Barriers to Entry

In business there are often important barriers to entry which act to limit the ability of businesses to break into new markets. The Bottom Line on Radio 4 this week considered the existence of these barriers. Leading the discussion was Will King, the founder and CEO of KMI King of Shaves, the innovative UK-based personal grooming business that has successfully broken into the shaving product markets and whose new four bladed razor is now number three in handle sales to Gillette. King mentioned that there were over 20,000 patents in the razor and personal grooming industry including mechanical hinges on the construction of razors which requires new entrants to design their way around the patents.

The panelists on the programme discussed a number of other entry barriers - among them:

1. Intellectual patents and ownership of technology - but patents are needed to provide an incentive to invest
2. Expertise and reputation of the incumbent - intangibles
3. Licences are important such as professional qualifications
4. Inherent suspicion among consumers about new ideas - behavioural economics tells us that many people are quite happy with their default choices - it may take a while for any change in preferences to occur.
5. Regulations and legislation involving employing people - a major barrier for fast-growing smaller businesses many of whom are highly innovative

The Bottom Line is always worth a listen - the podcast is available for free from iTunes. And this weeks programme also considered which kinds of sectors will weather the storm and do well in a recession? The different nature of a recession this time around may well give us a clue to the likely winners from the downturn especially with credit so hard to find.

It was thought that successful businesses during the current downturn would tend to be:

1. Agile and entrepreneurial, customer centric
2. Businesses with low debts and those who are cash rich - cash flow management is becoming critical - cash flow forecasts will come under increasing scrutiny.
3. High energy businesses that swim against the tide
4. Knowledge building companies

The Bottom Line