In business today, it’s universally assumed that speed is good—that the ﬂeet thrive while the laggards struggle just to survive. This belief is perhaps most strongly expressed in the concept of first-mover advantage. The company that leads the way into a new market, the thinking goes, locks in a competitive advantage that ensures superior sales and profits over the long term. It’s a nice theory, with a long pedigree. Unfortunately, the facts don’t support it. We recently completed an extensive study of the results turned in by market pioneers and followers, in both consumer and industrial segments, and we found that over the long haul, early movers are considerably less profitable than later entrants. Although pioneers do enjoy sustained revenue advantages, they also suffer from persistently high costs, which eventually overwhelm the sales gains.

No doubt, there are important top-line benefits to being a first mover. Early entrants tend to make a large and lasting impression on customers, earning strong brand recognition, and buyers often face high switching costs in moving their business to a later entrant. A great deal of academic research conducted over the past 20 years indicates that a true demand premium accrues to pioneers, which is directly attributable to the timing of entry.

The impact of early entry on costs is less well understood, however. On one hand, it’s been argued, pioneers should gain cost advantages by moving through the experience curve ahead of competitors, by gaining control over scarce inputs, and by establishing patents or other forms of technology leadership. Also, because of the relatively high switching costs, pioneers should have to spend less on advertising and other marketing efforts. On the other hand, followers clearly have some cost advantages of their own. They can, for example, learn from the mistakes and successes of their predecessors, reducing their own investment requirements as well as their risks. In addition, followers can frequently adopt new and more efficient processes and technologies, whereas pioneers often remain entrenched in their original ways of doing things.

Until now, it’s been difficult to determine with precision the net effect of early entry on costs, making it problematic to get an accurate read of the relative profitability of pioneers and followers. To fill this knowledge gap, we studied the actual revenue and cost performance over time of both pioneers and followers. We examined 365 business units competing in consumer goods markets and 861 units competing in industrial markets, spanning the years 1930 to 1985. Drawing on the extensive PIMS database of corporate performance, we modeled these companies’ relative revenues and costs as well as their profits as measured by net income, return on investment, and EVA. We used various methodological controls to isolate the impact of order of market entry, filtering out other variables such as level of resources.

Our findings were dramatic. Pioneers in both consumer goods and industrial markets gained significant sales advantages, but they incurred even larger cost disadvantages. We found that pioneers in consumer goods had an ROI of 3.78 percentage points lower than later entrants. And the ROI of first movers was 4.24 percentage points lower than followers in the industrial goods sector. The bottom-line result: Pioneers were substantially less profitable than followers over the long run, controlling for all other factors that could account for performance differences.

Pioneers in both consumer goods and industrial markets gained significant sales advantages, but they incurred even larger cost disadvantages.

It’s important to note that the profit disadvantage kicked in only over the long run. In the initial years of a new market, the first mover tended to maintain a profit advantage, as the revenue benefit outweighed the cost penalty. But as years passed, the brand and marketing advantages faded while the cost penalty persisted, which steadily eroded the profit edge. On average, the profit advantage turned to a disadvantage after approximately ten years for consumer businesses and 12 years for industrial businesses.

Our research should not be interpreted to mean that companies ought to dismiss the importance of a speedy market entry. Rather, it suggests that executives need to cast a cold eye on market entry plans that assume that being first will inevitably create long-run profit advantages. The question that needs to be asked is not “Can we be first?” but “How exactly will being first affect our costs and revenues over the long run?” In other words, are there additional factors that will either create an especially large revenue advantage or prevent the company from falling victim to a cost disadvantage? If it’s not backed up with clear and well-reasoned economic logic, a first-mover strategy should be approached with skepticism.