If anybody has studied economics, or some business studies, barriers to Industry, are those factors that, increase, or decrease, the levels of competition.
Barriers to entry are the economic term describing the existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing firms because they protect their revenues and profits.
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I'm not here to give a micro economic explanation. I will focus on my own circumstances between the 2 industries that I operated within.
Office supplies are a pretty easy industry to get into.
It is difficult to have a competitive advantage, easy for customer loyalty to switch, margins are tight & the products you are selling, tend to be generic.
Meaning, that anyone who does a Google search, can find the product easily.
So, having few barriers, it was easy for me to enter the foray. I just wanted some extra money, I wasn't looking to earn an income.
The first barrier that I had to contend with, was supply. I needed to source the product, and wholesalers & distributors, don't want too many people supplying product. Plus, they always would have "retail" clients pretending to be "resellers". Everyone wants to get things cheaper.
My first method was finding a better price online. My potential customer felt they were being overcharged by their current supplier.
So, I found a price that was cheaper, and, I could make 5% profit.
It seemed like a beginning, as I didn't have any overheads.
I used this method to get a few more clients.
I rang the business that I was buying from, asking for better pricing.
He stated frankly that he couldn't lower the price, that I should find a wholesaler to purchase from. He introduced me to a wholesaler, they approved my account, and I was now a reseller.
That meant I could make around 15% margin (margin & markup are different.).
I was around 30+% cheaper than the big stores, hand delivered paper to clients.
I met a guy selling A4 paper from Indonesia. I was able to make $1 per packet. The only catch was that I had to order pallet loads, which was my first significant tie up of cash.
Everything was fine, until the paper industry started closing up.
The Australian Government banned the importation of paper from Indonesia due to environmental concerns.
My other supplier was hit with a massive price increase due to the sudden drop in the AUD relative to the USD. Their new price was so far about retail that I could no longer compete.
Another supplier was taken over by Xerox. I was offered a good price on paper, but, a former employee told me that they were intending to sell direct to my clients.
I met a retired paper salesman who reminisced about the days that paper used to sell for $8 a packet, and now was under $4. So much for environmental resources.
The industry had consolidated to a handfull of suppliers, who didn't want any resellers.
One of my suppliers told me at a conference once.
"The problem with you resellers is that you are also our competition."
I replied, "Have you thought of it this way. My customers use me because they like my business. I have customers that you wouldn't have. I'm a sales person that you don't have to pay. I only make money when I sell."
He said "I never thought of it that way."
In contrast, having a product exclusivity, was a totally different world.
My father was trying to strip the copper out of cable. He had tried to make alot of manual devices, using blades, to cut open the plastic.
He told me his dilemma. There must be a machine that does it.
And there was, we did some Google searching and found the perfect machine in the USA. But it was expensive, relative, to the limited amount of cable that my dad wanted to strip.
I hunted around and found who the supplier was in China.
My intention was feign being a business to get a machine to try.
Fortunately, they were looking for someone to sell their product in Australia.
They agreed to send me 2 demo machines at a discounted price.
My plan, was to keep one, and sell the other one to get my money back.
The machine was way better than what I thought. It did have dodgy electrical connections & some tidy up of the metalwork needed.
So, I had the machines checked by an electrician and added a metal plate & a stop/start safety switch.
Now, I had a product that nobody else had. It was a niche market, for smaller businesses who had scrap wire that they want to extract the copper from.
So, the barrier to entries that helped me were;
As my business grew, the precept of K.I.S.S, kept raising its head.
Keep It Simple Stupid
By keeping my systems straight forward I was able to generate a sale with a few easy steps.
Email & Excel were the primary weapons.
I tried creating an online store but it became too onerous.
I could supply up to 60,000 products from my suppliers. That was too unwieldly to manage, even with data dumps & fixed margins.
Because I only had a core of 40 regular, mostly Corporate, clients, there was no need for too much technology.
For the wire stripping machine market, most of the clients were more "old school". They referred to online sites like "Gumtree" or "Trading Post".
I tried paid advertising. It wasn't effective.
Most sales were generated by referral or free advertising websites.
