(2007-03-14) Costolo Hidden Barrier To Entry

Dick Costolo (founder of FeedBurner) on the Business Strategy of having the advantage of Quantum Hidden Barriers To Entry. Hidden barriers to entry are particularly helpful to your company because potential competitors will severely underestimate the level of investment and resource commitment required to compete with you... But there are even better hidden barriers to entry in some businesses. I'll call them Quantum Hidden Barriers to Entry. Quantum Hidden Barriers to Entry happen when you keep encountering new and unforeseen cliffs you have to scale as you move through different stages of market penetration. While hidden barriers to entry make it harder for potential competitors to enter the market, quantum hidden barriers to entry keep popping up as you move through stages of market penetration (Adoption Life Cycle). When you are thinking about companies and markets, it's fun to think about the kinds of businesses where there might be quantum hidden barriers to entry. I think you can anticipate these when you see markets that are characterized by: spiraling complexity, market reactions to the first mover (gaming behaviors, 3rd party ecosystems, etc.), and centralized platforms... I'm probably missing a lot here and this list could be a lot more thoughtful, but right away, you can see a bunch of services that likely have Quantum Hidden Barriers to Entry in their markets. Digg and AdSense come immediately to mind for me. I Commented that these are probably lots easier to see in retrospect.

Here's an interesting related bit from Arnold Kling. When I had my web-based business, we found ourselves in 1998 and 1999 up against some competitors with frightening amounts of venture capital. However, we soon noticed that they put most of their efforts into trying things that we already knew did not work. Our most valuable intellectual property was this knowledge of "what ought to work, but doesn't."