Leverage, Highlighting Flaws Over Virtues

Raising the Barrier to Entry:

The higher the barrier to entry in an industry, the greater the potential profit, whereas lower barriers make one susceptible to exploitation.

Three methods to elevate industry barriers:

1. Capital Barrier: Investing substantial capital creates a protective moat that others cannot easily replicate.
2. Technological Barrier: Possessing exclusive technology requires competitors to invest significant time to catch up. Alternatively, leveraging culture and aesthetics can elevate competitive barriers when lacking technological exclusivity.
3. Time Barrier: Persisting in an industry with low profits while others exit allows one to emerge as a dominant player eventually. For instance, a friend of mine from Wenzhou persisted in the disposable wardrobe industry for over 20 years while others left. Consequently, their company became the world’s leading supplier of disposable wardrobes.

When someone claims an industry has low entry barriers and is easy to join, they likely aim to exploit newcomers. Assessing the barrier’s height in an industry is crucial; higher barriers yield greater returns.

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