In the last few days, I have been approached by a couple of young people, both with business start-up ideas.

If I give you the details on these businesses, there’s a chance the individuals behind them will become known. Neither I nor they want this, and so I won’t.

But, there is a disturbing pattern to these ideas. Which is why I’m writing this column.

Both business ideas are rather prosaic. One deals with selling food, and the other deals with “connecting” start-up entrepreneurs with money sources. (And that’s about all the detail I can provide!)

To both of these nascent entrepreneurs, I said the same thing, “What are your barriers to entry? and, “How do you plan to differentiate your product from that of everyone else?”

In both cases I pretty much got a blank look. Not because the entrepreneurs in question failed to understand the meaning of the terms; but instead because both of these people simply hadn’t even considered barriers and product differentiation to be all that important.

There are many reasons why start-up businesses succeed and fail. But I can assure you that your business will fail (unless you’ve got more money than the federal government, that is) if it lacks: a.) a way to make your product/service unique; and/or, b.) a way to keep the “me too” competitors from flat-out stealing your business model.

My guess is that fully three-fourths of all start-ups simply ignore these two critical issues. (I tried to look up statistics on this, but just couldn’t find any.) What this means, of course, is that three-fourths of all start-ups are doomed to failure by design.

Maybe a quick education is needed at this point.

Product/Service Differentiation

This is pretty much another way of saying “unique.” (This reminds me of a joke my kids told me. A guy says to a kid, “So how do catch a unique bird?” And when the kid says, “I don’t know”, the guy says, “U-nique up on him!”)

You can actually tell this joke to your kids; just don’t attribute it to me.

But seriously, this is really just another way of introducing the word “niche.” By making your product/service unique, or one-of-a-kind, you are in essence carving out your niche.

A niche product/service can either be real or perceived. For example, I was once in a factory that made beer. And even though the exact same brewing process was employed to make both “branded” as well as private-labeled suds, the ingredients in both brews were identical.

But the private-labeled brand sold for about half as much as it’s more prestigious counterpart. The difference? All marketing. All perception. The vendor put a lot of dough into marketing the name-brand brew, and almost no money at all into the private labeled brand. (Which, BTW, was significantly more profitable. What’s that tell you about beer makers and how much they believe in their product?)

(Which reminds me of an old bromide, “Great marketing will bring you your customers once; great products will keep those customers forever.”)

Most products/services are uniquely differentiated in fact, and not by perception. But I’m always amazed by just how much products and services are differentiated simply by manipulation of the consuming public’s mindset.

I frankly could not care less. (Although I am somewhat troubled by those who can only differentiate by perception. I’m sure frequent correspondent Ernie Romanco, --- a.k.a. “Mr. Negative” --- will be heard from on this particular issue.)

But if I don’t see a differentiation strategy in a start-up’s business plan, I just stop reading. (Also known as “The Demmler Technique”.) There is no sense in ever going to war against “equal” competitors. For the winner of this game is always the competitor with the deepest pockets. Always.

And while I’m on this topic, don’t ever, ever try to differentiate your product/service by being the low-cost producer. You simply cannot win this game. In every single market niche, there is only one low-cost producer. And it ain’t you.

Barriers to Entry

The other axiomatic requirement is that your product/service must find a way to block its competitors from entering your niche in the first place. This can and will happen once you achieve a certain minimum market share. I once had a company that owned about 30 percent of a particular niche market when we sold it. As soon as we got to about 20 percent, we noticed that our competitors were beginning to pull out of our niche. (What a terrific feeling that is!)

But in order to even get to this point, you’ve got to either keep or drive your competition out of your business.

One of the best barriers to entry is, and in my opinion, technology. In almost every business I’ve ever run, I’ve tried to find some “techno-barrier.” For example, that same company I just mentioned above had at its core an inferencing engine that took us some two years to write and, more importantly, required some of the most talented programmers on earth to even conceptualize and design. In my opinion, no one could replicate this core technology --- at least not in our chosen niche (insurance deductibles).

Of course, the ultimate barrier is a patent. And as we all know, a patent, in essence, is a legal monopoly. Every time I send a check to the company we purchase our radio air time from, I think to myself, “These guys charge us these fees simply because our federal government licensed to them temporary ownership of a certain frequency. AIR!

So why them? Why not us?”

Think about that. They bought a license to exclusively control a signal moving through the air. And because they own this license, I pay hundreds of thousands of dollars each year.

That’s quite a barrier to entry.

Pittsburgh Business Radio, the licensee to this air, is itself uniquely differentiated in that it is the only talk show about business and entrepreneurism in western PA, and one of just a handful of such shows in the U.S. If you want to “grow your brain” (as we like to say), then PBR/The American Entrepreneur (TAE) radio show is the place for you.

Moreover, TAE both teaches and entertains while it teaches. Try that one on, dear competitors. See if you can match both our content and our entertainment values. I just don’t think they can.

Of course, differentiation and barriers-to-entry are not the only elements of a successful start-up. But they are two elements, and if employed strategically, that can and will give you at least a fighting chance at success. But without them, you’re only dreaming. You’ll never build a successful business without: a.) owning your niche (differentiating) and, b.) then finding ways to keep competitors out of that niche (barriers).

I hope this has been helpful. More importantly, I hope that your company passes this test.