Tuesday, October 22, 2019

New INC. Magazine Blog Post by Kaplan Institute Exec Director Howard Tullman


The Myth of the First Mover Advantage
Get to the market first and you capture most of the business, right? Not anymore. Customers are too demanding and competitors are too good. Your product and service has to deliver everything you've promised from day one.

Executive director, Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, Illinois Institute of Technology

We spend a lot of time talking about first movers in the startup world. We pretty much take it for granted that getting out there as soon as possible with our idea is basically a good thing even though there are clearly downsides to being a pioneer, including the problem of winding up with a bunch of arrows in your back from both fast followers and from increasingly smart, rapidly reactive and agile incumbents as well. 

Being first is nice, but in the long run, consumers ultimately go with the best. Among online shoppers these days, there's a lot more caution and conservatism, because too many of them have been burned by startups that got too far out over their skis and couldn't deliver the goods or services promised. Rent the Runway may play into the new thrifting and sustainability trends that are so popular right now, but if the company can't handle the influx of new customers or ship their goods on time, its service isn't a bargain or a benefit for anyone.  Don't think you can have too many customers? Or that it's a problem that just startups face? Ask Apple (iPads), Microsoft (Xboxes), Toyota (Priuses), or even Amazon with the early Kindles? They've all run out or sold out of key new products.

Being the "best" these days can mean a lot of different things in the consumer's mind. Best can relate to quality, service and support, reputation, consistency, longevity, stability, etc. This is one of the reasons that startups often end up setting the table and identifying new market opportunities for the big guys to then jump all over. When the elephants dance, the little guys and the grass take a beating.

New product ideas and speed to market are important, certainly, but they're not the only success factors - especially when you're talking about certain kinds of household products that we buy infrequently and hang on to for a long time. Refrigerators and washing machines are good examples. Mattresses are another instance of something, you would think, that we'd want to be durable and long-lasting, rather than disposable. Yes, you could argue that, for kids in their first apartments, these foam-slab mattresses made and shipped by outfits such as Casper make as much sense as anything else in a world where it's all about near-term utility and not about possessions or ownership.

But even if your customers don't plan to keep their mattresses forever, that's only half the problem with this particular business model. The central question is, how often am I gonna buy a new mattress (not very) and what, if anything, do you think you're going to sell me in the meantime? And why should I believe that you bring any supply chain edge, assembly or manufacturing skill, or other competitive advantage to sell me a lot of other stuff that I can get (and have been getting) from a million other places? It's not like I never bought sheets, pillowcases, duvets, and even bed frames in the past. There's a Bed, Bath & Beyond everywhere you look. (Okay, maybe less than everywhere--the company just announced it was shutting 40 stores.)

And some brands and some businesses just don't stretch no matter how hard you try or how much wishful thinking you do. I really love my Kohler sinks, tubs and toilets, but I draw the line at stopping by the Kohler Water Spa  to learn about the healing properties of H2O. 

This is similar to the case I made against the Uber model. My main point was that not every business or industry can be Uber-ized. And, that's why I say Casper and its counterparts and colorful competitors like Purple and Avocado are ghosts in the making. Not only isn't the model extensible in any convincing fashion, it's vulnerable in too many ways. Fast followers like Leesa and Saatva are all over the place with New York Times ads dumping on the "bed-in-a-box" concept and the big sleep guys, Serta Simmons and Tempur Sealy, are building (Cocoon) or buying their way (Tuft & Needle) into the space as well.

It's increasingly important when you look at the prospects for a given new business that you identify the kinds of products and services that have no business being a first mover (or maybe any "mover" at all) because they have no sustainable business idea that can scale and grow beyond that first frantic and frothy stage. The vast majority of these companies "start", but they never "up".  And we're starting to see more and more examples of this "one-trick pony" problem where there's just no worthwhile place for the new business to go or to grow because their basic product or service offering can't or won't scale.

The rush is on for all of these companies to find a way to run from first base to second base before the money, the momentum, and the good PR and press disappears. Keep in mind that Casper, among others, has never made a profit since its founding in 2014. They're trying to sell anything and everything you can imagine for the bedroom. And, of course, the pure online guys have all started to open bricks and mortar locations. In addition, they're trying to dream up (no pun intended) other ways to get back into their customers' pockets or to pull in new prospective customers just looking for a better night's sleep. They're going to find this to be neither a peaceful nor restful process-- and it's not going to end well.
Because this is not a dream at all - it's a nightmare waiting to happen.


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