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May 28
2018

Entry Barriers

Posted by: Steve Marr

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When I meet with entrepreneurs looking to start a business I ask them to identify their main entry barriers.

A person who wants to start a new airline will experience formidable barriers to entry. The cost of aircraft is only the first step. One must acquire gate space at major airports which is costly and difficult because most gates are leased long term.  In addition, there is the cost of hiring pilots, cabin attendants and setting up a reservation and ticketing system. While it isn’t impossible to start a new airline, the entry barriers are significant.

 

Years ago, I started cutting grass to make a few dollars.  I took my parents lawnmower down the street, talked to a neighbor, and got my first job. Even today someone wanting to get into the landscape business only needs an old pickup truck, a few tools and you’re ready to get started. Nearly anyone can become a competitor at any time.

The principle here is that the more difficult the barrier to entry the more difficult for competitors to copy your business model and operation. One service may advertise that their lawn service is better than another. When I started my business, I knew that professional landscape companies provided higher quality and more regular service than I did; however, I was cheaper. Other kids cutting lawns along with the guy with the old pickup truck kept professional landscape companies from raising their prices. In most instances a customer would only pay a little more for the professional service.

Remember that if the entry barrier isn’t difficult, you won’t be able to charge a premium price for your product or service.  In order to obtain and keep customers, you will need to offer a low price. On the other hand, if your business has a high entry barrier, you can charge a premium price.

“Kathy “asked me for advice on starting a piano lesson business. Kathy had extensive experience and wanted to charge a substantially higher price for her lessons. I explained to Kathy that there were many other piano teachers competing to teach seven or eight-year-olds piano. Unless she was able to gain high level students aspiring to be professional musicians, she would need to keep her price competitive.

 

Scripture shares an example of entry barriers involved in church leadership. “Now the overseer is to be above reproach, faithful to his wife, temperate, self-controlled, respectable, hospitable, able to teach.” (1 Timothy 3:2, NIV) Likewise in your business, you need to understand the entry barriers in your field.  Carefully consider those barriers before you launch a business.

 

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