Early Bird Sometimes Goes Hungry

Entrepreneurs often wrack their brains to come up with a new idea, convinced that being first will guarantee success and make them millions.

But a recent survey of companies in 50 consumer product categories reveals that it’s not unusual for exactly the opposite to happen.

Nearly half, or 47%, of the market pioneers--those who were first to sell a product--ended belly-up, according to the study by two business professors. Market pioneers that survived accounted for only 10% of all sales in the consumer categories studied and led in only 11% of the categories, the survey found.

“Rushing to the market to be first with something new is not necessarily important,” said study co-author Gerard J. Tellis of USC’s School of Business Administration.

“What is important is that the small business or entrepreneur see the vision, see that this is going to be a big market down the line and have the persistence and willingness to invest” in the product, he said.

Tellis, a marketing professor, said he and his colleague, Peter N. Golder, an assistant professor of marketing at New York University’s Stern School of Business, found greater success among what they termed “early leaders”--companies that emerged in the early, but not beginning, growth stages of an industry.

On average, the study found, early leaders enter 13 years after market pioneers but have a minimal failure rate and a market share that averages almost three times that of the pioneers.

Debra Esparza, director of the USC Business Expansion Network, a small-business development center, said market pioneers often suffer from focusing on the development of a business idea rather than the market for it. Esparza said she saw business pioneers with gourmet coffeehouses fail years before the Starbucks concept captured the mass market.

John Rooney, president of the nonprofit Valley Economic Development Center, agreed. Businesses that are first to develop a solid, fundamental concept often lack the vision and expertise to make the product a mass seller, he said.

“Most entrepreneurs fail because they can’t pick it up to the next level,” Rooney said. “I’ve seen examples of me-too companies that copied a concept but with better management, capital and marketing and were able to take it national.”

But Rooney said he considers the 47% failure rate found by Tellis too high. Many start-ups go out of business by profitably selling, or they bring in a new management team, he said.

The Tellis and Golder survey results differ dramatically from previous marketing studies, which typically ask current leading companies if they were the first to market their products. Using such methods, companies that claim to be market pioneers are shown to have 30% of the sales in their product category.

Tellis and Golder instead relied on archival methods, researching 1,500 articles in 25 trade publications and business magazines and newspapers, plus 275 books on companies and industries. They looked for data on the historical pioneer companies for consumer products such as colas, diapers, copiers, VCRs, televisions and microwave ovens.

“Over the years, people forget,” Tellis said. “Researchers pick up the phone, talk to a manager and think they are getting the truth.”

Tellis and Golder found, for example, that although Procter & Gamble in 1991 celebrated the 30th anniversary of Pampers and implied that the company pioneered disposable diapers, the product was actually first marketed in 1935 under the Chux brand by Chicopee Mills, a unit of Johnson & Johnson.

Similarly, although Apple Computer is hailed as a pioneer in personal computers, the actual originator was Micro Instrumentation and Telemetry Systems (MITS), a New Mexico company that dominated the industry in 1976, Tellis and Golder wrote.

The study gave several reasons for the success of later companies over pioneers. Among them were a mass-market vision for the product, persistence in developing the product over the years and a willingness to invest in the product, even with losses.

In California, Ray Kroc was just a salesman before he bought out the McDonald brothers’ fast-food concept and expanded the company into a national and global success, Tellis said.

The study cites Sony and JVC, both of which spent 20 years researching videocassette recorders to bring the price down from the $50,000 model created by Ampex, the industry leader in 1956. The goal was a $500 model. By the mid-1970s, Sony and JVC had reached that goal.

Ampex ended up with only $480 million in video sales in 1985, compared with $2 billion each for JVC and Sony, according to the study.

“You really need vision to see that a $50,000 VCR would sell for $500 and would be a mass product,” Tellis said.

In a customer-driven economy, distribution may be more crucial than innovation, agreed Thomas O’Malia, director of USC’s Entrepreneur Program. Some companies focus on acquiring market pioneers rather than developing their own ideas, for that reason. They don’t have to spend their time educating consumers about the new product, O’Malia said.

“The only time to be afraid is when you’re the only one in the field,” he said. “It probably means there’s no market for your product.”

The Tellis and Golder report, “First to Market, First to Fail? Real Causes of Enduring Market Leadership,” was published in the winter 1996 issue of Sloan Management Review.