Market barriers may prevent you from starting a business concept, running a business, and even… exiting the market. What are they and how can they affect your business?
Every now and then there is a lot of publicity in the media about the removal of barriers in some industry or profession (e.g. legal, medical, real estate consulting, etc.). Whenever this topic comes up, the same arguments are raised: the lower the prerequisites, the greater the uncertainty for customers, but also the competition. It is similar with other market barriers that regulate how easy it is to run a business in a given industry, or even to get started.
Types of market barriers
Market barriers can be divided into those that make running a business difficult, and those that make it difficult to enter or exit a given industry. For obvious reasons, entering the industry of spaceflight or advanced open-heart operations is difficult. Competition is very small there, but the beginning of the industry may be preceded by years or even decades of preparation.
Completely different problems are faced by those who start in an industry open to all, in which you only need to start a business. More on the different types of market barriers below.
Market entry barriers
Preparation and evaluation of a business plan or advanced branding their purpose is not only to attract investors. It also allows you to identify market barriers at an early stage. It is surprisingly common for the creator of an idea to invest enormous amounts of time and resources in it and only then finds out that:
- a company or product with the same name already exists,
- there are already patents for the given solutions,
- starting a given activity requires meeting certain local and sanitary requirements,
- licenses, certificates, qualifications and education are required.
In short, it is about the lack of appropriate know-how, i.e. not enough data to open a given project. These types of entry barriers prevent the functioning of the enterprise. There are others to come across as well. More and more often they are associated with the economies of scale, such as when trying to compete with the largest. In short: you can try to start a second Netflix, Facebook, Uber. In this case, market barriers are the scale of giants with which there is practically no point in competing.
Does the market put barriers in front of you?
There is no obstacle that we cannot overcome.
Market barriers - analysis of the impact on the company's operations
It also happens that there are no entry market barriers in a given industry. Marketing strategy it is ready and based on the right amount of data. However, you may find that there are other market barriers that prevent you from operating. 2020 was a great example of what such restrictions could mean. Political decisions, health risks or social aversion to a given service (travel, restaurant visits) - one of them or a combination of all of them may make it impossible to run a business overnight. The most common market barriers are:
- economic and social - habits and preferences of customers, as well as their purchasing power
- political - limitations at the state administration level
- environmental - most often these are political or social market barriers related to new regulations on environmental protection
- legal - when the operation is prevented by regulations or legal chaos.
SWOT - competitive market barriers
It may happen that a business is not limited by any of the above factors and that competition is a barrier to entry. The problem is not always as serious as in the above-mentioned example of Facebook or Uber monopoly on a specific market. The analysis of market barriers in terms of competition is to highlight the strengths (Strenghts), weaknesses (Weaknesses), chances (Opportunities) and threats (Threats).
On this basis, it is possible to assess whether there are entry barriers, and then to take care of smaller elements such as a marketing strategy, pricing policy or a PR campaign. Deciding on them in isolation from the market realities often ends in problems.
Barriers… exit from the market
The barriers to exit from the market are less important (though only for a while). Here, too, the reality of 2020 provides excellent examples of such problems. Market barriers in this case include, for example, the lack of people willing to buy equipment or premises due to the fact that all entrepreneurs from a given industry have the same problems at the same time, so there are no people willing to invest. Some companies also took advantage of financial assistance, which later prevented them from closing the business when it was most profitable to do so. Even in 2019, it was unthinkable that crisis situation it can happen to anyone… at the same time. In less dramatic circumstances than recently, we can also talk about certain barriers to exit from the market, such as the need for costly disposal or revitalization after closing the plant.
Market barriers - how to deal with them?
Market barriers are something that cannot always be predicted. When they appear unexpectedly, it remains to minimize the losses and appropriate crisis management. The recipe for all other market barriers is an in-depth market analysis before starting operations. The lack of awareness of barriers rarely brings success, and more often - problems and disappointments related to capital "sunk" in an idea that is impossible to implement. In addition to the ability to take business risks, the ability to calculate coolly and withdraw when market barriers are too great is also valuable.