It has been shown that first movers tend to make a lasting impression on customers, generating strong brand recognition ahead of the field, thereby reducing marketing expenses. And depending on the industry, consumers may also have to contend with prohibitive switching costs if they were to consider moving their business to a later entrant.
An early mover may also be able to gain control over the supply chain, a point worth considering if you’re in the business of producing lithium batteries for the EV market. It could also gain a tight grip on the market through the development of patented technologies, although in the case of Tesla many would consider it a moot point given Elon Musk decided to render much of the group’s intellectual property as open source in 2014. The reality, however, is that although Tesla won’t initiate a lawsuit against infringement of a patent if the other party acts “in good faith”, the nature of the restrictions placed on any company utilising the group’s open-source materials could hinder that company’s ability to protect and assert its own intellectual property.
Conventional wisdom has it that there are definite advantages if you’re first out of the blocks. But there are potential drawbacks, particularly in terms of unanticipated costs. This came to mind recently, when news emerged that Tesla was launching an investigation after surveillance footage showed one of its Model-S vehicles exploding in a car park in downtown Shanghai. This follows on from an earlier incident, when a Model-S burst into flames while driving in Los Angeles. China accounted for around a fifth of the group’s 2018 revenue of $21.5bn (£16.5bn), but the group has only scratched the surface of that market, so a technical team was dispatched with haste.
Conceivably, the problem could prove to be a one-off glitch, rather than anything that might prompt a general recall. If the latter came to pass, other manufacturers entering the EV market would have the benefit of any remedial actions undertaken by Tesla, learning from the group’s mistakes, while effectively reducing future capex requirements. It’s a bit like a golfer reading the line of his opponent’s putt.
With every mistake we must surely be learning. If you’ve accessed this article online you will probably notice the small green Excel icon at the foot of the screen, but that could quite easily have been a Lotus 1-2-3 motif. Midway through the 1980s, Lotus 1-2-3 was the leading spreadsheet software, having supplanted and then incorporated VisiCalc – the first spreadsheet application developed for business – but Excel would eventually hold sway due to Microsoft’s ability to improve on others’ ideas, as Steve Jobs the co-founder of Apple Inc (US: AAPL) would readily attest if he was still with us.
Another point worth considering with start-ups is the extent to which the regulatory burden will stifle growth. Regulation typically lags commercial innovation. So, in relative terms, digital platforms such as Google (US:GOOGL) and Facebook (US:FB) enjoyed a lengthy honeymoon period on the regulatory front, although that has changed over the past 18 months or so. And we shouldn’t forget Uber’s recent travails on this score, where initial success in disrupting traditional business models has increasingly given way to regulatory wrangles.
