MY DIRTY LITTLE START-UP SECRETBARRIER-TO-ENTRY STRATEGY FOR START-UPS http://www.flickr.com/photos/sirmightymac/
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
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength LOWCost to Setup HIGHCost to Maintain MED
COMBAT RATING
LEGAL / GOV’T BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup HIGHCost to Maintain MED
COMBAT RATING
LEGAL / GOV’T BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup HIGHCost to Maintain MED
COMBAT RATING
LEGAL / GOV’T BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup HIGHCost to Maintain MED
COMBAT RATING
SUPPLY CHAIN BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength LOWCost to Setup MEDCost to Maintain MED
COMBAT RATING
SUPPLY CHAIN BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup HIGHCost to Maintain MED
COMBAT RATING
MANUFACTURING BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup MEDCost to Maintain MED
COMBAT RATING
MANUFACTURING BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength LOWCost to Setup HIGHCost to Maintain MED
COMBAT RATING
MANUFACTURING BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup HIGHCost to Maintain MED
COMBAT RATING
DISTRIBUTION BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup MEDCost to Maintain MED
COMBAT RATING
CUSTOMER BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength LOWCost to Setup HIGHCost to Maintain LOW
COMBAT RATING
CUSTOMER BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup LOWCost to Maintain LOW
COMBAT RATING
CUSTOMER BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup MEDCost to Maintain LOW
COMBAT RATING
CUSTOMER BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup LOWCost to Maintain LOW
COMBAT RATING
GENERAL BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup HIGHCost to Maintain HIGH
COMBAT RATING
GENERAL BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength LOWCost to Setup MEDCost to Maintain MED
COMBAT RATING
GENERAL BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength MEDCost to Setup HIGHCost to Maintain HIGH
COMBAT RATING
GENERAL BARRIER
BarrierSEnTry2
THE TRADING CARD GAME FOR START-UPS
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 STATSDefence Strength HIGHCost to Setup LOWCost 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!
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