The Struggling Manager
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How to Understand Barriers to Entry
by Rob Redmond - August 16, 2008

In every industry, there are obstacles that prevent you from getting started. These obstacles can be either annoying and small, or they can be so overwhelming that starting a business in that industry is almost impossible for all but mega-corporations. These obstacles are colloquially known as “barriers to entry” amongst MBA’s. They are one of the five forces that make up Porter’s Five Forces.

Consider two different industries: aerobics instruction and telephone service. The aerobics industry has low barriers to entry. To start a business that offers aerobics instruction, you don’t have to do much:

* Rent a large enough space
* Put down some relatively inexpensive padded flooring
* Put out visible signs
* Know aerobics
* Print up a schedule
* Set up a bank account
* Purchase some music and a stereo system to play the music over

Viola! You now have an aerobics business. Price tag? Less than $10,000 to start up.

But what about starting up a phone company? There are very, very high barriers to entry in that industry. Even to offer service in a small town, you will need:

* Lease space on power poles or get right of way to bury lines in the ground
* Purchase considerable fiber optic and copper cable
* Pay people to lay the cable to every house in your service area
* Create a maintenance team which will repair the cables in the event they are damaged
* Purchase the equipment to lay the cables, transport the cables, and transport the repair teams.
* Purchase advertising
* Create a customer service department with cubicles, PC’s, phone service, and all required employee amenities
* Start an HR department to handle benefits and labor relations (the phone industry is heavily union)
* Build a central office building with huge power supplies, emergency generators, and thousands of computers inside to route calls.

That’s just for starters. Price tag? You are looking at half a billion easily. That price tag is a firm guarantee that neither you nor I will be starting our own personal phone company any time soon. You need more money and more government sway than most small countries.

That, my friends, is what I mean by barriers to entry.

You probably are not thinking of creating a telephone company. Rather, you are working a job somewhere working for someone else. 80% of you are working for small businesses. 20% of you are lost in the maze of some big, heartless corporation sitting in a cube with a five digit numerical designation.

What you want to overcome are the barriers to entry into a different group within your company, or the barriers to entry amongst the managers one level up from you.

Yes, there are career barriers to entry.

You might be in pretty good with your boss, but what about his peers - the people who are also at his level but running other departments for his boss? Are you in good with those people? No? What barriers to entry into that world exist that you are ignoring which you need to overcome before you will be accepted or otherwise viewed as ready for promotion?

Consider some possibilities:

* You need to fit in. Dress like them, talk like them, walk like them, and work like them. Talk about the things that interest them and at all costs, fit in. Humans hate change and differences. Your primary barrier to entry is that you don’t fit in with them. Whatever it is you do differently, stop it. Whatever it is you don’t do that they do, start it.

* Befriend them. Are you mostly talking about yourself and your weekend around them, or are you asking them about theirs. Most people come away from conversations that they totally dominate convinced the conversation was a good one. If you dominate the conversation, you aren’t winning any points. Orbit around them, not just yourself.

* Befriend your current peers. Are your coworkers going to speak out against you because you were completely ruthless with them and tried to undermine everything they attempted? Frequently before promoting someone, that person’s peers are interviewed not only for the possibility of getting the promotion themselves, but also to find out more info about the candidate they are moving up. Before your boss makes you her peer, she wants to know how you treat the ones you have now.

You might not like these barriers to entry. You may look at this and say, “If that is required, something is wrong at that company. I should be promoted because I do a good job.”

How wrong you are, my friend. When you do a good job where you are currently, that actually makes most managers want to keep you right where you are and never promote you unless they themselves get promoted. Doing a good job is not the secret to being promoted. Doing the job you want in advance, hanging out with the peers you would have if promoted, and securing good references from your current peers will get you moved up.

You can delude yourself into thinking that because it seems unethical to promote people or give raises based on a popularity contest that you will not play that game. You can make that choice.

But realize just what sort of choice you are making, and how unlikely it is it works any differently anywhere else. It is human nature.

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    One Response to “How to Understand Barriers to Entry”

  1. Joel August 24th, 2008 at 8:20 pm | Permalink

    This also works in reverse. Do not make the mistake of thinking that there are barriers to entry for your current job. You can be replaced very easily. Never forget that.

    Joel


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© 2008 by Rob Redmond