Whenever you're creating a new company you need to work on your pitch. Your pitch is a quick summary of why you're so great and what your advantages are. If you are creating something new (be it a product/service or market) then you'll list "first movers advantage". This is the idea that the "valley is fertile and no one has planted there". You move in first and the best of the "valley" is now yours. Personally I don't view starting something new as a wide open vista with everything in plain sight. If this was true then you can carefully survey and select where you will purse your business and what obstacles will stand in your way. Instead I view things in terms of blazing a trail in cross country skiing. You are trying to race as fast as possible and you are blazing the trail. The fresh snow hides all sorts of impediments and as you're trying to rush as fast as possible everyone else behind you gets to ski in your path. They have it easier and they can move faster than you with less energy. And if you stray off the path then they just angle in a different direction and move ahead.
First movers advantage was a phrase used a lot in the Dot Com days. I hear the resurgence of the term in speaking about FaceBook and Groupon. Of course before there was FaceBook there was Myspace. I don't hear anyone talk about Myspace. As concerns Groupon I hear about Living Social and a thousand other "daily deal" companies chasing the trail of the company in front.
In almost every situation first movers are at a disadvantage. First movers tend to be capital inefficient and bleed off their time and money in "blazing the trail". This is simply the issue of the S-curve of product/market adoption. As new products, services and markets are developed there is the one percent of consumers who are innovators. These are the consumers who jump on the brand new whatever. When you are a company trying to create the new product and/or the new market you have a tiny market to sell into. For every 100 people you speak to only about 1 percent is going to use what you have to offer. For clarification we're not talking about 1 percent of a potential market just sitting there waiting for you. We're talking about situations where pretty much each new customer you acquire increases the market size by about one more customer. There are no fields and fruit to pick. This is hunting, not gathering, and the hunting is sparse.
The next phase of new product and market development is the nine percent of consumers who are the early adopters. These consumers have heard and read about the new technology, new companies, new offerings and have waited for the first couple of solid offerings to come their way. This market is typically 10 times larger than the innovators. It's still small but it proves there is a market and the market adoption is accelerating. In my opinion this is the time to get involved in an industry. The innovation stage takes up lots of time and money and you don't really know when the market will move from innovators to early adopters. Sometimes the market NEVER moves from innovators. In this case it's just a niche industry or hobbyist space. When you are involved at the early adopter stage you are setting your company up to capture market as the market is growing. This is a much more capital efficient point to get involved and it sets up your company for an exit strategy as the market moves to mass adoption.
Mass adoption is the stage in which 90 percent of consumers embrace the market that is created. This is typically the stage when large established companies outside of this market "wake up" and get interested. These larger companies are well capitalized and typically they find it easier to buy market share than to try to develop it from scratch. This is typically the period in which existing players in this space can put out the "for sale" sign and exit with a very tidy return on their efforts.
Radial tires took seven years to penetrate 10 percent of the market and then seven more to capture 90 percent of the tire market. It took automobiles 14 years to reach 10 percent of households. Then it reached 90 percent between 1914 and 1928.
When assessing risk first movers are almost always not advantaged. Take the DISadvantage out of your start up and wait for the early adopter stage of your chosen market to execute your strategy.