Saturday, June 23, 2007

Early Bird

Back in the late 1990s a phenomenon was sweeping through US protestant churches. Some churches were changing the style of worship music. Instead of singing traditional hymns backed by a large organ, they went to singing contemporary praise songs backed by a “praise band,” with electric guitars and drums. Choirs were replaced with song leaders and soloists.

This change in music seemed to strike a chord (pun intended) with a good number of people. The early churches which adopted this change in music started growing in membership very quickly. Many became “mega-churches”, with congregations of several thousand.

People in religious circles started to take notice. “Experts” in church growth started writing about it and, when consulting with churches that wanted to grow, advised them that they needed to ditch the hymns and go with praise songs.

At first, the advice seemed to work. Those churches that were early adopters of this new worship format saw similar types of rapid growth. However, after awhile, the later adopting churches which changed their format more recently were not seeing a similar type of growth. Instead, they were seeing the opposite—more people were leaving than coming.

It’s the same strategy as before. It’s still working for the early adopter churches. Why isn’t it working for the later adopters?

The early adopting churches of contemporary worship were providing something new and different to worshippers. Since only a small minority of churches were doing it at first, the people who wanted to worship this way had to flock to the few places that were offering it. This caused the membership in these early adopter churches to swell in size.

The later adopters were facing a different problem. First of all, many of the people at these churches were there because they did not desire a contemporary worship service. If they had really wanted contemporary worship that badly, they would have switched to worshipping at one of the early adopter churches.

Second, by switching over to contemporary worship late in the game, these churches were not really offering anything new that wasn’t already available. Those that preferred contemporary worship would already be worshipping at one of the early adopter churches of contemporary worship. There would be no reason for them to switch to the late adopter church.

Finally, the early adopter churches had attracted some of the best musicians of contemporary worship in the neighborhood. They had been at it for awhile and were pretty good at it. The later adopters were still adjusting to the change and were in most cases not as polished as what the early adopters had become by this time. So the later adopters would appear at first to not be as good at contemporary worship as those more established in the format.

Therefore, many of the ones who were in the later adopting churches who did not want the contemporary worship left those churches and few who preferred contemporary worship came to take their place.

Businesses can fall into the same pattern. Early adopters get a competitive advantage by getting into a new strategic trend while it is still relatively unique. Businesses who enter into the same strategy at a later date do not achieve anywhere near the same benefit as the early adaptors, even though it is the same strategy which worked for the early adaptors.

As they say, the early bird gets the worm.

The principle here is the principle of early adoption. In general, early adopters of a strategy get more benefits out of the strategy than later adopters. There are three reasons for this:

1. Negotiating Benefits
2. Differentiating Benefits
3. Perpetuating Benefits

This picture helps illustrate these benefits. These are explained below.

1) Negotiating Benefits
In the business world, when you have something new and different to offer, it is often difficult to get that first big customer. Nobody wants to be the first one to put their reputation on the line in case the new idea doesn’t pan out. However, once you land that first big customer and you can prove success, others will quickly fall in line around your product.

Since getting that first big account is so important, one is often willing to bend over backwards to get that business. You may offer that first customer a lot more than what the following customers get. This could include things like:

a) A lower price
b) More on hands help from the seller
c) More promotional dollars
d) Exclusivity for a period of time
e) Perhaps even a piece of equity in the company

The early adopter is in a much more powerful position when negotiating the deal. They can ask for and typically get more than if they wait, because the early adopter has to power to make or break a new concept or product.

I remember back when Sears introduced the Discover card. At first, no other retailer wanted to honor the card. It looked like it was going to be a dismal failure. Eventually, however, the Dayton Hudson company (now Target Corp.) decided to honor the Discover Card at its department stores and discount stores. Once Dayton Hudson signed up, others soon fell in line and started to honor the card. I would imagine that Dayton Hudson got a pretty good deal when they signed up to honor the card. It was most likely a better deal than what the followers got.

Best Buy discovered Netflix long before it was a popular brand. Best Buy approached Netflix with an offer to help make it a success. Of course, Best Buy was in a more powerful position than Netflix. Assistance by Best Buy could be the difference between Netflix succeeding or failing. So Best Buy negotiated a sweet offer and helped to make Netflix the powerful brand it is today. I highly doubt that those who came along later to help sell Netflix got as good a deal as Best Buy.

The point is that if you think a new idea or concept is going to take off, it is better to get in early, because that is when you have the most negotiating power to get a better slice of the new business.

2) Differentiating Benefits
As we saw with the churches, the ones who were early adopters created differentiation in the marketplace. They were offering something new and different. This gave people a reason to switch to the early adopters. By the time the late adopters got around to the change, it was not longer differentiating. It was just like others in the marketplace, providing little reason to switch to them.

You can see that with Best Buy and its Geek Squad. Best Buy was the first major retailer to provide great service on high technology. This gave them a competitive edge for a time…a reason to go to Best Buy over the competition. It was so successful that others eventually felt the need to copy the idea, such as Circuit City with Firedog and Staples with “Easy Tech” service. However, by coming in later, they were not offering anything new or differentiating. They were just playing catch up (and I’ll bet Best Buy picked off the best service people by being first, so that they will have a hard time catching up in quality of the service).

When you are the first to offer something that is truly new and desirable, one can often (for a time) charge a premium price and still grow market share. By the time the late adopters get into the game, it is more competitive. The premium price goes away through price wars. In the end, most everyone ends up with a similar offering, but the early adopter got more profits out of it during the time when it was a differentiating strategy rather than a “me too” strategy. So if you are all going to end up offering the service eventually, it pays to get in when there are still differentiation benefits (for market share and profit margin).

3) Perpetuating Benefits
If you are an early adopter, you get to reap the benefits of early negotiation and early differentiation. These help give you an advantage versus competition, who did not get the additional profitability and market share like the early adopter. These additional benefits can be plowed back into the business to make it even stronger than before (making it ever harder for competitors to catch up).

In addition, when others come along with the next big new thing, they will probably first go to the one who has the reputation for being an early adopter. You get to be first in line to get all those advantages again, which can further strengthen your position in the marketplace.

As a result, early adopters get into a perpetuating virtuous cycle, where they keep increasing their advantage relative to competition.

Eventually all great new things eventually become the norm—the radical becomes tomorrow’s traditional. If you wait until they are the new tradition before jumping in, you miss out on all of the advantages gained by the early adopter. If the transition is going to happen anyway, one may as well get in early.

Getting in early does not mean jumping into every half-baked scheme which comes along. Most new ideas are bad ideas. Be choosy. Just don’t wait until it is already a proven success before jumping in. Take calculated risks.

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