What You Should Know About Barriers to Entry
A barrier to entry is an obstacle a business must incur to enter a marketplace. Barriers to entry can vary from one industry to the next. The property management industry boasts an overall low barrier to entry which enables higher market saturation. Because of relatively easy entrance into the industry, there are over 280,000 property management companies operating in the US and more than 31,000 are active in Canada, meaning the number of industry competitors in North America exceeds 300,000.
What are Some Different Barriers to Entry?
Cost: The capital investments required for start ups to acquire the bare minimum necessities to establish themselves within the marketplace.
Legislation: Government mandates that establish legal requirements to who can enter an industry. Depending on regional laws in the US and Canada, some property managers require licensing while in other regions they do not.
Legal Barriers: Patents and copyright laws can limit start ups from mimicking technology or software capabilities of competitors by granting organizations exclusive rights, eliminating their ability to enter that marketplace.
Marketing: High spending on marketing and advertising by other businesses can create a roadblock to new organizations trying to establish a unique brand identity, which can make it difficult to market their service or product without replicating others.
Monopoly: When one business has a domination over an entire industry, it leaves little to no space for a newcomer to succeed because the company with a monopoly has a dominant and loyal customer base.
Vertical Integration: Businesses depend on vendors and suppliers to enable production of their service or product. Vertical integration occurs when a competitor ties up all supplier and vendor chains making it extremely difficult for others to access the resources and partnerships they need to succeed.
Infrastructure: If an organization lacks access to the infrastructure necessary to run their business, they won’t be able to keep up with competitors, this often becomes a cost or access barrier to entry. For example, many property management companies find SaaS software to be an essential expense because without access to web-based infrastructure they may have a hard time staying afloat.
The Impact of Barriers to Entry
As an industry develops more barriers to entry, start ups are deterred or restrained, which reduces the number of competitors challenging existing businesses. For this reason, businesses who want to protect their market share often lobby for their government to enact policies to increase obstacles that limit market entry to newcomers. An industry with fewer barriers to entry is more inviting to new businesses because it reduces start-up costs and allows for more favorable market positioning.
Creating Barriers to Entry
While you may not go as far as lobbying for more government policies, there is a benefit to your business to increase barriers to entry. One simple strategy to go about this, is to differentiate your product or service offering. Simply put, give your customers something they cannot get from a competitor. For property management companies this can mean mixing your portfolio to offer commercial space in addition to residential space, or maintenance services to reduce costs to owners. By creating a unique offering in a crowded space, you will narrow your list of direct competitors from 300,000, to far less.
Low barriers to entry are great for starting up but once you’ve entered a marketplace, more barriers to entry means more protection of your market share. By differentiating your offering, you can enhance your brand value to potential customers and become a more attractive option in comparison to others.