The Theory of Being First – And Second – And Last

By Mo Fakhro

I was surprised to learn today that Harvard University is the oldest university in the United States. It does seem to suggest a correlation between being the first in a sector and being amongst its leaders. Jack Welch, the late CEO of General Electric, was famous for saying that he preferred to be the second in an industry because he could learn from the mistakes of the first. So, which is better, being first or being second? I think that both have advantages and disadvantages. From a purely financial standpoint, I would agree with Mr Welch that it is better to compete in a sector that already exists than to take chances trying to create a sector that does not exist. Steve Jobs was famous for saying that customers do not know what they want, which implies that it is better to create a new sector or product category and be the first to make it work.

Oxford University is the oldest university in the United Kingdom. IBM, Coca Cola, and Amazon were not the first in their sectors, but they were perhaps the first to succeed on a mass scale at what the do. Silicon Valley was the first to create a technology cluster and no city has been able to emulate its success so far. So perhaps the correlation between being the first and being the best relates to the cluster effect or the network effect. In other words, in industries where the network effect is more important, being the first creates a barrier to entry that is difficult to overcome. Dubai is arguably the first city in the Middle East to create a cluster to attract people through tourism, business, and security.

In other instances, being the second wins. Google was not the first search engine. Facebook was not the first social network. General Electric was not the first to build jet engines. They succeeded by being better than their competitors in sectors that already existed, and so being second has its advantages too.

There is a well-used sales strategy in souqs and bazaars whereby a number of options are presented by the seller to the buyer, with the preferred option being presented last. This suggests that the customer is often prepared to try alternative products before settling on their preferred choice. This would suggest that being last to an industry is the most desirable. Of course, this would only work if the new option offers an advantage over the previous preferred choice. Examples of this would be the shift over time of manufacturing from the UK to the US to China to South East Asia to India. One can infer from this that the next shift would be to Africa but this may not ultimately happen because manufacturing itself will become less people dependent over time, and Africa is relatively fragmented and less well governed than other regions.  

How does this information help us to predict who the winners will be in nascent industries? Will the first movers of today be the market leaders of tomorrow? Or will other players emerge? One could argue that in industries where the network effect is important, the first movers of today will be the market leaders of tomorrow. An example of this would be generative AI. The first mover appears to be OpenAI, and it is gaining data from its initial users that will give it an advantage over newcomers to the sector. This would suggest that just like Harvard was first and thus attracted the best professors, students, and funding, the same would apply to OpenAI. In sectors where the network effect is not as important, first mover advantage is not as important, one could argue. An Example of this would be companies like 23 And Me, which recently closed down. While it was the first mover and market leader, it was unable to create a barrier to entry by creating a network effect. If you are unable to create a cluster effect, then you will need to depend on having a strong brand or great service to set yourself apart. While this is possible, it is more difficult to use it to maintain a barrier to entry.

The surest way to succeed over an extended period it would seem as a company or a city or an institution is to create an ecosystem. I believe that is the main benefit of being a first mover. Once you have an ecosystem, the task of maintaining it becomes important, and perhaps that is where openings often occur for first movers to be unseated by second movers. Institutions that depend more on branding than on ecosystems, like fashion retail companies, will tend to have lower barriers to entry and perhaps lower life spans, and will be ones where the title of being the best constantly shifts towards new entrants to the industry.

And that my friends is my attempt to theorize the magic of being first – and second – and last.