Porter's Five Forces

One of the best methods to conduct a competitive analysis in your industry is to use Porter's Five Forces Model, a framework developed by Michael Porter of Harvard Business School and published in Harvard Business Review in 1979.

It was developed to help business owners give themselves a competitive advantage by understanding the industry structure and how competitive forces shape strategy.

In this guide, we'll explore the benefits of the Five Forces Model and how to apply it. This analysis is utilized by startup coaches to determine the completive environment that their client is entering.

What Is The Purpose of Porter's Five Forces Analysis?

Traditionally, organizations focused exclusively on their existing competitors and their actions. In other words, competition in an industry was viewed as a tug of war between rivals, with each party attempting to claim a higher market share and more sales.

When Michael Porter introduced his Five Forces Model, the main goal was to help business owners develop a robust business strategy by examining the forces in their wider business environment. That's what makes the Porter's Five Forces a powerful analysis.

What Are the Five Forces of M Porter's Model?

Purpose of Porter's Five Forces Analysis

When it comes to analyzing industries, there are five forces that shape Michael Porter's framework. These are the factors that determine the competitive pressure of an industry and a business' potential to increase profitability, which are:

1. Buyer Power

The bargaining power of customers or buyers is used to measure competition intensity from the customer's point of view. Customers like to receive higher value for their money. In other words, they want to get more and pay less.

If your business is competing in niche markets where the customer base is limited, each customer has more significance and bargaining power. They can negotiate prices and dictate terms.

On the other hand, if your company sells essential products or services that most people need in their daily lives, it'll be easier for you to charge higher prices.

2. Supplier Power

Ideally, the suppliers in your industry would prefer to provide less and charge higher prices. If there are few suppliers in your industry, each supplier will always be seeking to raise prices or negotiate favorable terms.

On the flip side, an industry that's saturated with a large number of suppliers will be less affected by supplier power. With low switching costs between different suppliers, there will be higher price competition among suppliers. This means that businesses can easily switch from one supplier or supplier group to another without losing much.

supplier buying power

3. Substitute Products

How many substitutes are there for your products or services? Do they serve the same purpose as efficiently as your offering? Are they less expensive? By asking these questions, you can effectively analyze the threat of substitutes and their effect on your competitive strategy.

4. New Entrants

The barriers to entry for new businesses into an industry can significantly influence your company's profit potential. If it's easy for potential entrants to break into your industry and grow their operations quickly without requiring massive budgets, the industry competition will naturally be more fierce.

On the other side of the coin, an industry with the following entry barriers will have less intense competition, at least in terms of new competitors:

These strong and durable barriers make it harder for smaller businesses to establish themselves and gain market share.

5. Competitive Rivalry

A saturated industry with lots of established companies will have a higher level of competition than a relatively new industry with just a few companies. An industry with high exit barriers also means that direct competitors will be more willing to retain customers.

The Sixth Force

For many business strategies, there's an additional force that affects a company's profitability, which is government policies. Governments impose certain regulatory and trade policies that may affect how a business makes money. Taxation also plays a big role here.

Advantages and Disadvantages of Porter's Five Forces

Advantages and Disadvantages of Porter's Five Forces

Now, let's take a quick look at the pros and cons of the Five Forces tool:

Advantages

Helps Determine Competitive Intensity and Threats

With the Five Forces tool, you can pinpoint how each force affects your business, whether a substitute product for the industry's product is a threat, and the buying power of consumers and buyer concentration.

Simple to Apply

Applying the Five Forces tool to your business doesn't require much time or effort. A basic understanding of the model would suffice. You also need to collect data. The more in-depth your data collection efforts are, the more accurate the model will be when it comes to identifying the industry's structure and the pure competition in the industry.

Weaknesses

May Not Be Very Effective in Today's Market

Assessing industry attractiveness using the Five Forces Framework may not be very effective in today's market. M Porter's model was developed in the late 1970s. At that time, the market was more stable, the competition was high, and there was a steady change in technology.

In contrast, today's market requires companies to be more dynamic and resilient. This is largely due to the major advancement in technology that forces businesses to compete in a "hypercompetitive environment."

Put simply, today's market is unstable, meaning that the Five Forces tool may not be that effective for businesses in predicting market changes and their impact on industry profits.

Doesn't Account for the Company's Resources

The Five Forces Model neglects the resources a company brings to the industry. That's why experts recommend using the Five Forces tool along with a resources-based analysis of the company.

