May 22, 2009
By John Tozzi
Conventional wisdom says being first to market creates a competitive advantage. Reality is more complicated.
Market opportunities are constantly opening and closing, and a hit idea at one point could be a dud a year earlier or a yawning "me too" business a year later. It's tough—likely impossible—to pinpoint the best moment to enter a market, but common sense dictates new entrepreneurs can improve their odds if they weigh how much they stand to gain or lose by waiting.
New academic research suggests one way entrepreneurs can evaluate whether they should enter a market first or wait on the sidelines. The decision depends on how hostile the learning environment is; that is, how much entrepreneurs can learn by observing other players before they launch compared to what they learn from participating after they enter, according to Moren Levesque, an entrepreneurship researcher at the University of Waterloo.
Levesque, along with professors Maria Minniti of Southern Methodist University and Dean Shepherd of Indiana University, used a mathematical model to weigh the risks and benefits of entering the market early. Their research, published in March in the journal Entrepreneurship Theory and Practice is among the first to explore "how different learning environments may influence the entry behavior of entrepreneurs."
The crux of the academics' findings on timing is this: In a hostile learning environment, entrepreneurs gain relatively little benefit by watching others. For example, if the relevant knowledge is protected intellectual property, studying the market before entering wouldn't yield much advantage. In these situations, the trade-off favors entering early. But in less hostile learning environments, where entrepreneurs gain valuable information likely to increase their success just by watching other companies, companies benefit from waiting and learning lessons from earlier players.
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