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Digital-growth channels are a mixed blessing. They democratize entrepreneurship by making marketing and publicity easier, faster and more affordable. They level the playing field between startups and industry incumbents, giving startups a chance to succeed.
But the problem is they’re that way for everybody — meaning your competition has the same access you do. By themselves, digital channels don’t offer a competitive advantage. They’re there for the taking, open to anyone, table stakes for every industry participant. Within their first few months or even weeks, most serious startups have a website and a social-media presence that’s on par with their industry’s leader.
Most startups are so focused on how to compete against a comfortable, well-capitalized incumbent that they don’t take much time or trouble to visualize being an incumbent themselves in the future. They’re fixated on how to revolutionize an industry and how to be the ultimate disruptor.
That has its benefits, but it’s also a mistake. The best time to envision how you’re going to nurture and sustain a competitive advantage is early on before you have attracted too much attention and been recognized as a threat by your competitors. The best time to set up barriers to entry for your market niche is before you have even created that niche.
It’s like a game of chess. Early in the game, you have one chance to mobilize your best assets and keep your most important piece safe. It’s a special move called “castling,” and if you do it right, it sets you up for the rest of the game, making you hard to catch up with. It’s the ultimate first-mover advantage.
That’s why you need to build barriers to entry early on. Barriers to entry are things that keep competitors from copying you and ensure potential competitors stay out of your space — this could include patents, copyrights and economies of scale.
There are a couple of key signs that your barrier to entry is self-sustaining: Customers are super loyal to your brand, or it would cost someone a fortune to research and develop an alternative to your technology.
Big, established industry incumbents are always trying to build up barriers to entry around themselves because they know that new competitors can steal their customers, revenues and profits, and send them into a death spiral. So they practice predatory pricing, cultivate old-boy networks and even lobby the government for new laws and regulations that discourage new competitors.
Startups can’t do any of that, but there are five things they can do to make sure they have good barriers to entry in place when it’s their turn on top.
Build barriers to entry into your digital-growth strategy
Don’t just build new technology. Build its defense at the same time. Promote transparency (so customers know and understand what your technology does), but not at the expense of the confidentiality you need to securely develop new technologies without tipping off the competition. Focus on how you’re going to build brand loyalty and evaluate how every brand tweak might affect your brand loyalty even years down the road. Make sure your change-management plan incorporates constant re-evaluation of how you’re progressing toward a brand that inspires and rewards loyalty.
Consider how each component of your digital strategy can be a differentiator for your business. Are you optimizing for employee and supplier retention as well as customer loyalty? And are you constantly making sure that your online security is good enough to protect your hard-earned data and insight?
Transform your analytics into a barrier to entry
Big incumbents struggle to share information and insight efficiently across all their functional silos. They have rigid hierarchies and bureaucracies as well as policies and procedures governing every instance of communication and collaboration.
But startups don’t. Instead of restricting internal data sharing and collaboration, most startups encourage it. So cherish that as an asset. Recognize early on that every piece of data you generate — every transaction, contract and project — can be mined for insight. Constantly correlate the outcomes you achieved with the resources you mobilized — time and staff, software and ad spend.
Recognize that things like pandemics, recessions, discrimination and involuntary career setbacks have the potential to knock you or your competitors off their game. But these can just as easily be chances to up your game. Are you going to cut back or double down? Fight or flee? As a startup, you also have the ability to build a game plan and act quickly because of the small nature of your team and business.
If your business is wired to view every potential problem as a growth opportunity, you have a competitive advantage. It’s like a version of Warren Buffet’s saying “be greedy when others are fearful.” When others are in hiding, go exploring.
Cultivate a culture that celebrates resilience as much as risk-taking
Resilience is a barrier to entry, all by itself.
During the recent health crisis, big rewards went to the retailers that could quickly implement fast shipping and curbside pickup, the restaurants that could rapidly reconfigure their spaces for outdoor dining and the gyms that could incorporate open-air setups. Startups that already had a distributed workforce accelerated their growth while incumbents scrambled to equip their confused employees with unfamiliar new technologies, all the while forking over steep rents for empty offices.
In an era marked by wrenching social, economic, political, technological and climatic change, entrepreneurs have to build for adaptation, not insulation. They need to cultivate their employees’ skills in innovation, change and creativity, along with an awareness of how new technologies like AI and IoT can affect growth.
Demonstrate thought leadership
Good leadership results in loyalty — among your employees as well as your customers and suppliers. Demonstrate ongoing thought leadership through transparency — sharing your best and brightest insights freely. Stay relentlessly up to date on customer needs and preferences.
It’s a compilation of all of these efforts that slowly yet surely builds the moat around your value proposition. Competitive advantage can’t be built in a day — but once it is, market dominance is in reach.