The five competitive forces that shape strategy

Suggested article that i was suggested to read this week was THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY written by Michael E. Porter. Talking about what power lies in a business situation, we can easily know who you are competing with and what you should also consider. It talks about five main elements you need to consider when you wanna run a business. The five forces -- Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution, Threat of New Entry -- have been identified which will be faced in any industry.


It is very interesting that direct competition is not the only threat in a industry, it changes my mind about the mean of potential competitor. When i think about competition, i will only think about the companies selling and providing the same products and services instead or others. Because direct competitor is the one who directly affect your source of customers and income. However, now i knew that supplier, buyer, substitution and new entrants can also affect a lot to a company.

Now, if i start a new company, i should study whether new products, services or businesses have a profitable potential or not. Then i can investigate what force is high or low in my industry and figure out method to prevent the price competition and make a maximum profit.

Using my dream company as an example, my company will be an crow-funding company.
Firstly, I need to find out the direct competitor of my company.



Product of Kickstarter










Companies like http://crowdfunding.com/, http://www.kickstarter.com with similar products will be the most challenging existed competitors.
Secondly, the threat of new entry is very high. Because the entrant barrier is very low if you want to set up a internet company. The influx of the new entrant will reduce your market share due to limitation of consumer.
Thirdly, supplier power is very poor in the new industry. Because new backers will exist in the market and the money suppliers are not one but are public. Therefore, the capital source can be sufficient.
Fourthly, buyer power is weak due to supplier meaning buyer. The supplier fund money tot support the project and they enjoy the end product. Even thought there are not buyer, the market can still exist.
Finally, there is nearly no substitution. Because my companies is focusing to specific customer instead of normal, common goods. We create a new product according the customer's wants.

To sum up, five forces will be very useful when i am having market research and am accounting the profitability of my new company.