Porter’s 5 Forces Model

Porter’s 5 Forces Model will help to show you how viable and profitable your new venture could be.
The first thing you need to do is to make up a few questions for your venture. The questions will get either a positive (+), negative (-), or neutral (0) response. Look at the total scores for each category to see if your venture could thrive, and how profitable it may be. The five areas we’ll look at are:
Industry Competitors
Suppliers
Buyers
Substitutes
Potential Entrants
Running this model should not be hard, and should not take a lot of time. For an example we’ll look at a fictitious company, DVORAK Computers LLC, a supplier of high-end computer equipment.
Industry Competitors
This force explores what business is like in the industry you wish to enter.
How many competitors exist in this indistry?
There are only two other retailers in my target area. (+)
Is there a strong rivalry between competitors?
No, everyone is pretty cooperative. No one is bristling at the mention of other competitors. (+)
Is the industry growing?
Yes! The need for quality computer products is always increasing! (+)
How innovative am I? Is my approach similar to my competitors?
I have a unique and creative marketing approach. (+)
Overall Score: Positive. Things look good in the industry.
Suppliers
This force examines just how much control you have over your supplier.
How many suppliers are there?
There are only a few suppliers of the parts I need, due to my emphasis on producing quality computer products. (-)
What is the cost of switching between suppliers?
Not much. I didn’t sign any contracts, I just buy quit buying from one company and switch to another. (+)
Can I exert pressure on my suppliers to lower prices?
No. Processors and motherboards stay at the same price consistently. (-)
Can I get a better price that my competitors?
No. Cost is pretty much equal across the board. (-)
Overall Score: Negative. I don’t have much control, if any, over my suppliers.
Buyers
This force determines how much control you have over buyers.
Can buyers force my price down?
Yes. If I’m just too expensive they’ll buy from somebody else. (-)
Are there substitutions?
Tons, especially if they settle for lower quality computers. (-)
How sensitive are buyers to things like price, quality, appearance, etc?
Yes. I’ve tailored my company to appeal to customers that appreciate high quality and a clean look. (+)
Do I have strong brand recognition?
Not yet, but I have potential to go far. (0)
Overall Score: Negative again.
Substitutes
This force analyzes the threat of substitutions.
Do I have a special feature or selling point that will keep me from being passed over?
Yes. My computer equipment is top-of-the-line and always moving forward. (+)
Is there another option?
Yes. You can get quality equipment from other stores. (-)
Can I change prices to be more appealing or do I have fixed costs?
I have a little room to be flexible, but I can’t go too low without cutting into my cash inflow. (-)
Overall Score: Again, a negative score.
Potential Entrants
This force assesses how hard it is for other people to enter the market.
Can anyone else enter the market?
Yes. Any ambitious computer company could break in. (-)
How expensive is it to get into the industry?
Quite expensive, actually. Not very many people have the capital necessary. (+)
Is it expensive to switch to a new brand?
No. Simply clear my stuff off the shelves. (-)
Do I have a secure distribution channel?
Yes. I have secured a distribution channel. (+)
Do I have any specialized knowledge or skills?
Yes. I’ve been building, repairing, and working with computers for years. (+)
Are there government regulations that will prohibit new entrances?
No. As long as you have the money and grit, you can come on in. (-)
Overall Score: Neutral. Some things look up for me, others are not so good.
Overall, this exercise shows me a Positive, Negative, Negative, Negative, Neutral. The venture comes out as an overall Negative. Does this mean I shouldn’t go for it? Not necessarily. If I have guts and money I can overcome a lot of the obstacles. If I can build up enough brand recognition, I could have tons of people flocking to my product over everyone else. I need to realize going into my venture, though, that there is a level of risk. I need to set parameters to know when I should cut my losses. It’s good to be tenacious, unless you end up going bankrupt. As long as I keep working at it and know when to let go, DVORAK Computers LLC could be a lot of fun, and profitable for me too!
Until Next Time,
~Binary