I would go so far as to say that if you have no aspiring competition, there's a problem with your business model.
It’s been a long time since I added a new chapter to this book. I stopped writing new material six months ago. Since then, I put the book through a series of rewrites. I vowed not to expand it further. But one key idea keeps coming around: barriers to entry. This concept is so important that I’M going to add it to the web version of this book, and if it’s readable enough, I’m going to insert it into the book itself.
Earlier in this book, we talked about the goal of being the best in the world at whatever it is you do. It’s a key objective for anyone who wants to move freely in and out of corporate circles. When you are the best, or at least in the top tier, you can operate in the business world from a position of strength.
But here’s the catch: you want to have some competition. If you’re the only person in the world who is good at what you do, chances are there isn’t much of a marketplace for your services. I joke about being one of the best in the world at writing about forgotten hair bands; no one is knocking on my door about that. The best businesses attract competition because their market is attractive. I would go so far as to say that if you have no aspiring competition, there’s a problem with your business model.
To a point, competition is a good thing – a sign that whatever you do has a quantifiable market. On the other hand, you don’t want to make it easy for competitors to move in and do what you do. You want your specialty to be perceived as attractive, but to remain a little beyond the reach of those who want a piece of it. You do this by creating “barriers to entry.” Corporate America is incredibly good at that. Large companies are well versed at locking smaller entities out through exclusives that no one else can breach.
One remote-tossing example is Direct TV’s role as the sole provider of the NFL Sunday Ticket. How many football fans have switched from cable to satellite because they had no access to games they wanted? This must drive the cable companies nuts – I know it drives me nuts – but all cable can do is lose football fans until the NFL’s contract with Direct TV expires. Sure, Comcast can tell their customers that â€œwe have a bunch of obscure college football games every weekend,â€ but for fans of the NFL, those games are an inferior product.
The level playing field is a myth. Youâ€™ve earned your market share. No way are you going to expose it to another business in search of green pastures. This is why it’s better to master the rules of the game than to sit on the sidelines resenting the corporate entities that apply these rules to their advantage. To an extent, we can serve up the same medicine.
There are five barriers to entry that we can take advantage of: innovation, exclusivity, patent, reputation, and location. Let’s look at each of these in turn.
Innovation is the most subtle of the barriers to entry. Innovation is important because most companies are better at copying an effective strategy than developing their own. That’s why most people who stay ahead of the corporate game are natural innovators. Instead of resting on the revenues of their accomplishments, they are always tweaking and improving. Not because they are obsessive – well, maybe they are – but because they have a passion for what they do and a desire to excel. That means committing to a continuous state of improvement and re-invention. Innovation is a great tactic for those of us who are looking to free ourselves from corporate structures.
Corporations pay big lip service to innovation – just turn on a TV and you’ll see plenty of commercials that trumpet corporate innovation – but the fact is that larger companies, by definition, move more slowly than smaller ones. Companies are not unlike ships. Yachts might be more comfortable, and they can certainly serve more passengers, but they can’t change direction as fast as a little dingy. Dingies can get caught in the wake of a big ship, but if you stay ahead of the weather, it’s not so bad being small and maneuverable.
Innovation is a valuable practice, but it’s even more effective in conjunction with other tactics. We’ve already talked about exclusivity; there are few business tools more powerful than exclusive relationships. New businesses typically have trouble getting clients to agree to â€œexclusive providerâ€ relationships, but as your business relationships deepen and you gain a track record, asking for an exclusive relationship can be an important step. Sometimes incentives are given to the other party in exchange for granting the exclusive, other times, the value of the exclusive is in knowing that they only have to turn to you for their needs and don’t have to waste time fielding inquiries from other firms.
Exclusives can be applied to almost any field, and the definition of an exclusive can be expanded to include any form of creative control. For example, a small publishing company might sign a deal with an author that grants them exclusive rights or “first options” on any film rights or subsequent editions of the book title. In the headhunting field, it is common to obtain an exclusive with a hiring manager for certain kinds of openings. This kind of relationship improves your chances of closing deals significantly. Whenever we are pursuing our business interests, we should be on the lookout opportunities to deepen our business relationships through some sort of exclusive terms.
