A barrier of entry is defined as an obstruction that makes it difficult for a company to enter into an industry. There are several forms of entry barriers that are commonly seen in established markets. This article takes a look at the different obstructions and provides insights for small business owners to penetrate the market.

Economies of Scale

Without a doubt, this is a problem for small companies. Larger, more established companies enjoy economies of scale as they are able to lower their production costs just by their sheer size. Small companies always begin operating with high costs and usually incur losses during the first five years of their operations, which may inevitably lead to their demise.

There is no sure-fire way to overcome this problem as economies of scale come with resilience and continuous reallocation of resources to achieve efficiency in productions. Small-scaled businesses can start, however, by being realistic. A prudent forecast of sales and profits will indicate a reasonable level of costs in the first few years. Purchasing only the minimum capital (physical and human) will help curb high costs. Small business owners are required to work harder during the first few years and to make more sacrifices financially to pave for success in the long-run.

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