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Porter's Five Forces

Rate each force, record the evidence behind the rating, and produce the summary view that explains where the pressure actually comes from.

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Rivalry among existing competitors

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How hard the firms already here fight each other. The centre of the diagram, and usually the symptom rather than the cause.

    Threat of new entrants

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    How easily someone new could start competing. This is about barriers, not about who is here now.

      Bargaining power of suppliers

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      How far the people you buy from can dictate terms to you.

        Bargaining power of buyers

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        How far your customers can dictate terms. Concentration and switching cost decide it.

          Threat of substitutes

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          Other ways to get the same job done, including doing nothing and doing it by hand.

            0 points written, 0 of them placed across 5 boxes.

            What this canvas is telling you

            • Nothing written down yet. Start with whatever you already know and sort it afterwards.

            Frequently asked questions

            The questions people actually ask about this document.

            What is Porter's Five Forces?
            A way of asking where the profit in an industry goes, rather than who is winning in it. Five pressures act on the firms in a market: rivalry between them, the threat of new entrants and of substitutes, and the bargaining power of suppliers and of buyers. Michael Porter's argument, published in 1979, is that these five together explain why some industries are durably profitable and others are not, whatever the companies in them do.
            Why is it not just a list of competitors?
            Because four of the five forces are not competitors at all. Your supplier raising prices, your customer consolidating, somebody solving the problem a different way, and the ease with which a new firm could appear all take money out of the industry without anyone winning a deal. Teams that fill in only the rivalry box have drawn a competitor chart and called it an industry analysis.
            What is the difference between a substitute and a new entrant?
            A new entrant sells what you sell. A substitute meets the need some other way. For a train line, a new entrant is another train operator; a substitute is a video call that removes the journey. Substitutes are the more dangerous of the two, because they do not show up in your competitor tracking and no sales team ever loses a deal to one.
            How do I judge whether a force is strong?
            Ask what it would take to change it. A buyer who could leave tomorrow at no cost is powerful; a buyer who would need six months and a migration project is not. A supplier you could replace from a list is weak; one with a contract and no alternative is strong. Write the answer as the fact rather than as the rating, which is why each point here takes an evidence line.
            Which industry should I draw it for?
            The narrowest one your decision actually sits in. Drawn for software in general, the five forces say nothing. Drawn for payroll software sold to companies under two hundred people in one country, they produce an argument. Picking the boundary is most of the work, and if the picture looks bland the boundary is usually too wide.
            How does it relate to a SWOT?
            Five Forces describes the industry; a SWOT describes you in it. The forces do not care who you are, which is the point: they explain the structural ceiling on profit that your strengths are operating under. The natural order is to do this first and carry its conclusions into the threats and opportunities of a SWOT.

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