“Barriers to entry” is a marketing term that sounds sophisticated, but all it really means is, “How hard is it to get into a business?” Barriers to entry are simply those things that keep someone new from entering a market.
Barriers to entry take many forms. One of the most common is simply a high amount of capital ($$$) required for someone new to enter a market. The airline industry is a good example here. Related to a high amount of capital is scale, or how large does the business have to be in order to be profitable. The automotive industry is a prime example. Other barriers to entry are an entrenched and loyal customer base (think Starbucks or Harley Davidson), or even legal and regulatory hurdles (think liquor stores).
Obviously, if you’re already in a market or industry (the marketing books call this the incumbent), you want the barriers to entry to be high in order to keep competition out. But if you are starting a business (that’s the entrant), you want the barriers to entry to be low. However, the problem with markets with low barriers to entry is that in the long-term, it’s very difficult to make a profit. That’s because even when you’re first, everyone quickly sees that you’re making a profit and it’s easy for them to jump in.
Here’s a great example: cupcakes. Cupcake shops have been all the rage the last few years. But I ran across an article the other day about the “cupcake bubble”. Come to find out, the cupcake market has reached saturation and even been overbuilt in many regions. Many shops are going out-of-business. There just aren’t enough people to support all those cupcake shops.
So why a cupcake bubble? Because the barriers to entering this market are so low. There are always hurdles to starting any business, but opening a cupcake shop in the scheme of things is pretty easy. So, lots of people saw a profitable trend with low barriers and jumped in. But as a result, it became difficult for most of them to make a profit over the long-term.
So what does any of this have to do with water well drilling and the water systems industry? Well, if you’re a professional water well contractor, the barriers to entry for someone who wants to enter your market are fairly high. It takes specialized equipment that represents a significant capital investment. It also takes specialized expertise and knowledge and experience to be successful. There are also regulatory barriers dealing with licensing and DOT regulations. And chances are you have a loyal customer base.
The point is that not everyone can do what we do as an industry and what you do as a water well contractor. We are unique. And when you couple that with the value and quality of the product we deliver at a very reasonable cost, you start to realize that once again, we’re in a great industry.