Porter’s 5 Forces
If you are unaware of Porter’s 5 Forces, let me recap. Michael Porter is a Professor of Business at Harvard. His work is focused on strategy and this is a tool he designed to get business owners thinking about strategy. He contends that a business is faced with 5 competing forces and the business owner needs to juggle the impact of those focuses on the business.
Every business owner should attempt to identify each of the forces impacting their business. I guarantee that the exercise will raise questions and identify issues that were not previously considered.
In a nutshell, the 5 Forces are:
- Bargaining Power of Consumers - Is your product or service critical to your customer? If not, the customer has more leverage to seek alternatives.
- Threats of New Entrants – How easy is it for a competitor to start in your space? How easy was it for you?
- Threats of Substitutes – Remember my previous posting on substitutes, that information applies here. If your customer has survived all this time without you, how did he do it? What was he doing before you showed up? Think beyond your competition, if none of you were here tomorrow, what would your customer do?
- Competitive Rivalry with in the Market – How much competition is taking place? Is your product commoditized?
- Bargaining Power of Supplies – If your suppliers are not selling to you, who are they selling to and is that sustainable? How much leverage do they have?
Please do this exercise, it is invaluable.
