Page 18 - Business Plans that Work A Guide for Small Business

Entrepreneurs Create the Future • 9

those key milestones. For example, in developing a prototype, you may be
able to use your own resources, such as your time and small infusions of
your personal cash. After you have a prototype, the next milestone might
be to produce and sell your product or service. This might require in-
vestment from friends and family. Tying your capital needs to milestones
helps you test the concept, see if it passes, thereby ameliorating some of
the risk, and then move toward the next milestone.

3. The First Mover’s Advantage Is an Urban Legend

Having worked with numerous entrepreneurs and student entrepreneurs,
one thing that we hear over and over is that “our company will have a first
mover’s advantage.” Often, this is the sole critical assumption on which
entrepreneurs base their competitive advantage. In truth, first mover’s
advantage rarely works in isolation from other competitive advantages.
Numerous examples illustrate that the first to market is rarely the indus-
try leader in the long run. A company called Audio Highway had the first
12
MP3 player, but it was supplanted by Apple’s iPod. When Facebook was
founded, MySpace held the preeminent position in social networking.
Just four years later, in 2008, Facebook surpassed MySpace in the num-
ber of unique visitors and is now the dominant social networking site.
13
Visicalc had the first spreadsheet, but it was supplanted by Lotus 123,
which was supplanted by Microsoft Excel. Being first to market doesn’t
mean you will own the market.
True competitive advantage can be summed up in some combination
of faster, cheaper, or better. Most often, this occurs within a niche of a
larger industry. Home Depot is an example. It revolutionized the hard-
ware industry by offering a warehouse of goods. This allowed Home De-
pot to offer better prices because they could get volume discounts from
their suppliers. This power increased as suppliers realized that they could
move a lot of product though the Home Depot distribution channel. The
suppliers accepted lower margins on their product. Home Depot supple-
mented this advantage by hiring skilled associates who could answer the
do-it-yourselfer’s questions. Free clinics on common projects, such as

12 Audio Highway, “Audio Highway Announces the Listen Up Player,” press release,
September 23, 1996, www.nathanschulhof.com/ahway/news/Press/p5.html.
13 K. Allison, “Facebook Heads MySpace in Unique Visitors,” Financial Times.
June 22, 2008. http://www.ft.com/cms/s/0/302914bc-40a7-11dd-bd48-0000779fd2ac.
html#axzz18ffANT6T.