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
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
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
Not good but exceptional , exciting product
Constantly engaged customer
Quality of Service, responsiveness,
Presence on social media
Customers’ satisfaction and their view about your company
Team dynamics in the company
Vision of founders
Commitment of founders
Ability to coordinate
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?