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.