Raising Barriers to Entry

A defensive strategy of increasing the complexity and scope of a product or service to make it more difficult for new competitors to enter the market.

"Increasing expectations within a market for a range of user needs to be met in order to prevent others entering the market."

• Simon Wardley

🤔 Explanation

What is Raising Barriers to Entry?

Raising Barriers to Entry is a defensive strategy where an incumbent company makes it harder for new rivals to enter its market. Instead of competing on a single product or feature, the incumbent deliberately expands its offering, bundling multiple features and services together. This raises the table stakes, forcing any potential new entrant to develop a much more complex and comprehensive product just to be considered a viable alternative. The goal is to make the cost and effort of entry so high that it deters potential competitors altogether.

Why use this strategy?

This is a powerful defensive move for established players. The key benefits are:

• Deterring Competition: The high cost and complexity of entry can scare off potential new entrants.
• Slowing Down New Entrants: Even if a competitor does enter, they will likely have a narrower offering, making it difficult for them to compete with your more comprehensive solution.
• Increasing Customer Stickiness: Customers who are embedded in a broad ecosystem of products and services are less likely to switch to a new provider with a more limited offering.
• Creating a Perception of Value: A comprehensive, bundled solution can be perceived as offering more value and quality than a collection of standalone products.

🗺️ Real-World Examples

Microsoft Office Suite

In the 1990s, the market for productivity software was fragmented, with separate best-of-breed applications for word processing (WordPerfect), spreadsheets (Lotus 1-2-3), and presentations (Harvard Graphics). Microsoft bundled its own, arguably inferior, applications into the Microsoft Office suite and sold it at a very attractive price. This raised the barrier to entry enormously. A new competitor could no longer just build a better word processor; they had to build a full suite of applications that were integrated with each other. This strategy was instrumental in Microsoft's dominance of the office productivity market.

Atlassian's Product Ecosystem

Atlassian has built a powerful barrier to entry in the software development tooling market. They offer a tightly integrated suite of products, including Jira (project management), Confluence (documentation), Bitbucket (code hosting), and many others. A new startup might be able to build a better project management tool than Jira, but it is very difficult to compete with the entire integrated Atlassian ecosystem, which has become the standard for many development teams.

🚦 When to Use / When to Avoid

🚦 Raising Barriers to Entry Strategy Self-Assessment Tool

Find out the strategic fit and organisational readiness by marking each statement as Yes/Maybe/No based on your context. Strategy Assessment Guide.

Landscape and Climate

How well does the strategy fit your context?

• Your map shows that your product is part of a larger value chain with many adjacent components that could be bundled.
• New entrants are attempting to enter the market by focusing on a single, niche component of your offering.
• Customers are showing a preference for integrated solutions over a collection of point solutions.
• You have the capability to build or acquire and integrate these adjacent components.

Organisational Readiness (Doctrine)

How capable is your organisation to execute the strategy?

• We have a strong market position and the resources to invest in expanding our product portfolio.
• Our organization is skilled at integrating different products and technologies into a cohesive user experience.
• We have a strong brand that can be leveraged to promote the bundled solution.
• Our leadership is willing to increase complexity to build a long-term defensive moat.

Assessment and Recommendation

Strategic Fit: Weak. Ability to Execute: Weak.

RECOMMENDATION
Consider alternative strategies or address significant gaps before proceeding.

Use when

• You are an incumbent with a strong market position.
• You have the resources to build or acquire and integrate a suite of products.
• The market is maturing, and customers are beginning to value convenience and integration over best-of-breed point solutions.

Avoid when

• You are a new entrant with limited resources. You cannot win by playing the incumbent's game.
• Customers have a strong preference for best-of-breed solutions and are willing to do the integration work themselves.
• The effort to build and maintain a complex, bundled solution would distract you from your core mission.

🎯 Leadership

Core challenge

The core leadership challenge is managing the increased complexity that this strategy entails. Building and maintaining a large, integrated suite of products is difficult and expensive. Leaders must ensure that the organization does not become slow, bloated, and bureaucratic as a result. There is a constant tension between adding more to the bundle to raise the barrier, and keeping the product focused and easy to use.

Key leadership skills required

• Portfolio Management: The ability to manage a complex portfolio of products and make strategic decisions about what to build, buy, or partner.
• Integration: The skill to ensure that the different parts of the bundle work together seamlessly.
• Strategic Focus: The discipline to avoid "feature creep" and only add components to the bundle that genuinely increase the barrier to entry.

Ethical considerations

This strategy can be seen as anti-competitive, as it is explicitly designed to make it harder for new companies to enter the market. This can lead to less choice and higher prices for consumers in the long run. Bundling products together can also be seen as a form of tying, which can raise antitrust concerns. Leaders must be careful not to cross the line from fair competition to illegal, anti-competitive behavior.

