Barrier to entry

Other Business Term

Something that makes a business hard to start or compete with is called a barrier to entry. This can include: large amounts of capital needed, technical expertise, detailed niche knowledge, intellectual property (IP), regulations and certifications, sticky customers, strong customer relationships and key partners.

Getting established in a business with high barriers to entry is good once you are there because it lowers competitive pricing pressures which in turn will increase profitability.

There are many businesses with very low barriers to entry that attract new individual entrepreneurs or companies that lack resources: undifferentiated arts and crafts and unregulated street vendors are two examples. Very often this leads to excess supply of the product or service versus demand, low or no profitability for the companies in the business, and high business churn – many different companies continually starting and then closing their businesses.

Don Gooding

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