While barriers that erode as your competitors scale usually relate to the process of a company entering a market, there is a category of barriers that can play an important role in determining the relative success of competitors after they have entered a space. Many of these barriers are scale advantages. This category broadly includes brand, resource advantages and other scale related barriers. In the information technology sector, these advantages often take the form of data scale and network effects.

For an example of data scale let’s consider Yelp. When a customer goes to a user review site, he wants user reviews. That’s pretty intuitive. And simply put, this is a case where generally having more user reviews is better. Every additional review of a restaurant or vendor makes the service more valuable to people who visit the site. The reviews are a competitive advantage that creates a widening gap between Yelp and me-too sites with every new review.

To highlight the significance of this barrier, let's take an extreme.  Imagine how difficult it might be to convince customers to use a brand new review site that has no reviews when Yelp is in the market. To acquire customers, the new entrant will either need to have a pretty unique value proposition that fundamentally differentiates it from Yelp, spend lots of money paying people to create reviews, or deploy a massive advertising campaign to get early users. Closing the scale gap becomes increasingly expensive.

Similarly, network effects can create significant barriers as companies increase their relative scale. If you want to sell a couch, given the choice, a user would want to list the item on a site that has the most buyers. The presence of more buyers increases the likelihood of finding a match and the potential of having the price bid up. This powerful dynamic has made it very difficult to for new entrants to compete with companies like Craigslist and eBay, both of which benefit immensely from network effects.

In the markets where these forces are most important, scaling rapidly may be the single greatest determinant of your company’s success. When these forces are at play, simply by being the largest, you may crush competitors with better user experiences, features or other competitive advantages. While many entrepreneurs have thought of creating a Craigslist competitor with better user experiences and features, to date none have displaced the company. While other companies have developed more appealing UIs, Craigslist benefits from huge network effects – a force to be reckoned with.

To determine the extent to which data scale and network effects are central to your company you need to answer this question: “Does incremental scale (user reviews, buyers, sellers, etc) make my core service incrementally more valuable to the next customer?” Notice the emphasis on the word “core”. Non-core features that have these properties often do not provide robust barriers.

Understanding the extent to which your company can build data scale and/or network effect barriers is of critical importance for understanding the potential of the company to scale. If you can find a way to leverage data scale and network effects in your company you should, and if these barriers are core to your company’s service you probably should make scaling your company your primary priority. You may want to raise more money and potentially forego maximizing short-term monetization opportunities in order to securely establish your scale barriers before someone else does.