📋 How to Execute

1. Identify Adjacent Needs: Analyze your customers' workflow and identify the adjacent needs that are not being met by your core product.
2. Build, Buy, or Partner: Decide whether to build the additional functionality yourself, acquire a company that already has it, or partner with another company.
3. Bundle and Integrate: Combine the different components into a single, integrated suite. The integration is key – the bundle should be more valuable than the sum of its parts.
4. Price the Bundle Attractively: Price the bundle in a way that makes it a compelling choice compared to buying a collection of separate point solutions.
5. Market the Solution: Clearly communicate the value proposition of the integrated solution to the market.

📈 Measuring Success

• Lack of New Entrants: Is the strategy successfully deterring new companies from entering your market?
• Market Share: Are you maintaining or growing your market share?
• Adoption of the Bundle: Are customers choosing to buy the full suite rather than individual components?
• Customer Retention: Is the bundled solution increasing customer stickiness and reducing churn?

⚠️ Common Pitfalls and Warning Signs

Bloatware

Adding too many features and components can lead to a bloated, confusing product that is difficult to use.

Poor Integration

If the different parts of the bundle don't work well together, the strategy will backfire. The integration must be seamless.

Neglecting the Core

Focusing on building the bundle can lead to neglecting the quality of the core product, which can open the door for a competitor with a superior point solution.

Customer Resistance

Some customers may not want the full bundle and may resent being forced to buy features they don't need.

🧠 Strategic Insights

The Ecosystem as a Moat

This strategy's effectiveness lies in creating a self-reinforcing ecosystem, rather than just adding features. When an incumbent bundles products and services, their "suite" can become the customer's default choice. This ecosystem acts as a defensive moat, raising switching costs and locking customers into the platform. A highly integrated ecosystem is difficult for competitors to penetrate, especially in software where the marginal cost of new features is low but the customer value of an all-in-one solution is high. The ultimate goal is an ecosystem so convenient and comprehensive that leaving it is a major disruption for the customer.

The Danger of Bloat and the Innovator's Dilemma

Ironically, raising barriers to entry can sow the seeds of an incumbent's downfall. Adding features can lead to a bloated, complex product that is difficult to use. This creates an opening for a new entrant with a simpler, more elegant solution that excels at one thing. This is the classic "Innovator's Dilemma": the incumbent serves existing customers by adding features, while a new entrant targets an underserved niche with a focused product. The incumbent's complex ecosystem can become a liability, slowing its response to new threats.

Shifting the Basis of Competition

This strategy fundamentally changes competition from a battle of individual products to a war of ecosystems. Competitors face a stark choice: build their own costly and risky ecosystem, or find a niche within the incumbent's. This can lead to "co-opetition," where smaller companies complement the incumbent's offering and become part of its ecosystem. Incumbents may even encourage this through APIs and developer programs to strengthen their position. The result is a competitive landscape of walled gardens, not a level playing field.

❓ Key Questions to Ask

• The Customer's Workflow: What are all the steps in our customer's workflow, and which of them can we incorporate into our product?
• The Integration Value: How can we make the integrated suite more valuable than the separate components?
• The Competitive Response: How are our competitors likely to react to this move? Can they build their own bundle?
• The Complexity Cost: Are we prepared to manage the increased complexity of a larger product portfolio?

🔀 Related Strategies

• Tower and Moat: A strategy that often involves raising barriers to entry to protect a dominant position.

• Limitation of Competition: This is the ultimate goal of raising the barriers to entry.

• Standards Game: By creating a tightly integrated suite, you can attempt to make your proprietary integration points the de facto standard for the market.

• Creating Constraints - embedding extra complexity or contractual requirements to raise development and integration costs for new entrants.

• Exploiting Existing Constraint - amplifying current dependencies or requirements to heighten costs and deter newcomers.

• Defensive Regulation - enacting or maintaining regulations that lock in incumbent advantages and prevent new competitors.

• reinforcing-competitor-inertia - deepening competitors’ reluctance or inability to adapt, making barriers more effective.

• Talent Raid - draining potential rivals of critical expertise to widen capability gaps and fortify entry hurdles.

• restriction-of-movement - constraining competitors’ strategic options to sustain high entry costs.

• Lobbying - advocating for policy changes that institutionalise barriers and discourage new entrants.

• Bundling - packaging offerings together to force entrants to match comprehensive solutions, raising thresholds for entry.

• Buyer-Supplier Power - leveraging control over supply chains or customer relationships to impose onerous terms on newcomers.

• Platform Envelopment - A platform can raise barriers to entry by enveloping (integrating or absorbing) adjacent services or functionalities, forcing potential new entrants to compete with a much broader and more integrated offering.

⛅ Relevant Climatic Patterns

• Inertia can kill an organisation – trigger: barriers entrench incumbents and slow adaptation.
• Capital flows to new areas of value – influence: high barriers redirect investment to emerging spaces.

📚 Further Reading & References

• The Innovator's Dilemma by Clayton M. Christensen. Discusses how incumbents can be disrupted by new entrants with simpler, more focused products, which is the threat that this strategy is designed to counter.
• Competitive Strategy by Michael E. Porter. The classic text on competitive strategy, which includes a detailed analysis of barriers to entry.