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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
• Prohibitiv...
TRADE REGULATION
VULNERABILITIES
• Counter lobby
• Forfeit of future growth markets
If your competitors pay an additional ...
RECIPROCITY
VULNERABILITIES
• Be especially wary of jail time
• Reciprocity has a quick half-life. You
need to earn quickl...
CONTROL RAW MATERIALS
VULNERABILITIES
• Competitor innovates an equivalent
product from different raw material
• Suppliers...
CONTROL TALENT
VULNERABILITIES
• Spin out start-ups
• Someone always can pay more or give
better perks
• High-flyers often...
COST OF PRODUCTION
VULNERABILITIES
• Once you drop your price, you may
not be able to raise it again – you may
win the war...
CONTROL MANUFACTURING
VULNERABILITIES
• Primarily works only for specialized
(non commoditized) manufacturing
processes
• ...
SUNK COSTS
VULNERABILITIES
• Competitors may not always be
rational
If the manufacturing process requires
expensive start-...
CONTROL RETAIL REAL ESTATE
VULNERABILITIES
• E-Commerce
• Multi-level Marketing
• Channel margin war
Why are there so many...
CLIENT LOCK-IN: BRAND LOYALTY
VULNERABILITIES
• Brain rewashing
• It’s hard to brainwash in the first place
Brainwashing i...
CLIENT LOCK-IN: TYING
VULNERABILITIES
• Anti-competition laws
• Need a pretty powerful product Y
Tying happens when you fo...
CLIENT LOCK-IN: SWITCHING COSTS
VULNERABILITIES
• Adaptors
• Signing “buy-out” bonuses
Make it financial difficult for a c...
NETWORK EFFECTS
VULNERABILITIES
• Susceptibility to trend setters and new
networks (Facebook vs MySpace)
A network effect ...
PSYCHE WARFARE: VAPOURWARE
VULNERABILITIES
• Clients may eventually see what you
are doing
• Lead users may still buy if t...
PSYCHE WARFARE: RETRIBUTION
VULNERABILITIES
• You have to always win
• New punks with no memory will come
eventually
Nobod...
INNOVATIVE SPEED
VULNERABILITIES
• Actually, you don't have the only
smart team
• The weight of operations will slow you
d...
WAR CHEST
VULNERABILITIES
• Fight fire with fire – clash of the titansJust out spend! Having a big war chest is
its own ba...
CARTELS & EXCLUSIVE DEALING
VULNERABILITIES
• Anti-competition lawJoin together independent business
organizations to regu...
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://w...
CLICK HERE FOR MORE!!!!
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Dirty Little Startup Secret: Barriers to entry

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Intro to Barriers to Entry for Entrepreneurs

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Dirty Little Startup Secret: Barriers to entry

  1. MY DIRTY LITTLE START-UP SECRET BARRIER-TO-ENTRY STRATEGY FOR START-UPS http://www.flickr.com/p
  2. when dealing with competitors
  3. provided that you don't break the law
  4. cheating is good
  5. one of the best ways to cheat
  6. is to change the rules of the game
  7. to stack the deck
  8. so that competitors find it harder, or more expensive, to do the same thing as you
  9. in b-school, we teach Cheating 101
  10. but we call it Barriers to Entry * From Porter’s 5 Forces if you’re looking to impress at a dinner party
  11. ideally, you want to have low barriers to entry in any market space that you want to enter
  12. and then
  13. once you are in
  14. you immediately slap up high barriers, so that future competitors cannot follow you
  15. historically, start-ups have placed an over-emphasis on intellectual property
  16. IP gives you a government-protected monopoly to profit from a specific solution
  17. it is no longer free-market competition
  18. you've changed the rules of the game
  19. excellent cheating!
  20. but IP is just one of dozens of barriers that a start-up has at its disposal
  21. and frankly, one of the weakest
  22. let’s take a tour
  23. 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
  24. 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
  25. 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
  26. 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
  27. 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
  28. 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
  29. 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
  30. 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
  31. 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
  32. 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
  33. 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
  34. 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
  35. 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
  36. 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
  37. 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
  38. 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
  39. 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
  40. 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
  41. ok, that’s my list so far
  42. if you've got a sneaky trick to play on a competitor, please email it to me so that I can add it
  43. thanks for reading this far!
  44. 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
  45. CLICK HERE FOR MORE!!!!

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