If you're a prospective entrepreneur who is brainstorming with like-minded future business tycoons, you would be wise to carefully consider the advantages and disadvantages of "barriers to entry."

Like a fence, a barrier to entry can be a real obstacle that blocks or slows your progress in the early phases of your venture. But once you get established, that same barrier can provide significant protection that will help to defend you from those hoping to intrude into your domain.

Generally speaking, a venture capitalist will assume that you can overcome most of the obstacles that will make it difficult for you to enter the market - with the possible exception of the knowledge that you need some of his money. If he likes your business idea, his major focus will be on the barriers that you will be able to erect that will keep competitors out of your way.

A barrier to entry can be anything that makes it very difficult or extremely costly for either you or anyone else to enter a specific market. For example, the barrier could be an industry or government license or regulation that is difficult and time-consuming to satisfy. It could be an easily defended patent on your product or business process. The barrier could be long-term contractual supply or sales distribution agreements that are critical in your market, or it could simply be name or brand recognition that would require large amounts of capital to displace.

The ideal situation would be to start a business in a situation in which it is relatively easy to get established (minimal barriers to your entry) but as your company begins the rapid growth phase, your potential competitors will view you as being surrounded by a virtual protective fortress. Unfortunately, the odds of this happening are about the same as the odds of achieving financial success simply by using the investment strategy of "buy low, sell high."

One of the best barriers to entry is easily recognized product differentiation. Technical product superiority and world-class service that is properly promoted will differentiate your company from all competitors and will make it easy to build a loyal customer base.

Once established, a formidable barrier to entry will provide many advantages, such as extended product life, easy access to additional markets and distribution channels, and the ability to set prices to assure a comfortable profit margin. Once this high level of success has been achieved, great wisdom must be exercised to avoid overconfidence and arrogance that can easily lead to price gouging. Excessively high prices will serve as a red flag to invite opportunistic competitors from everywhere.

Another sobering thought that should guide your business planning is the understanding that no matter how effective your initial protective barrier is it will eventually become less valuable as time passes. A patent will eventually expire. Besides, you'll find that most patents are relatively easy to obtain, but they are very costly to defend in court. This obviously gives a significant advantage to individuals and companies with significant financial resources. Furthermore, most patents can be circumvented without too much difficulty.

The most important principle to remember is this: the only real sustainable barrier to entry is yourself and your own ability to decisively respond to the dynamics of your market. This ability will enable you to continue delivering a product or service that satisfies the needs of your customers while maintaining desirable profit margins. And it is the primary reason why a venture capitalist will ultimately invest in you and your management team, proving once again that people are more important than things.