Business Planning Considerations: Creating Entry Barriers for Competitors
If the business you are planning is entering a new (to you) industry or market area, expect to face some barriers as you seek to compete profitably with companies already up and running in your area. At the same time, think about building some barriers of your own in an effort to up the ante for competitors who follow you into your business arena or market area.
Entry barriers come in a wide range of forms, including
Patents: By protecting your idea and production process, you can block others from legally using your approach for a number of years. Visit the website of the U.S. Patent and Trademark Office for information.
Cost and pricing advantages: Consider building a cash reserve to allow your business to cut prices or enhance promotions, if necessary, to force new competitors to operate at an unsustainable loss. Also, consider volume-purchase commitments with key suppliers in return for lower costs that result in product pricing that competitors will find hard to match.
Marketing advantages: Especially if you’re the first in your market with a particular product or service, commit adequate marketing resources to quickly build market awareness, a strong brand, and loyal customers. The faster you establish your product or service as the preferred choice, the more expensive unseating you in the marketplace becomes for newcomers.
Regulations and trade restrictions: Tariffs and quotas work as entry barriers to international and some domestic markets. If your industry is subject to trade restrictions, join industry associations, attend industry conferences, and follow industry news to keep up on the rules under which your business needs to operate. You should also participate in the protection of your markets from those who aren’t authorized to participate.
Economic factors: The price of equipment, licensing, research and development, or other mandatory expenses involved in setting up shop deter other competitors from entering your arena. As you establish your business, think in preemptive terms, selecting equipment and processes around which you can build a distinct and impenetrable advantage.