Understanding Barriers to Entry

Barriers to Entry from The Startup Garage
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Entry into any market by a startup business is in some way possible, though it is often constrained by some sort of economic, procedural, regulatory or technical obstacle.  Such obstacles are often referred to as ‘barriers to entry.’  Some examples of barriers to entry include high startup costs, strict laws and regulations, inability to access resources, economies of scale, high tariffs, high switching costs, zoning, distributor/supplier/vendor agreements and customer loyalty.

Creating Barriers to Entry

Industry leading competitors often put a lot of focus on establishing barriers to entry to keep new entrants out of the market.  The more a competitor can achieve customer loyalty, benefit from economics of scale and limit new entrants access to resources, for example, the more difficult it will be for a new entrant to compete.  The most effective way to establish barriers to entry is through developing sustainable competitive advantages that are difficult for competitors to replicate.  Some sustainable competitive advantages that many companies turn to include

  • Intellectual property – patents, trademarks, domain names, copyrights and trade secrets that provide competitive protection)
  • Dynamic product lines that allow companies to establish multiple revenue streams and follow-on product variations
  • Cost advantages – economies of scale, vendor relations, or some other factor that allows you to offer a significantly lower cost than your competitors
  • Brand loyalty – keeping your customers happy can be the most effective way of keeping them from turning to your competitors.

When you are in the business planning process and writing your business plan, be sure to think about sustainable competitive advantages and barriers to entry that you can establish to make it difficult for new entrants to cut into your successes.

 

Whether you have a question about sustainable competitive advantages or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

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About Tyler Jensen

I work with entrepreneurs who are looking to attract investment and get out of the "Garage". I am passionate about helping entrepreneurs start companies that matter. I helped launch over 100 Companies, Non-Profits and Social Enterprises. I consider myself a serial entrepreneur, startup coach & trusted advisor. * Launching New Companies (For Profit, Non-Profit and Social Enterprise) * Expert Business Plan Writer * Extensive Network of Business Relationships focused on Launch & Rapid Growth of New Companies * Startup, Growth, Marketing, Technology, Web, Business Systems * Trusted Advisor to CEO’s & Entrepreneurs * Capital Raising Strategy Development * Startup Team Development The first company I started and sold is VAVi Sport & Social Club which grew to over 25,000 members in six years, was recognized as San Diego’s 30th fastest growing private company in 2006 by the San Diego Business Journal and 32nd fastest in 2007, and sold for over 25X the capital investment.