Business is a game of survival of the fittest. You can execute flawlessly all day long and still fail due to market conditions. There are many strategic approaches to positioning your company for survival by creating barriers to entry. Barriers to entry create hurdles for competitors, and, in many cases, can eliminate competition altogether.
I think of barriers to entry as working to prevent new competition from entering the market AND as a powerful way to disrupt current competition. So as you’re reading this, keep in mind that you can use barriers in both cases, which makes the process of creating barriers an important strategic activity regardless of your company’s stage.
One of the very first tasks you should undertake is exploring your patent position. I know first hand how exhausting this process can be, but there are few more powerful ways to protect your ideas.
Patents give you a powerful tool for preserving your business. In the case of Real Agent Guard, a security solution for real estate agents, we have literally had competitors shut their doors upon getting notice of violating our patents. At a minimum, you force competitors to spend a lot of time and resources researching and re-working their systems. Best case scenario, they shut their doors. But another benefit is that you may be able to force your competition to send you royalty checks, which bring you revenue and drive up their prices.
Take the time to get your patent position well-established. Just one small patent on a critical component can be a game changer for your company.
Lastly, patent research can help identify areas where you may be in violation of someone else’s patent. Discovering this on the front end can help you make critical decisions early.
One of my favorite ways to create barriers to entry is through legislative efforts. While this could be at a federal level, most industries have legislative bodies that create policy by which vendors must abide.
Look at some feature or service that you provide that your competitors may not offer, or create a unique service or feature, and then lobby the legislative bodies to require that service. This puts you in the position of being the first to market with the requirements, and forces competition to scramble to get up to speed.
At Real Agent Guard, we’re lobbying several legislative bodies to require that all security solutions for real estate agents must include a very specific component—this also happens to be the component for which we hold the patent.
See what we did there? Can our competitors ever truly compete if we get this legislation enacted?
In many industries, there are services and products that are very common, and their price points are well established. Can you undercut the market for the purpose of forcing competition to rework their pricing models? Sometimes having a loss leader can make all the difference when it comes to closing big customers or taking big customers from your competition.
Granted, this can be a significant risk. You’re going to need a plan for recovering that capital, be it upselling or capital injection in the short-term while you build your customer base. You can adjust pricing for new customers later.
With Real Agent Guard, we are rapidly taking over the real estate industry because our price points are so low. This is partly because we’re in a fledgling niche market, and competition is well behind the technology curve. We identified that opportunity early on and have been leveraging it aggressively.
Pricing is a powerful barrier to entry in this scenario. We’ve seen competition shut their doors because they’re five to 10 times more expensive than we are for a similar service. And when others are exploring whether or not they should launch a product like ours and find our price points, they’re much less likely to commit to a product launch because their profit potential has been significantly reduced.
Unique Value Propositions
To form a unique value proposition that is relevant to your customers, you’re going to have to spend a lot of time with your customers, listening to their stories and trying to understand their pain points. Sometimes, the simplest path to getting customers’ attention is as easy as changing your marketing message to one that resonates with your customers.
You also need to be intimately aware of your competition so that you can differentiate yourself. If you’re saying the same things that they are, it’s difficult for customers to understand why you are better. So take the time to understand how your competition is selling and the messaging they are using.
In the real estate industry, there are no true security experts offering security solutions. So, one of our unique value propositions is that we have the actual expertise on staff to offer a security solution that protects agents. We’ve also been building our team up to further support that idea. We wouldn’t have understood how important that value proposition is to our customers if we hadn’t spent a lot of time with them.
Unique value propositions can be a significant barrier to entry for competition because competitors are going to have to respond if customers respond. In the case of Real Agent Guard, we are the only company in our market with actual security experts as owners, so we make sure customers know this. New companies exploring the market now have to be sure they can match us, which is no easy (or inexpensive) task.
Finally, we are always looking for freebies we can offer our clients that are meaningful to them. “What if we can throw in X? Would that help you make a decision?”
Freebies to your customers introduce costs to you, so this must be done very carefully. Depending on your market, something as simple as giving away a T-shirt can be the difference between closing a sale or not, but these items or services cost you as a business owner.
With Real Agent Guard, we found through customer interviews that there was a large gap in the industry with a very specific, simple service that all agents wished they could have. So we took the time to create this service and made it free for all agents whether they are clients or not. This has given us a powerful selling tool and introduces potential clients to us who may not have been aware of what we do.
These simple freebies can act as barriers to entry as competitors will need to have some kind of answer. Whether they create their own or copy what you are doing, you have an advantage at least for a short time that can force your competition to adjust. They’re not permanent barriers, but still give you a leg up.
Creating barriers to entry can be the difference between survival and success. If you’re not making barriers, you can be sure your competition is. So take the time to identify your easiest path to the most effective barriers and don’t stop with just one. This should be part of your strategic approach from the earliest to the latest stages of your company.