A barrier to entry is any obstacle that is in the path between starting a new business and successfully establishing that business in the market. It can be a combination of anything required to establish the business including time, money, knowledge, skills, expertise, connections, location, vehicles, buildings, technology, or having certain operational capabilities.
The barrier to entry for any market is specific to that market. For example, if you want to sell apples at the Main Street Saturday Market, you need to have a supply of apples and a way to get them to Main Street on Saturday morning and a reservation for your area at the market where you may sell those apples, and so on. If you want to start an insurance company or a bank you need to have plenty of money to pay people with the right knowledge and skills to be able to comply with all applicable regulations.
The effective barrier to entry is the difference between what you or your team’s starting point (or current position and capabilities) and the market’s barrier to entry. That means two different teams trying to enter the same market may have a different starting point of skills and resources, and so the the same barriers to entry may be easier or more difficult for them to overcome. The rules on what is needed to start a new insurance company are the same for everyone, but someone who is already wealthy and well-connected with the right people may find it easier to overcome the barriers than than someone who just finished high school, is not wealthy, and is not well-connected with the people who could successfully form a new insurance company.
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