Lacks the Explanation of Strategic Alliances

Robust alliances can give businesses an "unfair" competitive advantage. The Five Forces Framework doesn't address how these alliances affect profitability.

Porter's Five Forces Example

To further illustrate how Porter's Five Forces Analysis can be applied in practice, let's take a look at this example here in the sportswear industry.

The sportswear industry is an industry with a steady growth rate, particularly due to globalization, economic growth, and favorable fashion trends. Its total market is expected to reach USD 267.61 billion by 2028. Now, let's see how Porter's five competitive forces would apply here:

Buyer Power

Being a B2C (Business to Consumer) market, there are millions of consumers in the sportswear market, meaning that the power of customers is limited.

Bargaining Power of Suppliers

Sportswear companies source materials such as cotton and polyester fabrics. There are many suppliers that provide these materials, so we can safely conclude that the power of suppliers isn't significant in this industry.

However, keep in mind that more prominent companies that require pushing larger stocks may be able to source materials at discount prices for bulk quantities, allowing these companies to offer their products at lower prices by reducing manufacturing costs.

Threat of Substitute Products

There are no real alternatives to sportswear products. The taste and style of consumers may shift in the following years, which may cause a decline in the sportswear market. However, currently, substitute goods are a distant possibility.

Threat of New Entrants

Threat of New Entrants

There's a low threat of new entrants in this industry because new companies can't afford the marketing investment, product differentiation, and development of the same brand identification and recognition of global names.

As a result, new entrants may be able to compete with these global brands on a local level only, specifically by offering more budget-friendly choices at comparable quality to offset the strong brand identity of such reputable names.

If a local brand later aspires to become global, competing in a narrow niche of the market would make sense.

Competitive or Industry Rivalry

Currently, the sportswear market is dominated by big players such as Nike, Adidas, Under Armour, and Asics, with a combined global market share of around 38%. This means that competition is fierce on a global level.

Final Thoughts On Porter's Five Forces

That was a detailed explanation of Porter's Five Forces Model, its advantages and disadvantages, and how to use it to analyze industry profitability and your competitive position.

You can either use the Five Forces tool yourself or get it as a service from any reputable small business consultant services.

How To Network For Your Startup

Introduction

a group of startup founders networking at an event for startups

Startups are not born overnight. They take time to develop and mature. It would help if you built relationships before expecting people to help you. Networking is the best way to get started.
If you want to start a business, you have to think like a business owner. This means that you should always look at how you can improve your business or how to network for your startup.

Networking is critical to your startup's long-term success.

A business startup is always a challenging task that necessitates many favorable circumstances. There are, however, several things you may do to improve your chances of success. If you've ever established a business, you know how tough it is to start networking when you don't have any prior networking experience. While networking can be challenging if you don't know its importance, it is extremely beneficial to any business and critical to your startup's success. You just have to explore and meet as many wonderful business owners as possible. If you need help or advise you could utilize a startup coach.

What Is Networking?

a group of male startup investors

It is an activity through which early-stage entrepreneurs can broaden their network to locate greater prospects in their area.

Startup entrepreneurs can also learn about the newest trends, technologies, and potential investors for their company by networking.

When people have a common interest exchange information and business ideas, it is known as networking. Some people believe that networking is passing out business cards and having lunch with colleagues. While this is partly true, it is far from the complete tale.

Networking is fundamentally about forming connections. It's all about gaining people's trust and desire to form a business relationship with you. You may use the professional connections you make to grow your business immensely.

How Does Networking Help Your Startup?

image of a group of strings forming a cool startup idea

What comes to mind when you hear the term "business networking"? Hundreds of individuals would undoubtedly speak and pass out business cards, brochures, and flyers. That is part of it, but this is just the tip of the iceberg.

Have you ever observed how some new firms have many customers while having no advertising? This is because the majority of their clients are people they know, have met, have mutual friends with, or have been referred by prior clients. This is the result of a startup's networking efforts.

It would be best to create awareness about your firm regardless of where you are in the startup funding process to generate sales. This is possible only through a strong network.

Many startups have had their first successes due to the network connections they've developed, reducing the chance of failure. However, building your network is critical to the long-term success of your startup; therefore, you should concentrate your efforts on cultivating a supportive community among your peers and the business community. While you may start a business without a network, networking is one of the most important strategies to construct a sustainable and long-lasting profitable firm.

