Michael Porter introduced his Five Forces framework in 1979. It was a revision/response to less rigorous frameworks for analyzing competitive strategy, like SWOT. The idea that you can create a long term competitive advantage which relieves your need to innovate has been constructively and reasonably debunked*, but the Five Forces are still my favorite framework for thinking about at a business in a competitive context.
A quick run through should take you around 30-60 minutes and my bet is that it will substantially help you see the business more clearly. The balance of this page steps through the Five Forces with a few questions that are likely to be relevant to technology-driven businesses.
|FORCE||NOTES ON APPLICATIONS|
|Threat of New Entrants||If you’re a startup, you probably are the new entrant. You’re probably re-segmenting an existing market or creating a new market.But how long are you likely to stay the new kid on the block? How is that going to affect the picture?|
|Threat of Substitutes||This is big in high tech. High tech’s big stories aren’t so much about switching from Spanish to Chinese timber but more about people completely replacing wood with some inventive new material (that was a metaphor). Think about major catalysts that are shifting the way your target customers operate in your area of interest. How are you going to make those catalysts work in your favor? (more on this in the book- Chapter 2).|
|Bargaining Power of Buyers||Once buyers decide they like your product, is it a high-involvement relationship where switching costs are high? Or is it something where they might abruptly stop using it because they’re tired of it or found something better? How can you improve on that picture? What pivotal assumptions about that do you need to identify and validate/invalidate?|
|Bargaining Power of Suppliers||What Key Partners do you have that supply you? How hard would it be for you to switch to an alternative? Does that matter?|
|Intensity of Competitive Rivalry||Is this a market that every VC has gone crazy for? Are companies trying to buy market share at a loss? What does that mean for your venture?|
* If you’re interested, check out the Forbes articles below about the supposed ‘end of competitive advantage’. In typical media business fashion, the headline overstates the case and I still think the framework is handy (even if the idea of a long term comfortable competitive advantage sans innovation is not).
Forbes: What Killed Michael Porter’s Monitor Group? The One Force That Really Matters
Forbes: It’s Official! The End Of Competitive Advantage