Entry barriers in business do not make it great anymore

by Ashvini on November 14, 2011 · 12 comments

in Business

A very common word that is used in any venture capitalist conference or any other entrepreneur training course is “Entry barrier”. VCs and others often ask what is the entry barrier to your business before they even think of financing your venture

Entry barrier

Definition of Entry barrier from Wikipedia is as follows

In theories of competition in economics, barriers to entry are obstacles that make it difficult to enter a given market.

The entry barrier concept was really useful when someone was putting a factory in areas that were unexplored. For example if you were starting a mobile phone unit where none existed , you had an advantage of early mover plus the fact the probably only you had that technology and which your competitor will take time to develop. Or you were starting a new software where you employed 200 people and made sure that you developed it so much that no one could ever match the scale of it.  These were the entry barriers.

Previously following were the entry barrier

  • Government regulations( for starting a factory for example)
  • High cost of raw material
  • Production efficiencies
  • Scale

Is the entry barrier so much of use in the new age economy? Unless you are building a power plant ( and most of the small and medium scale entrepreneurs aren’t), anything that you can do can be done by any other with equal resources.

To start a trading business, you don’t even have to have a factory. Just a website will do. You can outsource your supply to other countries, companies or people. You can outsource delivery. You can outsource IT, finance, human resource. You need just marketing skills and you can make money.

And so can your competitor.

To create a great web service for example, all you need is

  • small number of computers
  • 2-3 talented employees
  • Local test environment
  • Enterprise like servers provided cheaply by cloud hosting services

Now the cost of doing these is not very high and neither are the entry barriers. Anyone with a great idea can start a venture.

Thus government may not be able to restrict much in global environment, you don’t need factories and scale means buying more bandwidth.

Entry barrier is collapsing faster ever than before. The new age GEs, GMs are not 100k employing companies, they are small efficient companies. The entry barrier concept is undergoing a phenomenal change.

The new entry barriers to me are now as follows

  1. Not good but exceptional , exciting product

  2. Constantly engaged customer

  3. Quality of  Service, responsiveness,

  4. Presence on social media

  5. Customers’ satisfaction and their view about your company

  6. Team dynamics in the company

  7. Vision of founders

  8. Commitment of founders

  9. Ability to coordinate

    outsourced functions

  10. Employee engagement

If I were evaluating a start-up  it would be on the parameters above not on the entry barrier.

I would like to know your thoughts on it ? What do you think about entry barriers?

About The Author

{ 12 comments }

Hamish November 30, 2011 at 1:54 am

Hello Ashvini,

You made some very good points there, nice job. Strictly speaking, there are very few entry barriers these days – especially online. Even offline, you can subcontract manufacturing fairly easily these days.

To be honest, I think what you have listed forms a charter for success.

Ashvini Kumar Saxena November 30, 2011 at 11:08 am

Hey Hamish,
Thanks for your comment and welcome to my blog.
Entry barriers are going down by the day that is why all the big organizations appear frustrated with social media. I think it is a good thing because people with great ideas do not need large sum to start their own venture.
Glad that you liked the post :)

Max M November 23, 2011 at 3:55 pm

When you create a business online there are no barriers at all except the high competition in the niche where you are planning to work. For me this can be the only obsticale to start a business online.

AKS November 22, 2011 at 12:12 pm

Nice post ;)

Aswani November 16, 2011 at 7:47 am

Nice post Ashvini. I agree to your points. It is not the same anymore. The scenario has changed drastically and has opened up to new challenges or say entry barriers. As per my observation, the biggest entry barrier today looks to be knowing exactly what your customer needs and then planning accordingly. I think it is very important for businesses to go through this initial analysis first and then look towards putting bigger steps later…!

Ashvini Kumar Saxena November 16, 2011 at 4:56 pm

Hey Aswani,
Knowing your customers well has always been the important step in running a business. In today’s age , customers would like to know about you more because they are doing business with you. Openness in communication can really help .
Thanks for your comment :)

Adrienne November 15, 2011 at 9:54 pm

Hi Ashvini,

I would have to agree with Adam on this one. You really did hit the bulls-eye with this post.

I love that anyone with a vision can start a small business and with the internet, they don’t have to sink tons of money into it in order to create something wonderful.

Creating something exceptional or just standing out from all the rest. Either way, as long as they get noticed for what they have, they definitely have a better chance of making it.

Great advice Ashvini, thanks for sharing.

~Adrienne

Ashvini Kumar Saxena November 16, 2011 at 4:58 pm

Hey Adrienne,

If we look at blogging as an activity , then we find that the entry barriers really do not exist. They do in another form such as networking, sustaining for long term . But cost as an overall basis because we needed to buy servers, set up softwares is really going down fast. The new age is about being exceptional and also about communication.

Thank you so much for your comment. Glad that you liked it.

Anna November 15, 2011 at 12:41 am

OK, but how to become exceptional? It is never possible unless you believe yourself that you/your product is outstanding on the market. Of course your social media attendance is a must too.

Ashvini Kumar Saxena November 16, 2011 at 5:01 pm

Hey Anna,
Thanks for your comment.
Becoming exceptional is not a day’s work , it will take a lot of time. More important is knowing our strengths and explaining them well to our customer. Social media is quite important as you rightly said in order to propagate about what we do

Adam Paudyal November 15, 2011 at 12:08 am

Ash,
You really hit the bulls-eye here my friend. Nowadays anyone with a great idea/vision can start a small/medium sized venture online. Establishing an online venture is dirt cheap compared to establishing one offline.

All the 10 barriers you have mentioned makes a lot of sense. I really like number one. It is hard to stand out if what you bring out on the table is not exceptional. Same old same old won’t cut it anymore…(O:

Great thoughts brother…

Ashvini Kumar Saxena November 16, 2011 at 5:03 pm

Hey Adam,
Good to see you back and hitting off the comment in style :) .

Even an offline business can be made low cost. If you have got trading skills you can just get your supplies from somewhere and then make a shop in ebay. Sell on it. The point is that with enough thought anyone can start a business and the costs are not that much worry, if you have planned right.
Old things of creating scarcity does not work in the words of Seth Godin.

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