Wouldn’t you like to own a business where there is no competition? Better yet, wouldn’t it be great not to have to worry about competitors coming into your market? There are, of course, very few businesses that have such high barriers.
In Kona, Hawaii some of the big barriers to entry include the following:
- Exclusive distributorships. Many people don’t know that the major car dealerships in Hilo and Kona are owned by the same company. So, in effect, if you want to buy a new Toyota on the Big Island, you have to buy from the one dealer (with two locations) with the exclusive rights to the Big Island. It’s highly unlikely that Toyota would grant another distributorship on the island, so our local Toyota dealer is in a very enviable position: a monopoly.
- Government regulations and permitting. The old joke about slips at the harbor was that you needed to buy a “business” to get a slot. The business was an old, beaten up boat in a slip. The boat was worth nothing, but the slip was worth a lot. Another area with insurmountable barriers is Mauna Kea summit tours. There are no permits available, and the supply of tours is much smaller than the demand, so those with permits have a very protected and profitable market.
- Customer loyalty. Many B2B businesses that come to Kona Impact complain about the “old boys network” in Kona. They claim that they will offer better prices, products or service, yet the “old boys” don’t give them the time of day. I’m not so sure how much this is true, but loyalty to businesses you know and trust does create strong barriers to entry.
- Capital Costs and Market Needs. Some machinery-based businesses and transportation businesses require hundreds of thousands, if not millions of dollars, to get started. Given the small Kona market, it does not make sense to have two businesses doing the same thing. If you think of Kona Trans or a few of the big snorkel charter businesses, you can see how startup costs would be a formidable barrier to entry.
If we look at a business like Fair Wind, we can see that they have all four of the above barriers to entry (an exclusive spot at Keauhou Bay, Kealakekua Bay mooring permit, high customer loyalty and huge startup costs), which is probably why they are the envy of every water recreation business.
Here are few things we see as ineffective barriers to entry for Kona businesses:watch The Revenant 2015 film now
- Reliance on new technology. We’ve seen this with several upstart businesses: they buy into a new technology, thinking it will be so compelling that it will dominate the market. I’ve seen this with video production/filming, printing, cleaning machines and products and lot of franchise based businesses. The problem is that technology inevitably improves while costs go down, so the presumed barrier is very short lived.
- Relying on saturating traditional advertising. I’ve seen businesses start in Kona that do big, full-page newspaper ads hoping that will kick start the business. Then, after spending several thousand dollars in a short time, they realize the foolishness of such a big print ad spend. That old saying about not putting all your eggs in one basket is very apropos when it comes to advertising.
- Using predatory pricing. This is another often ill-fated approach to building a business and establishing barriers to entry. Rushing to the bottom in pricing is a sure-fire way to make you busy and broke. Changing the perception that you are a low-cost provider (often associated with inferior goods and service) is a very hard perception to change. We often find that the low-price entry has often miscalculated costs of doing business in Kona, and, over time goes out of business because it is unable to achieve profitability.
When you are starting or buying a business in Kona, Hawaii, think carefully about what barriers to entry exist and how you can create more. Some business with very low initial barriers to entry includes massage therapy, real estate and landscaping. That does not mean that these are horrible career choices; it just means that you need to work hard to differentiate yourself from your competitors. You also need to keep innovating and marketing to find sustained success.
For a great list of barriers to entry, click here. Take a look and figure out how many you can buy into or create.
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