Industry entry barriers make it hard for new firms to enter a marketplace. They may place disproportional costs or challenges on new firms, making it difficult for them to acquire necessary resources and compete compared to already established companies. This article explores approaches for new firms to overcome entry barriers – to work around difficulties that traditionally make it hard for new firms to successfully enter an industry with high barriers to entry.
Working a way around the entry barrier
One approach to entering a market that has high entry barriers is to systematically consider approaches for working around the barriers that traditionally keep firms from entering a market. Are there for example ways that you can enter without incurring traditional costs. Examples include:
- Established brand recognition: Is there a way of using gorilla marketing to achieve recognition without the traditional advertising budgets that larger firms rely on
- Long term history: Can you position your firm as the ‘new thing’, exploiting the benefit of being new
- Distribution capabilities: Is there a way of selling your goods to customers that does not need traditional sales channels – potentially direct to customers on a company website or potentially using social media
- Large scale manufacturing capabilities: Is there a way of adjusting the good so that it can more easily be made in small batches without the need for large capital investments
A key thing to look for is ways of sidestepping your relative disadvantage – instead of going head to head with a weaker position, to look for an alternative where you will not face the disadvantage that would otherwise exist as a new entrant.
Competing in an underserved segment of the market incumbents are unlikely to enter
Another approach around entry barriers is to target your product at a segment of the market which incumbent firms are not currently targeting (and preferably one that they won’t enter). There may for example be a segment of the market that is not the focus of established companies – possible users who have quite different needs. The offerings of established companies may not align with these different parts of the market – in turn presenting opportunities to launch a product that meets this segment of the market.
Changing the business model
Another approach to market entry is to develop a different business model, that makes money in a different way. If all existing firms are making money in a particular way – potentially you are able to develop a new approach, serving a segment of customers that either doesn’t want high initial capital expenditures (or conversely ongoing costs of subscriptions).
An example of a company entering a market with a different business model was Google’s entrant into the smartphone sector. Rather than selling phones with software (as Apple and many other phone manufacturers were attempting), or selling the operating system (as Microsft attempted), Google gave away its Android operating system for free to cell phone manufacturers (making money off the app ecosystem and other bundled Google products).
Changes in business models also have the advantage that incumbent firms can have a very difficult time responding. It can be very difficult for established companies to adapt their products to meet different customer demands.
Developing a technology that competes differently
A final approach that can allow companies to enter an established industry is to develop a technology that competes differently. Disruptive innovations – technologies that initially are worse on traditional evaluated characteristics – can allow companies to enter new markets. By focusing on a segment of the market that has different needs (potentially non-consumers that don’t buy a particular product because of the high costs), companies may be able to gradually attract consumers to their products. Over time, the new technology may improve, and gradually pull customers away from traditional suppliers.