When I was seven years old I had a lemonade stand.
A hand painted wooden sign emblazoned with, "Grand Opening! Shruti's Sweet Lemonade!" and another reading, "Only ONE dollar!" flanked the makeshift cardboard table I had set up in front of my house at the corner of our block.
Using lemons from a tree in our backyard, plastic cups left over from my birthday, water from the garden hose, sugar from my mom's pantry, and armed with the ultimate secret weapon -- my loud voice -- I was ready for business. As the sole owner and operator, I made a killing in my first few days of operation.
And then the business turned sour. Five competing stands took up across the street within that first week. Most of my neighbors thought the effort of the neighborhood children to exhibit an interest in enterprise was cute. I didn't.
I lowered my price from a dollar to fifty cents, yelled even louder, and smiled even bigger. That worked, for a while. Within a couple hours, however, all of the stands had similarly cut prices. A price war quickly ensued with lemonade prices dropping drastically from fifty to twenty to ten cents a cup.
I knew I had to change tactics, but how... ah! Before prices could hit a floor of free, I packed up my stand and moved to a different section of the neighborhood. I set up shop a few blocks away and decided to offer free lemonade with the purchase of a brownie for $2 (courtesy of my mom's baking). And it worked! I was making even more with this change in strategy. That is up until word eventually got out and within a couple days the other stands started offering baked goods and free lemonade.
Industrious as I was, it was then, at the ripe age of seven and after a week of dabbling in entrepreneurship that I decided to officially get out of my unofficial lemonade stand business.
The lessons I unwittingly learned are some of the same lessons both Fortune 500 executives and start-up entrepreneurs grapple with daily:
Being the first to market helped yet did not solidify much if any customer loyalty. There were minimal hurdles preventing competitors from playing in my space. Expanding my operation and diversifying the offering helped in the short-term, yet the easily replicable product line ensured that competing stands were able to follow suit with "me-too" type products in no time. And perhaps, most importantly, competing on price was not a point of differentiation.
Owning and operating a lemonade stand is probably the most elementary of commodity enterprises and doesn't require any proprietary technology, patents, human capital, or scale. Yet, swapping out lemonade for a more complex offering and having these sophisticated measures in place still isn't sufficient.
Technology can be copied. Patents expire. People relocate. Scale can be harvested with time. And prices, to the detriment of margin, can always be lowered.
Sustained success has to hinge on more.
Being a first mover is only advantageous to the extent that your product and service meets an unmet or existing need better than current offerings and creates a loyal consumer base quickly, whether via network effects or brand adhesion. Advantage is further sustained if switching to a competitive product is undesirable because of the functional superiority or emotional attachment offered by yours.
This type of first mover success happens more often with mammoth, established players (Apple comes to mind) who can launch a line extension or a new product within a beloved portfolio to an existing base and expect a solid demand schedule out of the gate.
If you're a start-up or early stage operation, however, even with ownership of an initial idea and first mover inclination, and even with initial rapid usage uptake, that still does not spell out advantage or market share. Chances are, if you ever leave infancy and start to ramp up, you'll likely get swallowed by a larger competitor, in a direct or tangential industry, before you even have a chance to draft a viable business model (Facebook buying Instagram comes to mind).
These days a venture's popularity seems to trump its profitability prospects.
I definitely had the most popular lemonade stand (granted market reach was capped at about 50 people). And I definitely had no prospects of future cash flow (absolutely none).
Hmmm, maybe I should have stuck with my entrepreneurial fling, seems like I could have been pretty well positioned for success.