I'm trying to figure out how to explain COE to my kids when they raise the points below.
The concept of barrier to entry (BTE) is straightforward. MJ does a good job explaining it through metaphors and establishing that lower barriers to good opportunities inevitably lead to greater competition. The greater competition can only be overcome by being exceptional in that particular niche. He uses the example of the internet limousine lead generation company as an example where it was easier for him to be exceptional in a crowd of 12 competitors vs. thousands or hundreds of thousands of competitors. All accurate.
However, I'd argue that barriers to entry are only high for businesses that require large amounts of capital, are highly regulated, have professional licensing requirements or have legal, technical and/or intellectual hurdles. Launching satellites, building rockets, practicing medicine and distributing pharmaceuticals are all legitimate examples of high BTE. Those are also a tiny fraction of all businesses.
Everything else is low BTE including MJ's limousine lead gen company. Lead gen has been around for decades. All that's needed is a phone. It wasn't a high BTE that resulted in only twelve competitors. It was lack of awareness of the market opportunity. Pretty much every internet business has zero BTE. Signup for a WordPress site and start blogging. Same thing with becoming a YouTuber, eCommerce seller, Shopify merchant, Amazon affiliate, all of them. All that's needed is a pulse and an email address. Everyone literally starts on the same square.
Real world businesses aren't any different. We recently launched a home services company starting with lawn care. Anyone can start cutting lawns with a push mower and phone. Start a burger joint by going to the supermarket for ground beef and buying a grill from Home Depot. Get into fancy coffee drinks by hitting Costco for an espresso machine. Does that really mean you're competing with Five Guys? Or competing with Starbucks? That doesn't sound right.
I spent several weeks doing upfront work to research the market, interview local lawn care companies, pick target markets and marketing channels, develop a bid process, research equipment, arrange financing and a long list of other things. I suppose that's "exceptional" by definition since hardly anyone does it, but it feels more like "Well, that's how you start any business if you want to give it the best chance of future success." Which doesn't really sound exceptional. It just sounds effective. Unlike MJ's example of being a stellar poker player, anyone can implement the same steps. It doesn't create high BTE.
What I've been kicking around is the true BTE for most startups isn't what appears to be the BTE. Every lawn care guy struggles to grow past 30 - 40 customers because of the friction that comes with managing the existing accounts. Without systems in place to start, it's almost impossible to grow any larger. There's literally no time available to fix it after the fact. Your early success dooms you to future failure or more accurately sharply caps your growth potential.
The BTE for lawn care is pretty low. The BTE to building a highly successful lawn care business is extremely high. I'm having trouble putting that idea into bite size pieces for my kids. Both are lawn care businesses doing seemingly the same thing - cutting lawns. Same with the burger and coffee examples.
How would you explain the difference between low BTE and high BTE when both are selling and delivering identical services to the same customers in the same market? That's where I'm stuck.
@MJ DeMarco @biophase @fastlane_dad @Andy Black @ZCP @Antifragile @MitchC
The concept of barrier to entry (BTE) is straightforward. MJ does a good job explaining it through metaphors and establishing that lower barriers to good opportunities inevitably lead to greater competition. The greater competition can only be overcome by being exceptional in that particular niche. He uses the example of the internet limousine lead generation company as an example where it was easier for him to be exceptional in a crowd of 12 competitors vs. thousands or hundreds of thousands of competitors. All accurate.
However, I'd argue that barriers to entry are only high for businesses that require large amounts of capital, are highly regulated, have professional licensing requirements or have legal, technical and/or intellectual hurdles. Launching satellites, building rockets, practicing medicine and distributing pharmaceuticals are all legitimate examples of high BTE. Those are also a tiny fraction of all businesses.
Everything else is low BTE including MJ's limousine lead gen company. Lead gen has been around for decades. All that's needed is a phone. It wasn't a high BTE that resulted in only twelve competitors. It was lack of awareness of the market opportunity. Pretty much every internet business has zero BTE. Signup for a WordPress site and start blogging. Same thing with becoming a YouTuber, eCommerce seller, Shopify merchant, Amazon affiliate, all of them. All that's needed is a pulse and an email address. Everyone literally starts on the same square.
Real world businesses aren't any different. We recently launched a home services company starting with lawn care. Anyone can start cutting lawns with a push mower and phone. Start a burger joint by going to the supermarket for ground beef and buying a grill from Home Depot. Get into fancy coffee drinks by hitting Costco for an espresso machine. Does that really mean you're competing with Five Guys? Or competing with Starbucks? That doesn't sound right.
I spent several weeks doing upfront work to research the market, interview local lawn care companies, pick target markets and marketing channels, develop a bid process, research equipment, arrange financing and a long list of other things. I suppose that's "exceptional" by definition since hardly anyone does it, but it feels more like "Well, that's how you start any business if you want to give it the best chance of future success." Which doesn't really sound exceptional. It just sounds effective. Unlike MJ's example of being a stellar poker player, anyone can implement the same steps. It doesn't create high BTE.
What I've been kicking around is the true BTE for most startups isn't what appears to be the BTE. Every lawn care guy struggles to grow past 30 - 40 customers because of the friction that comes with managing the existing accounts. Without systems in place to start, it's almost impossible to grow any larger. There's literally no time available to fix it after the fact. Your early success dooms you to future failure or more accurately sharply caps your growth potential.
The BTE for lawn care is pretty low. The BTE to building a highly successful lawn care business is extremely high. I'm having trouble putting that idea into bite size pieces for my kids. Both are lawn care businesses doing seemingly the same thing - cutting lawns. Same with the burger and coffee examples.
How would you explain the difference between low BTE and high BTE when both are selling and delivering identical services to the same customers in the same market? That's where I'm stuck.
@MJ DeMarco @biophase @fastlane_dad @Andy Black @ZCP @Antifragile @MitchC
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