How to Build Your Business Network?

large meeting of many business men and women

Is your business locked in a never-ending cycle, unable to grow? Perhaps there's anything you're doing incorrectly or not at all. It may be because you're not interacting with the correct individuals. As an entrepreneur or a startup's founder in its early stages, business networking is critical to growing your company from the ground up.

Big-name firms got where they are today by cultivating strong business partnerships. These are the kinds of connections that can be made by networking. Likewise, your company can reach new heights by cultivating significant business partnerships in the startup ecosystem.

Target Business Event That Matches Your Business Goals

target board with business goals on it

Don't just go to any event, though! Make sure that the event is relevant to your business. For example, if you're looking to network at a conference about marketing, make sure that you attend the right conferences. Also, try not to go to too many events. Instead, try to focus on one or two events per month.

Research the event over the internet or get in touch with the organizers for further information. Check to see if the event is relevant to your work.

Attending an event that is not related to your sector or business would be redundant and a complete waste of time. For example, you won't find many networking opportunities at a business gathering oriented on fine arts if you're a tech startup entrepreneur. Instead, attending events like TechCrunch would be more valuable.

Entrepreneurship seminars, conferences, and awards ceremonies are among the business events you should attend. Local network clubs such as MySpace and LinkedIn can help you meet new individuals. The great game of business, the world business forum, Wall Street Journal business conferences, international startup festivals, content marketing world, are some of the most reputable global conferences you may attend.

These events are intended to bring entrepreneurs together to stay current with industry trends, build a strong network, and become thought leaders. Such events lead you to your ideal audience.

Devise a Plan

networking plan

Make a full proof plan before entering a business network. Keep in mind your goal which can be introducing your startup, looking for funding, or both. A business card is an ideal way to remember your fellow entrepreneurs and investors. It also allows them to contact you later. You can also use brochures to highlight a few key points of your business, keeping it short and sweet, unlike a lengthy 20-page business proposal.

Always be prepared. When you go to an event, make sure you bring something to share. Whether it's a business card, a flyer, or a business proposal, make sure you have something to give away.

Meet a Lot of People

founder giving a pitch to many other people

Networking is a great way to interact with some like-minded person. However, you should not spend most of your time interacting with a single individual. Rather, you should meet and engage with as many people as you can.

Networking is a great way to expand your business. If you know someone who could benefit from what you offer, introduce them to each other. Ask if they need any help promoting their business. When you're networking, don't just talk about yourself. Ask questions about what others do. Find out what they are interested in and try to find common ground.

Be open to meeting new people. Don't let fear hold you back from making connections. Many people would love to talk to someone successful. So, take advantage of these opportunities.

Correct Timing

A key point to remember here is that a business networking event is pitching your product or service to investors rather than selling. Therefore, once an investor shows interest, you can request the right time to go into details about your business.

Arrange a Wingman

If you are a people person and cannot initiate a conversation, you can bring along a wingman to break the ice. You would also need a wingman who has a lot of connections to help introduce you to a larger network.

Ask Contact Details

It is advisable to exchange business cards at a social networking event. If you have the contact numbers of potential investors, it is easier to contact them later and set up a time for a meeting. Don't forget to follow up! Always send a thank-you note after a meeting. Follow-up emails are great ways to keep in touch with people who may be able to help you in the future.

a persons contact details example

Utilize Social Media Platforms

Social media sites and groups are a great place to meet people with similar interests. These startup communities allow you to learn from other entrepreneurs and gain valuable advice. There are many different platforms, including Facebook, Twitter, Instagram, Pinterest, LinkedIn, and YouTube.

A social network may be useful for connecting with people who work in tech-related fields. Also, keep an eye out for pertinent discussions or talks on these social media networks. For example, a discussion in a LinkedIn group may assist you in identifying relevant connections.

Use Your Email Address

We all know that face-to-face meetings are the most effective people network. However, you need to start from somewhere and let the investors get acquainted with you before setting up a meeting. Email addresses come to the rescue once you have identified someone who might be of help. Your email should include the following:

You are on the right track to build business connections if it clicks.

