the Party

Relying on academic management literature for guidance can be a fickle business. For example, while “first-mover advantage” was once lauded as the optimum strategy for market entry, it was shortly displaced by its close cousin “second-mover advantage”. The thought went that the “second mover” could learn from the mistakes of the pioneering entrant who was likely to run out of money while trying to educate the market. Of course, some of these initial pioneering entrants did not run out of money and ended up dominating their space, thus striking a blow for advocates of being a “second mover”.

For “first movers” there are a number of poster boys, like Twitter, the micro-blogging platform, which has become so dominant that successful market entry by a direct competitor would be difficult to comprehend. The launch of the iPad created the tablet market, which did not exist prior to its launch but has since been flooded with entrants. For some cash-rich entrepreneurs, with the pockets, vision and patience of someone like Steve Jobs, the lack of a market is an opportunity rather than a problem. However, in the majority of cases, there may be no competition because there are structural reasons why a market does not exist (such as a lack of demand or a market size that is currently too small to serve profitably). In other words, the entrepreneur may simply have misread the opportunity!

For “second movers,” you can generally enter the market without the cost of the first mover. A subsequent entrant can study the incumbent when deciding how to design and position their offering. After all, imitation is the sincerest form of flattery. Competition also helps from a marketing perspective – trying to educate and attract a market on your own is a very costly exercise. However, in some cases the first mover is so dominant, subsequent entry would not be advised.

In other instances market entry is not always so easily defined. A recent example from the U.S. is the almost simultaneous market entry of Gowalla and FourSquare, both location-based social networking sites. These were soon followed by Rummble, and a host of others.

For entrepreneurs the lessons are clear – there are different things to be aware of when you start your business, in terms of market entry. If the market does not yet exist you need to ensure you have deep pockets as marketing is likely to be extremely costly. You also need to be confident that you are not ‘misreading the opportunity’.