Small Business Idea

What is “Barrier to Entry”?

Simply put, “barrier to entry” refers to the difficulty of getting started in a given niche or specialty. If the barrier to entry is high, that means its hard to get started or to “pass the barrier”. If the barrier is low, almost anyone can get started with little effort or skill required.

Examples of High and Low Barriers to Entry:

The following business ideas all have a high barrier to entry:

• Private health clinic (barrier = years of medical training and business set-up)
• International widget distributor (barrier = years of building a company from the ground up)
• Industrial manufacturer (barrier = heavy initial investment in machinery, supplies, labour, etc.)
• Nuclear power supplier (barrier = unbelievably high investment requirements, political regulatory requirements, decades of clean safety records, etc.)

The following business ideas all have a low barrier to entry:

• Blogger (barrier = free account, a few minutes, and a few good ideas)
• Neighborhood snow shoveler (barrier = $10 snow shovel and 15 short conversation with 15 neighbors)
• Advertising based website (barrier = $20 hosting and domain registration plus some way of getting internet traffic)
• Dog walking service (barrier = contact with dog owners willing to pay you to walk their dog)

Leveraging Low Barriers to Entry

Leveraging a low barrier to entry in your small business plan is great for one simple reason: it is really easy for you to get started. Starting a blog, opening a small-scale neighborhood service, or some other really simple business has little to no startup costs, little to no employment requirements, and little to no personal risk. In other words, its really easy to move from the planning stage to implementation.

However, the problem with these businesses is that you’re likely to encounter high levels of competition. If you could get started with $10 and an afternoon’s worth of effort, so can 500 other people. As a result, businesses with a low barrier to entry are likely to have minimal potential as stable, reliably profitable businesses. Unless you’re willing to work like an SOB for years and years at your idea (perseverance, by the way, is a high barrier to entry kind of thing), it is unlikely that your business idea will work on the merit of the idea alone.

Leveraging High Barriers to Entry

Leveraging a high barrier to entry in your small business plan is also great for one simple reason: its tough for competition to crowd you out of getting customers or charging premium rates. Exclusive systems that weed out competition are at the heart of most professional programs (years of medical school, strenuous CGA tests, tricky logic tests to become a lawyer…), high-skill professions (eg. pro basketball player or opera singer), and big business (capital-intensive facilities, a committed and talented workforce, real estate at the right street corner…), meaning that it is potentially very difficult to compete with established players who are already decades or leagues ahead of you.

On the flip side, if you’re the one already past several barriers to entry, you have the ability to stay several steps ahead of your potential competition. In fact, the chances are that you have several advantages over potential competition that you’re only marginally aware of. Think up a list of barriers you’ve already passed and think about ways you can use them to your advantage.

To help you recognize existing strengths, the following list shows potential barriers you may have passed that can be twisted into your own small business, well beyond the reach of 50,000 would-be competitors:

• undergraduate degree, graduate degree, professional certification
• finely tuned skill only .001% of the population possesses
• lump of cash to accelerate the startup process
• years of experience starting & managing businesses
• a fruitful network of people and acquaintances
• technical skills, physical skills, ______ skills
• real estate in choice locations
• credibility and reputation from another walk of life
• and the list goes on and on…

The Bottom Line:

If you’ve got some exceptional skills, knowledge, certification, or other advantages that leapfrog you past would-be competitors, use them whenever possible. By standing inside difficult barriers to entry, you automatically make your business more stable, more valuable, and potentially more profitable.

Or, if you’re just new to the game and are planning a business with a low barrier to entry, work quickly, work diligently, and try to leverage cost-free qualities with a high barrier to entry (integrity, perseverance, brilliance, cunning, and excellence; all qualities more rare than you’d think) as quickly as possible!