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Dirty Little Startup Secret: Barriers to entry
 

Dirty Little Startup Secret: Barriers to entry

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Intro to Barriers to Entry for Entrepreneurs

Intro to Barriers to Entry for Entrepreneurs

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  • Thank you so much AJ' ERIC
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    Dirty Little Startup Secret: Barriers to entry Dirty Little Startup Secret: Barriers to entry Presentation Transcript

    • MY DIRTY LITTLE START-UP SECRET BARRIER-TO-ENTRY STRATEGY FOR START-UPS http://www.flickr.com/p
    • when dealing with competitors
    • provided that you don't break the law
    • cheating is good
    • one of the best ways to cheat
    • is to change the rules of the game
    • to stack the deck
    • so that competitors find it harder, or more expensive, to do the same thing as you
    • in b-school, we teach Cheating 101
    • but we call it Barriers to Entry * From Porter’s 5 Forces if you’re looking to impress at a dinner party
    • ideally, you want to have low barriers to entry in any market space that you want to enter
    • and then
    • once you are in
    • you immediately slap up high barriers, so that future competitors cannot follow you
    • historically, start-ups have placed an over-emphasis on intellectual property
    • IP gives you a government-protected monopoly to profit from a specific solution
    • it is no longer free-market competition
    • you've changed the rules of the game
    • excellent cheating!
    • but IP is just one of dozens of barriers that a start-up has at its disposal
    • and frankly, one of the weakest
    • let’s take a tour
    • INTELLECTUAL PROPERTY VULNERABILITIES • Innovation around the patent • Reverse engineering • Shameless piracy • Prohibitive cost to enforce • Inability to protect across all jurisdictions • Public disclosure of IP required in registration Leverage the government sponsored monopoly privileges that come with registering patents, trade marks, or copyrights. Competitors are blocked from using your innovations without obtaining a license from you to do so. BACKGROUND COMBAT STATS Defence Strength LOW Cost to Setup HIGH Cost to Maintain MED COMBAT RATING LEGAL / GOV’T BARRIER
    • TRADE REGULATION VULNERABILITIES • Counter lobby • Forfeit of future growth markets If your competitors pay an additional 15% import tax in order to sell into your market, you're cooking on gas! Similarly, if you can help design safety regulations, subsidies, zoning, licensing procedures, subsidies or other laws such that your competitor products are disadvantaged, you are also laughing all the way to the bank. BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup HIGH Cost to Maintain MED COMBAT RATING LEGAL / GOV’T BARRIER
    • RECIPROCITY VULNERABILITIES • Be especially wary of jail time • Reciprocity has a quick half-life. You need to earn quickly and spend quickly. In many political contexts, firms use lobbying, favours, outright bribes, or other creative means to create reciprocity debt with powerful market players. These reciprocity debt pools can be called upon when needed to address competitors in creative ways. BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup HIGH Cost to Maintain MED COMBAT RATING LEGAL / GOV’T BARRIER
    • CONTROL RAW MATERIALS VULNERABILITIES • Competitor innovates an equivalent product from different raw material • Suppliers break their contract with you • Government intervention (anti- competition law) If you can control the raw materials required for production, you control the competitive landscape. For example, if the product absolutely requires Mangosteen extract to work, and you have 10-year exclusive contracts with 86% of the world's Mangosteen farmers, then your competitors won't be able to manufacture the product, as they simply won't be able to purchase raw material BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup HIGH Cost to Maintain MED COMBAT RATING SUPPLY CHAIN BARRIER
    • CONTROL TALENT VULNERABILITIES • Spin out start-ups • Someone always can pay more or give better perks • High-flyers often don't get a long • There are always new PhD's that put your PhD's to shame This is like control of raw materials, but specific to knowledge industries like high- tech, banking or pharma. In this case, you hire all the PhD's in the market so that competitors don't have access to the specific brain power. Then you comp them well and use bonus payments, equity, patenting support, etc to keep them locked-in BACKGROUND COMBAT STATS Defence Strength LOW Cost to Setup MED Cost to Maintain MED COMBAT RATING SUPPLY CHAIN BARRIER
    • COST OF PRODUCTION VULNERABILITIES • Once you drop your price, you may not be able to raise it again – you may win the war, but what you win is a no margin market. • Niche or Blue Ocean Strategies • Production / Manufacturing Innovation When you are big, and spending big wads of cash, your costs go down. For example, you get discounts for bulk ordering. With a reduced cost model, you can drop your price below what smaller competitors can sustain. You can also leverage specialized know- how (which requires high cost/long time to duplicate) or favourable geographical location to reduce cost. BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup HIGH Cost to Maintain MED COMBAT RATING MANUFACTURING BARRIER
    • CONTROL MANUFACTURING VULNERABILITIES • Primarily works only for specialized (non commoditized) manufacturing processes • Easy to have facilities break ranks unless they are well locked-in by contract or otherwise The idea here is to control all the factories that make your widget or you control the technology required to manufacture it. BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup MED Cost to Maintain MED COMBAT RATING MANUFACTURING BARRIER
