Pets.com. Webvan. Boo.com.
These companies from the 90s may not be overly familiar to many readers as they’ve been out of business for almost twenty years. All were heavily backed ‘Dot-Coms’ that failed spectacularly at the turn of the millennium, breaking dreams and backers share portfolios in the process.
Although these companies might all be bad businesses, but they’re not necessarily all built from bad ideas. You can this reflected in their more successful modern day counterparts such as Pets.Com-esque Chewy, who is currently netting $5B revenue a year, Instacart and Ocado are almost carbon copies of Webvan’s on demand grocery model, and Boo.com laid the groundwork for successful online clothing businesses such as ASOS and, similarly named, BooHoo. These are healthy and profitable digital business, built on ideas like their Dot-Com predecessors.
There are several reasons why these businesses failed. Issues with their business model and infrastructure. Inexperienced leadership that often-made poor decisions. A market opportunity that isn’t quite large enough at the time or had limited consumer value benefit over the status quo.
Common amongst all these businesses however was that they were ‘the first’.
Being first can a deliver a huge reward if you get it right, but failure at an early stage is far more common than success. Very few of the first ‘Dot-Com darlings’ are still around today, and even fewer are market leaders. Amazon are eBay are the only two that spring to mind who weren’t an existing tech company, or an online extension of a heritage brand, and both Amazon and eBay have had their fair share of ups and downs during the last two decades. Indeed, Amazon’s share price was famously almost at ‘junk bond’ levels not long after the Dot-Com crash (and don’t you wish you’d bought shares then?).
Legendary start-up founder and funder Peter Thiel believes that being the first mover is no advantage. Yes, you can make a 10x improvement by inventing something new, but it’s much easier to radically improve an existing solution. Once you are 10x better than your competition, it’s much harder for them to catchup. Ultimately, it’s best to be the last mover- that is to make the last great development and enjoy years and decades of monopoly profits.
So why as an industry are we so often obsessed with being ‘first’?
Great innovation comes from solving a business challenge or dramatically improving the status quo by way of a new solution or method. Newness is always relative. The solution or method may be new for your company or department, but that doesn’t necessarily mean that it’s new to all (i.e. ‘first’). Doing something completely new means starting from nowhere, whereas focusing on 10x improvement allows you to start from somewhere – and often with the confidence that the solution will work.
Read the financial section of your chosen news source and you’ll likely hear a lot of discussion around how we’re in a second Dot-Com bubble. Big tech’s share price to earnings ratios are out of balance, their revenue numbers pale to more established brands, and tech companies are rarely turning a profit, if not losing millions each year as they pursue high sustained high levels of growth.
But unlike the first Dot-Com generation, these new tech companies are dominant in their market, with a broad customer base, with often with little no competition. It’s hard to see another search engine outgrowing Google any time soon, Amazon dominates most retail categories when it comes to eCommerce, and Facebook may have increased competition but still dominates both the app and social ecosystem.
These companies were not the first eCommerce, search or social media brands. They were early to the party, sure, but they were not a close second, third, or perhaps even fifth brand to launch in market. Like other dominant newer ‘digital’ brands like Airbnb, YouTube, Twitch, they learnt from the mistakes of others, built on established ideas and grew at a much faster rate, often off the back of technological adoption. These ‘modern tech’ brands are the companies that Peter Thiel is referencing when he speaks of ‘last mover advantage’.
I’ve written at length about how brands can and should act more like start-ups – introducing a culture of experimentation, improving ability to scale good ideas, streamlining internal operations.
But most start-ups fail. They fail not because of their internal behaviours but because they are often ‘moon-shots’ – good ideas with high risk, high reward business models, often well launched before their time.
There’s a lot to learn from what the first Dot-Com generation did wrong, but there’s even more to learn from what the companies that dominate the business landscape now did right. They weren’t the first but were instead often the last – innovating by doing something ‘new’ to improve, not necessarily to invent.