Operational Barriers

Operational Barriers

First Mover Advantage

If acquiring a patent will take too long or doesn’t offer much protection, some companies decide to focus on being the first to move into a new product space. By doing this, they can acquire a large market share quickly since there a few to no competitors.

This gives them the option of taking advantage of other barriers like economy of scale or building brand loyalty. Or if the market will have a short life span it allows them to be first in and first out to maximize their profitability.

Capital Requirements

Sometimes there are highly complex products that require significant research and development or advanced manufacturing to produce. These Non-Recurring Expenses (NRE) are one of the most common and significant barriers to entry in both the entrepreneurial and corporate environments.

Non-Recurring Expenses create financial risk, especially in unproven markets, but those risks can be minimized by following a thorough design process.

Economy of Scale

Use unit price advantages to price out new competitors. It is generally accepted that as more units are produced, the cost of the units decreases. This is due to advances in machinery, automation, and distribution. When you invest more in manufacturing, you can produce parts at a lower cost.

If you can gain enough market share to produce higher volumes of product, then your unit costs may be significantly lower than a new competitor with smaller market share.