Join a Coworking Space

Coworking spaces are becoming increasingly popular. Choose coworking at least once a week if your employer allows you home-based work (or if you're a solopreneur). You'll not only be sharing space with other freelancers and businesses, but the relaxed atmosphere will also allow you to meet like-minded people. This is a chance to build connections naturally with minimum pressure.

founders all working together in a coworking space

Join Hands With Online Influencers

Online influencers use social media to exert influence. Influencer marketing is when you employ an influencer to promote your products or services.

The influencer brand collaboration, also known as influencer marketing is a guaranteed approach to increase your brand's social media reach. It is ideal for business brand building. There is nothing like a one-size-fits-all solution for implementing this strategy, but almost any company can benefit from the correct planning and analysis.

Your business strategy should be to target micro-influencers. As micro-influencers have targeted following and high engagement rates, collaborating with them leads to brand success.

online influencer starting up her business

Join Online Communities

Thanks to the internet, networking has never been easier or faster than it is now. There are online communities dedicated to assisting people in connecting and networking. However, you may take it a step further by joining online forums that discuss issues relevant to your specialization or industry. You don't have to keep it strictly business-related. You can also join groups dedicated to topics of personal interest. As previously stated, you should have a diversified network so that you are not limited to the professional realm.

Benefits of Networking for Your Startup

Happy team all standing together

Leveraging Online Opportunities

Networking is the best way to connect to people who can help you achieve your goals. You may not know anyone personally, but that doesn't mean you can't find them online. There are many ways to network online, including Facebook groups, LinkedIn, Twitter, Instagram, etc.

Mentorship

Networking is a great way to learn about different industries and gain knowledge from other entrepreneurs. If you're looking to start a business in the future, you'll want to make sure you have some education before starting. By joining groups and attending events, you can meet like-minded individuals who can share their experiences and advice. You might even discover someone willing to mentor you towards your business objectives.

start up mentor helping out a client

Build Relationships

Networking helps you build relationships with potential clients and partners. When you first begin working with someone, you don't necessarily know how they work. By getting to know them better through networking, you can figure out what kind of relationship would benefit both parties. How to network for your startup can motivate you towards your business goals

Networking is a great way to meet people doing similar things to what you're trying to do. You can learn from them, they can learn from you, and you can both benefit from each other's experiences.

Intentional networking is about meeting people who have similar goals and values to your own. This type of networking is not just about getting business cards; it's about building relationships that last longer than a handshake.

Leverage With Investors

One of the major reasons startups fail is a lack of capital. Networking gives you access to business resources and opportunities. You can even use your network of business people to start crowdfunding campaigns.

Stay Informed About Industry

Networking is a good way to stay updated on current trends in your industry. You never know when something could come up that you need to know about. By staying informed, you get better business expertise, keep yourself ahead of the game, and avoid being left behind.

Empower Your Marketing Channels

Networking has a positive influence on your marketing efforts through the following marketing channels. You can build a network from your marketing campaigns.

Finding Referrals and Business Opportunities

business oppotunities on a compass

One of the most important reasons you'll need to network for your startup is to locate referrals and new business that will help you grow faster. Unfortunately, many businesses are too aggressive about their business plan. However, bringing in new clients and referrals whenever possible is a terrific strategy to reduce the risk of developing your startup. While new leads obtained through marketing efforts might supply you with good revenue, referrals received through networking are often of high quality. In addition, the follow-up process is easier with these referrals and converts them into customers and clients.

If you succeed in making new contacts while networking, the number of referrals you receive will almost certainly increase organically, boosting your startup's chances of success.

Build Business Confidence

When you are regularly putting yourself and your company out there in the business world, it will help you acquire confidence as you introduce your product or business concept to like-minded people. Positive feedback brings confidence in you and allows you to be proud of your products and services.

Help Other Startups

Networking is not about who you know, and it's about what you know. If you want to get ahead in life, you need to focus on what you know and use that knowledge to help others. Networking is a two-way street. You have to give something back to those who help you and share your knowledge to benefit others.

Conclusion

group of happy networkers

Networking is a great way to get to know other entrepreneurs and help each other out. You can find people who are willing to invest their time and resources into helping you succeed. How to network for your startup is easy. This is especially true if you have a good product that has potential. If you don't have a product yet, you should still network. There are many ways to do this, as discussed in this article.

Networking doesn't need to be complicated. Just remember the key to networking success is to keep it simple and genuine. Don't overthink it. Instead, focus on making connections with people who are going places.

Networking is a skill that can be learned. There are many ways to network, but the best way to learn how to network is to do it. Start networking now!