When asked about their company’s barriers, entrepreneurs will list as many potential barriers as they can. Everything from network effects to patents might be included in that list. While these are all real barriers, not all barriers are created equal. Some are simply more appealing to investors than others.
The way to distinguish the between more attractive barriers and less attractive ones boils down to whether the barrier is offensive in nature or defensive. Offensive barriers are ones that are built by the company making progress. Data synergy, R&D advancements, partnerships and others fall into this bucket. The most frequently cited defensive barriers are patents and intellectual property.
The reason why offensive barriers are more appealing is that building and enforcing them is often done in conjunction with the business. First, offensive barriers are often built by focusing on building the business; defensive barriers often distract entrepreneurs from building the company. Filing a patent, for example, can take time away from acquiring customers. Second, offensive barriers are enforced through the natural course of business, while defensive barriers are often enforced allocating resources into activities that don’t directly build the business. Suing another company for infringing on a patent, for example, takes resources away from other business activities. In sum, offensive barriers are well aligned with the business of building companies. Defensive barriers can draw resources away from building companies.
Lastly, defensive barriers may be leveraged only after a company loses the race, offering more downside protection than upside potential. By the time a patent is granted, a competitor may own the market. While the right to sue them could generate a return — the competitor benefited from the majority of the value creation in the sector.
Ultimately, the most appealing barriers are ones that are offensive. While this doesn’t mean that you should ignore defensive barriers, it does mean that you should focus on the offensive ones (especially when presenting to investors).