SOMETIMES BEING FIRST-TO-MARKET IS THE LAST THING YOU WANT!
For many CEOs, driving their companies to be first-to-market is at the center of their strategy – and for good reason. According to innovation guru and Harvard Business School Professor Clayton Christensen in his groundbreaking book, The Innovator's Dilemma, first movers in new or emerging markets have a distinct advantage over their rivals. Will Ethridge, former CEO of Pearson Education North America, a global education services company, appreciates Christensen's concepts but disagrees – at least in part – with Christensen's almost unconditional view of first mover advantage.
"I often believe it is useful being first-to-market – when it works – because you're ahead of the market," says Ethridge. "However, in certain circumstances it's often better to be second or third to market."
Ethridge does consider – at least in theory – Christensen's view that first-to-market can make customer switching costs difficult. First movers, Christensen believes, do indeed create stickiness with customers who have already invested in your system and do not want to reinvest in order to switch.
As former head of this Pearson division, Ethridge needed to also consider the innovator’s pressure – the need to execute well if you want to be first to market. Execution is a major challenge and one where you can often trip up, according to Ethridge. He sees “first mover” as a tale of two cities.
It was the best of times: “We were first-to-market with homework applications enabled by computer technology. In that instance, being first in the market gave us increasing returns. People got used to our homework system which also made it harder for others to take this market,” he recalls.
It was so-so times: Based on his experience with another product launch that did not achieve the same market trajectory as the tech-homework product, he urges caution when considering being first with a bold new market entry. In this instance, the product was aimed at an undefined, emerging market with no clear leader. “We did not implement well,” he says, “and someone else got to the market sooner and did a better job on execution.”
He concedes that often you have a tough choice to make. You can try to become first mover and capture a healthy share of a high-growth market, or you can decide to be a strong second or even third entrant. By coming to market later you may initially cede the category to someone else but also benefit by learning from mistakes made by your predecessors. Apple and its iPod provide a shining example. Even though the iPod arrived late to the party, it greatly improved on the first generation set of MP3 players and became the defining product in the category.
This is exactly where Clayton Christensen and Will Ethridge begin to part ways. Christensen says that companies need to innovate and disrupt themselves in the quest to maintain market leadership. Ethridge generally agrees with Christensen’s innovation philosophy. Nonetheless, Ethridge raises a red flag of caution for all businesses who believe they can – and should – become first movers. Consider the rewards that being first mover can deliver and then balance them against your need to execute with precision and on time.
And there are other critical questions to consider:
- Are you too cautious to be bold? Is there too much at risk – or at least your perception of risk – for you to become a first mover?
- What do you know about the new set of competitors you will encounter in this new market?
- What is their market fortitude – their ability to withstand nail-biting and perhaps long-term financial losses?
- How deep are their investment pockets or their expertise at converting ideas into innovative products or services?
First mover advantage sounds good, sounds smart, but is it for everyone? Rule-breaking innovation also sounds good but can you execute on all cylinders, from R&D to launch? Will Ethridge will tell you that beyond having a good product, first-mover advantage also hinges on good execution.
A note on Will Ethridge: Before he became CEO of Pearson Education North America, Will Ethridge also served as President and CEO of Pearson Higher Education, International, President of Prentice Hall’s Engineering and Science and Math Divisions, and Publisher, Business Publishing Addison-Wesley Publishing Company.