I’m defining a deterrent as a significant initial investment of capital or time that can discourage new entrants. High fixed startup costs and know-how are examples of barriers that can be eroded as your competitors scale their operations. Whether entering a market requires significant up-front capital or years of product development, these barriers decline as competitors invest more capital or time in building their companies.

This doesn’t mean that these barriers do not serve as significant deterrents. Would-be competitors may have a difficult time raising capital from investors when the investment opportunity requires investors to sink lots of money into the company before understanding how successful the company is likely to be. Similarly, if it takes an extensive amount of time to ramp-up product development, entrepreneurs may be better off pursuing other ideas that can get to market more quickly.

Ultimately, the significance of these deterrents is a function of the cost in dollars and/or time to overcome them. Taking the extremes, a space that only costs $100 thousand of up-front capital to enter is less protected than a space that costs $100 million. Similarly, if the required internal know-how required takes 3 months to develop (for example, optimizing user experience) it is less of a deterrent than learning to create a product that takes years of research (as is often the case in pharmaceuticals and biotech).

In the information technology world, these barriers are more commonly associated with the tech-heavy companies that required significant investment of time in development.

If you’re counting on these barriers to keep competition from your spoils it’s important to be realistic about how strong of a deterrent these barriers really are. When you want to believe that your company is untouchable, it’s easy to rationalize these barriers as being bigger than they are. Just remember to ask yourself what it took to get your company started. As technology improves it’s likely that it will cost the next person to enter your space less time and money than it did you.