Starting a business feels a bit like standing at the edge of a diving board for the first time — exciting, terrifying, and loaded with potential. I’ve been there more than once, and every time I’ve launched something new, whether it was a full-scale e-commerce operation or a local consulting gig, one framework has never let me down: Porter’s Five Forces.
Now, before you roll your eyes and think, “Great, another dry business school theory,” let me stop you right there. This tool isn’t just a chart to hang on your office wall — it’s a lens to see the battlefield before you enter it.
So, What Is Porter’s Five Forces?
Developed by Michael E. Porter of Harvard Business School in 1979 (yep, it’s stood the test of time), the Five Forces framework helps you analyze the competitive forces within an industry. Think of it as a radar system that scans your environment and tells you if the road ahead is smooth, bumpy, or a full-on demolition zone.
The five forces are:
- Competitive Rivalry: Who else is already doing this? Are they killing it, or is there room for someone like you to swoop in and do it better?
- Threat of New Entrants: How hard is it for someone else to start a similar business? Are there high costs, regulations, or brand loyalties blocking the door?
- Bargaining Power of Suppliers: Are you at the mercy of one or two suppliers, or do you have options? Spoiler: monopolized suppliers can squeeze your margins fast.
- Bargaining Power of Buyers: Are customers price-sensitive, picky, or able to bounce to your competitors with one click?
- Threat of Substitutes: Can someone solve the problem you’re tackling with a different product altogether?
Why Should You Care?
Here’s the real deal: starting a business without understanding these forces is like building a house without checking the weather forecast. You might be laying bricks in a hurricane.
Let me give you an example. Years ago, I considered launching a subscription box service for eco-friendly office supplies. I thought, “Great idea — unique, socially conscious, and super marketable.” But when I used Porter’s Five Forces, the reality hit me:
- Competitive Rivalry? High. Big companies were already doing it, and they had better supply chains.
- Threat of New Entrants? Low barriers. Anyone could replicate the model with a Shopify site and a few vendors.
- Supplier Power? Brutal. There were only a handful of sustainable wholesalers, and their pricing wasn’t friendly.
- Buyer Power? Medium to high. The target audience was savvy and always looking for the best deal.
- Substitutes? Yep — DIY kits, digital products, or just buying items individually at lower cost.
The verdict? I shelved the idea. Porter’s framework saved me time, money, and heartache.
How Do You Build One?
It’s not rocket science, but it does take thoughtful research:
- Pick your industry. Be specific — don’t just say “retail.” Is it handmade jewelry? Organic pet food? Get niche.
- Dive into each force. Use data, talk to customers, scan competitors’ websites, read reviews, and even stalk LinkedIn for insights on supply chains.
- Score each force. You can use a scale (low/medium/high) to judge the pressure each force puts on profitability.
- Reflect. Are the forces favorable? If three or more are working againstyou, it might be worth pivoting your idea — or strengthening your model before launch.
What Can It Tell You?
Porter’s Five Forces can give you answers to big-picture questions:
- Will this business be profitable long-term?
- Is the industry overcrowded or ripe for disruption?
- What are the biggest risks, and can I manage them?
- How can I position myself to win?
And most importantly — it keeps your ego in check. It forces you to look past your passion and into the trenches of reality.
Final Thoughts
If you’re dreaming up a business, don’t skip this step. The Porter Five Forces isn’t a crystal ball, but it’s a heck of a compass. It keeps you grounded and gives you a strategic edge in a world where many leap before they look.
So, next time you get a spark of a business idea, don’t just ask, “Can I do this?” Ask, “Should I do this?” Then run it through Porter’s lens and see what the market has to say.