Business Planning Considerations: Entry Barriers and Obstacles - dummies

Business Planning Considerations: Entry Barriers and Obstacles

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

An important step in assessing your business environment is to understand what kinds of obstacles — known as entry barriers — challenge new contenders in your industry. If the barriers are low, almost anyone can join the fray and compete for business. If the walls are high, entry is harder and fewer competitors make the plunge.

Consider the following examples:

  • Suppose that you’re starting a catering business. One entry barrier is the capital cost associated with acquiring kitchen, delivery, and serving supplies and equipment.

    To overcome the barrier, you may decide to rent use of a commercial kitchen, tables, linens, place settings, and glassware, and lease a delivery van until you get up to full speed. Or, to create a barrier to others, you may decide to invest in equipment and supplies that provide a competitive advantage that’s difficult for other caterers to match.

  • If you’re planning a clothing shop, it will have to compete with chain and online stores that enjoy the competitive advantage of a built-in economy of scale. Simply put, large retailers can buy inventory at a lower cost because they buy so much of it at a time.

    To overcome the barrier, you probably need to compete on attributes other than price: the quality of inventory, for example, or special services or unique fashions.

  • If you’re opening a hair salon in a town that already has a handful of successful beauty shops, your biggest entry barrier may be customer loyalty to existing stylists.

    To prevail, give customers a reason to change: an introductory bring-a-friend incentive or on-site day-care service, for example.

On a scale of 1 to 10, with 1 being the most significant impediment to success, rank the entry barriers that new competitors in your industry encounter and, if you’re launching a business, the top three barriers you’ll face. In your plan, summarize how you’ll use entry barriers to your competitive advantage. Also detail how you plan to overcome the obstacles represented by the top barriers your business faces.