Patents are another excellent barrier to entry, and when we use the term “patents” here, we’re talking about all forms of copyrighting and control over inventions and other creative products. In some cases, control over these products falls automatically to the creator, but in others, you need to file the paperwork in order to claim that work yourself. I have known technical consultants who were able obtain ownership of work they performed as an employee that their employer was not interested in owning. Some of these folks are now doing very well selling their own product.
If you dig into the history of the biggest software companies in the world, some of the founders did the same thing, either purchasing the original software after developing it, or building it on the side and owning it from the beginning. Patents and copyrights are powerful because you don’t necessarily have to build a business and marketing engine around them in order to benefit.
In some cases, such as a songwriter who has written a winning track, you don’t have any further work to do, except wait for the checks to come in each time your invention or creative work is used in a commercial or in some kind of work context. And the best thing of all: your competitors can’t use or mimic your inventions without getting an intimidating letter from your lawyer.
Reputation is another barrier to entry. Think of reputation as an extension of the branding concept. If you have a good reputation in a particular market, that means that the repetition of your marketing efforts have paid off – you now have an inherent “name recognition” advantage over competitors. Other companies might try to tap into your market, but you are the one that your market knows and trusts.
In some fields, the “trust factor” can play a defining role in sales. Reputation has an impact in subtle ways also, including word-of-mouth referrals. Once I did some marketing for a band in search of a major record deal. I got the most interest from executives who had heard of the band from previous albums and promotions. Reputation played a big role in the relative â€œwarmthâ€ of the cold calls.
The final barrier to entry is location. We can all appreciate the power of location, whether it’s the mega-Walmart sitting on top of a town we drive through on the way to work, or a restaurant that’s nabbed the busiest corner of a major intersection. But we can expand the term â€œlocationâ€ to apply to virtual locations as well, including preferred web site destinations and even the order web site comes up on search engines. Anytime you can get a corner on a popular location, you’ve simultaneously helped your chances and made it that much harder for someone else to copy you.
Let’s look at how these concepts apply to my own market position. In the SAP field, I am known as the “SAP career expert.” Others have tried to move into this turf over the years. To be fair, it’s not the most coveted niche in the business world. But it has been a real asset to me in terms of professional opportunities and book sales. The fact that I have done this for upwards of ten years carries some weight. There is definitely name recognition there, which fits into reputation.
I have copyright/patent power in my first SAP book and the second one I am wrapping up now. I have exclusivity in my role as the career expert on one of the most frequented sites for SAP professionals. In terms of innovation, my new SAP web site will be a “Web 2.0″ kind of site with a daily career blog and podcasts. I have some useful online locations that come into play also, one example being that for the last two years, my SAP consulting book has appeared in the top five results on Amazon when the term “SAP” is typed in.
So when you look at my market niche, all of the main barriers to entry come into play. It doesn’t mean that other people can’t make money in my areas of specialization – in fact, some do, and that is mostly a good thing, though I do have to keep a wary eye on the competition from time to time. In the SAP arena, the efforts I have made to make it tougher for others to duplicate what I do have definitely paid off. I doubt it is a coincidence that I have had more success in this area than in my other so-called market niches where my barriers to entry are not nearly as comprehensive.
For some readers, the idea of constructing barriers to entry might seem like a hardcore tactic better suited for big businesses. But there is a ruthlessness to good business that cannot be denied. Big business tactics work for a reason. No, we don’t have to endorse ugly monopolistic practices or use them to bludgeon our competition.
Some business practices may be legal, but they just feel wrong. We should all draw lines that we can live with. The tactics I have described here are generally fair as long as they are fairly used. More often than not, we are the only ones looking out for our own interests. Knowing how to do that can make the difference between long term prosperity and an all-too-brief glimpse of the top.
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