People are copying! How do I build barriers to entry?

This article first appeared October 1, 2009.

Dear Aunty B,

I run a start-up business that is in a niche space. But we are fairly easy to copy and I feel very vulnerable. Now a newcomer with an even smaller niche has taken a customer and a slice of revenue. I keep hearing about building barriers to entry so the company is more protected.

How do I build those?

LT,
Paddington

Dear LT,

Scary isn’t it, looking over your shoulder all the time. The good news is that you recognise you are vulnerable. Most entrepreneurs believe their product is superior and they have no competitor. Honestly. We ask them who is your competitor and they look me straight in the eye and say “we haven’t got one”. I often feel like saying, in your dreams honey… and I admit. I often do. And often what these entrepreneurs also miss is that the competition comes not from the old incumbents but from the new nimble players that were once like them.

Here is what you must do: understand what makes a strong barrier because this is an essential condition for growth.

First, have a look at your company. Do you have high start-up costs that lock out smaller competitors? Do you have patents, trademarks? Do you control your distribution channel? Is it impossible to reverse engineer your products? Check all those things off before you move to number two.

Now look at your suppliers: are your suppliers locked into contracts? Can you restrict the source of supply to possible competitors?

What else can you do to ensure that your suppliers remain loyal and committed to you?

Then take a good look at your customers. Your aim is to have repeat customers and sell them more things of greater value. So as soon as you have them on board you have to pull up the gang walk so none can come in behind them.

How do you stop your competitors selling to other customers? The best way, apart from delivering superior customer service, new ideas and getting them to love you to death, is to strike an exclusive deal with them.

Now why would they do that? Well, because you will offer them an incentive such as economies of scale, better pricing – and it is just easier and simpler dealing with you than switching over to the competitor. Tom McKaskill did a great story on this.

Finally, you want your customers to feel that you are helping them – and their customers – build better businesses and be more profitable. You do this by sharing unique knowledge and by being helpful whenever you can.

Technology is also crucially important. Have you got the latest and the best technology to give you a competitive edge? Are you already thinking about the next new thing?

Finally your staff. Are they locked in? Have you got a vision to attract the best staff? Can they see a career path? Are they excited by the challenge? Will they stay and help you grow tomorrow’s big business?

Remember, your aim is to make it difficult, expensive, resource depleting, stressful and impossible for anyone to get anywhere near you! I am sure readers have more ideas! Send them in.

Your Aunty B

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