Industry Strengths and Weaknesses
- One critical facet of creating a company is understanding what other companies already exist in the industry, and the power/power potential that they have
- This can be better understood through analysis using the Porter Model
Porter’s Five Forces
- Competition
- Potential of new entrants
- Power of suppliers
- Power of customers
- Threat of substitutes
1. Competition
Questions
- How many competitors exist in the industry?
- How powerful are they? How powerful can they become?
- How would your company be uniquely suited to overcome this competition?
Principles
- More competitors = less power of any individual company
2. Potential of New Entrants
Questions
- How easy is it for a new company to enter the industry?
Principles
- Lower barriers to entry = less power of individual companies
- High barriers to entry = more difficult to start a company
3. Power of Suppliers
Questions
- How much power do current suppliers of the product hold?
- Are there any monopolies? Oligopolies?
- How unique are the inputs used to create the product?
Principles
- More power to suppliers = more difficult to enter industry as a new player
4. Power of Customers
Questions
- How much power do current customers of the product hold?
- How many customers are there of a product? How much power does the average individual customer hold?
Principles
- More power held by customers = less influence of individual company on market
5. Threat of Sustitutes
Questions
- How many substitutes exist? Are they high quality?
- What would differentiate your good from existing goods on the market?
Principles
- Substitute: a good that can be used in place of a company's products or services pose a threat
- More substitutes available = less sway of company on market