Why the Fear of Missing Out – FOMO – is unlikely to be a good reason to start a company

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The fear of missing out – or FOMO – can be a big component in decision making. It is easy to see others succeeding in a particular area and think ‘I could do that’. While business decisions are never argued for using the phrase FOMO, seeing your competitors succeed in an area, and wanting a piece of the action, can certainly drive interest to copy and also get in. This article explores reasons to stop and pause before entering an area, or starting a firm, based on seeing others’ success.

If you can see, and enter, likely others can too

Possibly the primary reason to pause before entering a market where you are seeing others succeed is that if you can see the success, most likely others can too. Failing to consider that a lot of other firms may also enter a currently attractive industry can lead to a sudden spike in competition and over-capacity: everyone decides the industry is a good one to enter following another firms success, a lot of firms enter, and suddenly the market is a lot more competitive (or oversupplied) than it was previously.

A cautionary tale: Daily Deal sites

A setting that embodies the FOMO phenomenon is daily deal sites. Groupon pioneered this space, with rapid growth and huge valuations. Seeing success, a surge of firms entered into the space – with intense competition for daily deals, suddenly it is very difficult for any firm to compete. 

By the time you enter, the existing firm will be further entrenched

It is also important to recognize that entering a market is rarely a quick endeavor. Developing a product, establishing relations with suppliers, and gaining customers can take several years. Not only is it important to consider the existing firm’s current abilities, but also further developments that they are likely to make over the coming years before you are able to establish yourself. By the time you launch, the market may have changed, and simply being at a comparable level to their current offerings may not be sufficient.

When it may make sense

Of course, there are situations where firms do succeed by entering a market after another firm has proven the viability of the market. You don’t necessarily need to be the first mover to create a successful company – indeed, you may be able to learn from the success of others and develop a more successful approach.

Specifically, there may be reasons to believe that the above points do not apply within your setting, and if that is the case, it may make sense to enter a particular market space.

  • Unlikely many other firms will recognize the success: For certain industries, success is very public – there are thousands of individuals and companies that saw the success of Groupon, and thought I could offer a service like that. On the other hand, you may be in a very specialized setting, where realistically there are only a handful of possible entrants that could also enter.
  • You have a compelling advantage: Another reason why it may make sense is if you have distinct resources and capabilities that actually allow you to compete – either more successfully than incumbents or potentially with a slightly different niche.
  • You are already well-positioned to relatively quickly move into the market: You may be fortunate that the new opportunity is relatively close to your existing approach, requiring only minimal adaptations to pivot into the new market. 

Further thoughts

There are clearly examples of successful imitations – companies that while not pioneering a market, have been able to enter and successfully compete. The key thing though is to critically evaluate not only whether you have the ability to enter the market and successfully compete relative to the incumbent firm, but also whether it is likely that there are hundreds of other companies also having similar thoughts. FOMO in itself is rarely a good justification to pursue a market opportunity.

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