First the good news about being first: There can be no question that it offers some tremendous advantages. If you are a breakthrough company in a brand new industry, for example, being first can make all the difference in the world.
The first company can create and define a category, it can shape the way people think, and can lead them to consider old businesses in very new ways. Perhaps even more importantly, being first in a new category allows a company to get a jump on building a self-perpetuating group of customers. Since in many cases companies attract customers through word-of-mouth evangelism, a head start in winning converts can be absolutely crucial.
There are clear examples of early movers who are winning, in no small part because they figured out how to play the game first. For example, assuming they can fix their too-frequent technological problems, the folks at eBay should be in an unassailable position.
eBay is well-recognized as "the" consumer Internet auction site. If a person has an item to sell, it would be rational to assume that individual would choose to offer that item on the site that attracts the largest crowd of auction bidders. Concurrently, if a shopper is looking for a particular item, especially anything even modestly obscure, the logical first place to look would be the biggest auction site--the place with the most items for sale. The pattern repeats, leading the big to grow even bigger at an ever-faster rate. Building the base first matters.
The second advantage to being first is in the learning. The Internet is new terrain for all participants, and many of the rules of the physical world do not apply. Success as an Internet retailer is all about on-the-job training. This process goes a long way to explain why Amazon.com, the first to start learning about how people buy products online, continues to blow away the later-to-market competitors and likely will obliterate Wall Street's expectations (including mine) once again this quarter. The company's first-related advantage is that it knows more--about the nuances of the business, about its customer base, and about online shopping habits in general.
The company that knows more can leverage that knowledge into greater sales. Over time, as the marketplace evolves, we expect online software retailer Beyond.com, the first to really focus on and learn about distributing consumer products electronically, to leverage that knowledge into a sustainable and profitable advantage.
So there are undeniably advantages to being first, but the current marketplace perhaps is taking this truism to extremes.
My phone rings consistently these days with companies--some with compelling plans and models and some with an appeal that may be a bit harder to discern--desperate to begin the IPO process right now. The call goes something like this: "Hi, I know that last time we spoke we were thinking of a late '99 IPO, but our board has decided to accelerate the process. After all, the market for Internet IPOs is so wildly hot (a rational reason), and because we have heard that a competitor is meeting with bankers. We have to go first."
No question about it, the market is hot. Plenty of businesses not quite ready for prime time in other eras can quite easily raise funds from public markets today. That doesn't mean that all of them should. Companies need to have a very solid understanding of both their customers' buying patterns and their own spending habits before they launch that IPO. Without that knowledge, which is learned only through experience, the risk of an unforgivable quarter of missed expectations during the first twelve months rises exponentially.
Companies that are ready are ready, those that aren't make a grave mistake and risk an ugly crash by accelerating too fast.
Truth be told, there is no recent evidence to suggest that the company that goes public first prevails against the stronger company that waited. Examples? Personal finance software company MECA went public years before Intuit. Checkpoint was one of the later Internet security companies to complete an IPO, behind Raptor, Secure Computing, and others that no longer are independent entities. Dell was a relative laggard in the PC marketplace, and it's worth remembering that Yahoo was not the first of the then search companies to tap the public markets.
History suggests that, over time, the market rewards stronger companies over weaker ones, regardless of which went public first. The key is a stronger business plan, better execution, and--at some level--better utilization of the IPO funds whenever they were raised. In the long run, better management, better marketing, and better execution matter much much more than the date on the IPO documents.