    • SUNK COSTS VULNERABILITIES • Competitors may not always be rational If the manufacturing process requires expensive start-up costs and because of the nature of production, those assets can not be redeployed to some other production process, then entrants will be wary to invest because they may end up losing big. BACKGROUND COMBAT STATS Defence Strength LOW Cost to Setup HIGH Cost to Maintain MED COMBAT RATING MANUFACTURING BARRIER
    • CONTROL RETAIL REAL ESTATE VULNERABILITIES • E-Commerce • Multi-level Marketing • Channel margin war Why are there so many versions of Colgate on the shelf at your supermarket? It is not because they actually have that many distinct client segments. It is so that they can pack the limited shelf-space. If their competitors have no shelves upon which to display their products, nobody will be able to buy them. If you own shelf space your competitor is blocked. BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup HIGH Cost to Maintain MED COMBAT RATING DISTRIBUTION BARRIER
    • CLIENT LOCK-IN: BRAND LOYALTY VULNERABILITIES • Brain rewashing • It’s hard to brainwash in the first place Brainwashing is great. With brand loyalty lock-in, you convince your customers that their very sense of self (self image or personal brand) depends on your product. Without your product, or with another product, they are just sneetches without belly stars. BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup MED Cost to Maintain MED COMBAT RATING CUSTOMER BARRIER
    • CLIENT LOCK-IN: TYING VULNERABILITIES • Anti-competition laws • Need a pretty powerful product Y Tying happens when you force a customer to buy Product X if they buy Product Y. If Product Y is good enough, it locks in Product Y. BACKGROUND COMBAT STATS Defence Strength LOW Cost to Setup HIGH Cost to Maintain LOW COMBAT RATING CUSTOMER BARRIER
    • CLIENT LOCK-IN: SWITCHING COSTS VULNERABILITIES • Adaptors • Signing “buy-out” bonuses Make it financial difficult for a customer who has already purchased your product to switch to another one: • Phone number portability • Standards incompatibility & proprietary formats/APIs • Warranty on the whole, not the parts • Points & rewards programs • All or nothing service agreements • Licensing terms BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup LOW Cost to Maintain LOW COMBAT RATING CUSTOMER BARRIER
    • NETWORK EFFECTS VULNERABILITIES • Susceptibility to trend setters and new networks (Facebook vs MySpace) A network effect occurs when customers gain more value as more customers buy. Once a network reaches critical mass, it is hard for a customer to leave the network unless all the other customers move too. BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup MED Cost to Maintain LOW COMBAT RATING CUSTOMER BARRIER
    • PSYCHE WARFARE: VAPOURWARE VULNERABILITIES • Clients may eventually see what you are doing • Lead users may still buy if they are too excited to wait You are a small start-up that has come up with a cool new software product for enterprises. Microsoft sees it and thinks that it is a good idea, but it will take them 2 years to build, or they don't want to build it & just want to squish you like a bug so that the tech is killed in the womb. They announce that the feature will be supported in the next version of Windows. Lies, damn lies, statistics….and marketing. Will clients buy from you, or wait for MS? BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup LOW Cost to Maintain LOW COMBAT RATING GENERAL BARRIER
    • PSYCHE WARFARE: RETRIBUTION VULNERABILITIES • You have to always win • New punks with no memory will come eventually Nobody wants to enter a bloody, embarrassing battle (price or marketing war). If you respond to the first few competitors quickly, harshly, and with deadly force, you'll develop a reputation for retribution. Competitors will have learned not to mess with you and will self-divert to another market without you actually doing anything BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup HIGH Cost to Maintain HIGH COMBAT RATING GENERAL BARRIER
    • INNOVATIVE SPEED VULNERABILITIES • Actually, you don't have the only smart team • The weight of operations will slow you down in practice • Talent poaching • Key-man risk • Burn out Just innovate faster than your competitors. You know, whip those engineers until they bleed!!! BACKGROUND COMBAT STATS Defence Strength LOW Cost to Setup MED Cost to Maintain MED COMBAT RATING GENERAL BARRIER
    • WAR CHEST VULNERABILITIES • Fight fire with fire – clash of the titansJust out spend! Having a big war chest is its own barrier. You can just spend more on everything – Marketing, R&D, Manufacturing Infrastructure BACKGROUND COMBAT STATS Defence Strength MED Cost to Setup HIGH Cost to Maintain HIGH COMBAT RATING GENERAL BARRIER
    • CARTELS & EXCLUSIVE DEALING VULNERABILITIES • Anti-competition lawJoin together independent business organizations to regulate production, pricing, and marketing of goods by the members. This can occur either vertically or horizontally. BACKGROUND COMBAT STATS Defence Strength HIGH Cost to Setup LOW Cost to Maintain MED COMBAT RATING GENERAL BARRIER
    • ok, that’s my list so far
    • if you've got a sneaky trick to play on a competitor, please email it to me so that I can add it
    • thanks for reading this far!
    • SHARE THIS DECK & FOLLOW ME(please-oh-please-oh-please-oh-please) stay up to date with my future slideshare posts http://www.slideshare.net/selenasol/presentations https://twitter.com/eric_tachibana http://www.linkedin.com/pub/eric-tachibana/0/33/b53
    • CLICK HERE FOR MORE!!!!