Few things can be as exciting for serial entrepreneurs as starting a new business, except perhaps, entering a new market. That said, regardless of how much preparation and research one does, there will inevitably be unexpected hurdles that will serve to slow down or alter a new venture’s trajectory, often with less-than-desired results.
Taking note of the common barriers to entry below should help both seasoned and budding business owners alike mitigate serious issues that could ultimately derail their nascent operations. More importantly, understanding these hurdles may also help policymakers devise regulatory and legislative frameworks that stoke business growth and innovation within their areas of jurisdiction.
1) Poor Infrastructure
Inadequate transportation, communication networks, and other essential facilities can impede the smooth operation of businesses, forcing them to use more expensive alternative services or increase their capital expenditures so that they can have their own infrastructure. As a result, they may struggle to deliver products or services efficiently, hindering their competitiveness and growth.
Recent infrastructure development in the Philippines‘ historically underdeveloped countryside serves to underline these principles. Major infrastructure-building initiatives launched since the 2010s have served to boost business growth, not just in already prosperous urban centers but also in the provinces. Newly developed economic estates, bridges, seaports, and airports completed just a few years ago are already showing themselves to be indispensable for local businesses, major conglomerates, and ordinary Filipinos alike.
2) Regulatory Environment
The regulatory environment plays a crucial role in shaping the business landscape. Excessive regulations, complex compliance requirements, and bureaucratic hurdles can create barriers for new ventures that could delay their entry or cause their abandonment of the local market altogether. In any case, navigating through a labyrinth of rules and regulations may require substantial time and resources, potentially causing a market to lose its investment appeal.
3) IP Protections
The lack of robust intellectual property (IP) protections can discourage entrepreneurs from investing in research and development. Without adequate safeguards for patents and other IPs, businesses may be reluctant to bring new ideas to the market, fearing they could be easily replicated by competitors.
At the same time, however, it can be argued that overly tight IP laws can serve to hinder the pace of innovation. In jurisdictions with overly strict IP laws, the abuse of IP protections to hinder competitors and their potential innovations is a relatively common practice, and there are now calls in some quarters to rethink how IP is approached. Regardless, an IP environment where protections are nonexistent or weighted overwhelmingly in favor of a few large actors can present serious barriers to different kinds of businesses.
4) Local Corruption
Corruption within a region can pose a significant barrier to entry for new businesses. Rampant extortion and unethical practices can drive up the cost of doing business while also making it difficult for entrepreneurs to operate with integrity. Most importantly, corrupt environments also ultimately increase unpredictability, making it challenging for new businesses to plan ahead or fully establish themselves in the market.
5) High Taxes
High tax rates can be a substantial burden on new businesses by negatively affecting their profit margins and potential growth rate. In a high-tax environment, entrepreneurs may find it exceedingly difficult to compete with already-established players, as they’re effectively limited in their ability to invest in growth initiatives, R&D, or human capital development.
6) Market Entry Costs
Entering a market often comes with significant costs, including but not limited to marketing expenses, legal fees, living costs, and initial capital investment. High market entry costs can effectively discourage potential entrepreneurs from taking the plunge, particularly if the risk doesn’t seem worth the return or if they lack access to sufficient financial resources. This barrier is especially prominent in highly developed economies as well as in industries with expensive equipment or extensive research and development requirements.
7) Human Capital
Access to skilled and qualified personnel is crucial for the success of any business. A shortage of suitable human capital in a given market, including skilled workers and experienced managers, can be a substantial barrier for new entrants. Competing for talent with established businesses in these circumstances may be difficult, especially if the industry requires specialized skills.
8) Lack of Contacts
In most cases, industry connections play a role in ensuring the success of new business ventures. New entrepreneurs breaking into an industry may struggle to establish partnerships, secure suppliers, or attract clients if they don’t know the right people. For that reason, business founders may invest years to organically build a solid professional network before they even set up their venture.
9) Lack of Experience
Even with the right connections, inexperience can be a significant barrier for new entrants. Established competitors may have a wealth of industry-specific knowledge and insights, and outsiders will risk making mistakes that others have already made. A lack of experience can also hinder the development of efficient processes, hampering newcomers’ capacity to scale efficiently.
10) Insufficient Financial Capital
Most of the barriers mentioned so far can be surmounted if the startup has sufficient resources to work around them. For instance, if the region they’re entering lacks sufficient electricity it’s entirely possible to simply set up one’s own power generation facilities. Likewise, if the workforce is not suitable, it’s still possible for the business to set up a training program that could eventually provide it with the type of labor inputs it needs.
However, if the business lacks sufficient financing, it will be unable to surmount many of those issues. For that reason, seasoned startup founders are especially cognizant of the importance of proper financial management as well as establishing a steady cash flow.
Overcoming these barriers to entry is a formidable challenge, as they are often systemic and out of the immediate control of any single party. Though a determined organization will always find a way to thrive in any environment, removing systemic barriers will enable more businesses to grow and more prosperity to circulate within an economy. Governments, industry stakeholders, and entrepreneurs themselves can work together to create policies and initiatives that mitigate or bring down these barriers, promoting a more competitive and safer business landscape.
