Back when we were pitching Pardot to VCs in an unsuccessful attempt to raise money, one of the more common questions was, “What are the barriers to entry?” Then, a more specific variation of this question would arise, “What’s stopping Google from assigning 100 engineers to this market and crushing you?” Both are legitimate questions and we’d counter with things like having a mini-brand, 100+ paying customers, strong product/market fit, and so on. One famous investor, who writes the excellent Above the Crowd blog, told us he wasn’t interested because there weren’t enough defensible network effects or marketplace elements to be interesting. Fair enough.
In hindsight, the answer to the barriers-to-entry-question is much simpler: until there’s a meaningful market, no big company is going to care. By the time the market is large enough to matter, the winners will have been established, and the massive tech companies will merely acquire one of the leaders. When a major tech company does enter a large existing market as a laggard, most often they abandon it a few years later (see Google Hire’s recent shut down notice). Why? The market it already saturated with viable solutions and competitive dynamics are too strong. For major tech companies it’s always better to buy than build for a new product offering.
So, with small-but-fast-growing markets as the ideal target for most startups, barriers to entry are almost non-existent. After talking to thousands of people about entrepreneurship, and seeing so few people start companies, I take a different view.
Time and effort are the greatest barriers to entry for new markets.
Creating a new company is hard. Expect 5 – 10 years of difficult work to build something viable.
Most entrepreneurs don’t have the time.
Most entrepreneurs aren’t willing to put in the effort.
With new markets, there’s no guarantee it will grow into a large, meaningful market. Some do, most don’t. Quite often, people think a market will catch on and grow fast, only to have it fizzle out. That’s a big risk, and people are generally averse to risk.
The next time someone asks about barriers to entry for a new market, remember that it’s rarely an issue. It’s not that an entrepreneur couldn’t enter the market, it’s that there are so few entrepreneurs out there, and even fewer are going to commit the time and effort.