An easy business for anyone to get into is not a good choice for investment because anyone can get into that business. For example, someone who picks selling cellular service as their business is picking a good business for income as cell phones are prevalent in our society and they have the potential of getting a lot of customers. However, if their business is one that sells any service just like any other service it is questionable whether they will get a leg up on the competition and have the type of growth an investor likes to see.

What if the cellular sales company has the exclusive rights to sell in a particularly large territory? Or, they have the exclusive rights to sell a particular type of phone?

In the case of the territory that is a captured customer base that no other competitor can cut into for however long they have exclusivity. That is a barrier to entry for the competition. The customers in the territory may not be able to get an alternative solution elsewhere and they require that particular solution.

In the case of exclusive rights to a particular phone, such as a patent and licensing rights, is a great way to also create a barrier to competition. The only “competition” here is alternative solutions and “doing nothing”. Typically, the product fulfills a particular need very well (increasing value to the customers in a large way) and will sell well.

In both cases, investors can see that the target market is of a particular size, and based on buying patterns can predict the value of the company. This greatly reduces the risk of their investment by increasing the likelihood of a large win.

Barriers to entry exist in many forms and are one of the best ways to indicate to an investor that you have a highly profitable venture. Of course, this only exists if you have a demand for the product.