How do you use Porter's five forces framework to assess the attractiveness of your start-up's market?

1 What are Porter's five forces?

Porter's five forces are a set of factors that determine the intensity of competition and the profitability of an industry. These include rivalry among existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of suppliers. The level of competition among firms in your market depends on factors such as the number, size, and diversity of competitors, as well as the level of differentiation and innovation. The ease of new players entering your market is based on capital requirements, economies of scale, access to distribution channels, legal and regulatory barriers, and expected retaliation from incumbents. The likelihood that customers will switch to alternative products or services is determined by availability, quality, and price of substitutes, switching costs, and customer preferences and habits. Your customers' influence over prices, quality, and terms of sale is based on number and concentration of buyers, availability of information and alternatives, differentiation and loyalty of your products or services, and importance and cost of your products or services to buyers. Finally, suppliers' influence over costs, quality, and terms of purchase depends on number and concentration of suppliers, availability of substitutes and alternatives, differentiation and switching costs of their products or services, as well as importance and cost of their products or services to you.

2 How to apply Porter's five forces to your start-up's market?

To use Porter's five forces framework to assess your start-up's market, you need to take the following steps. Start by defining your industry and target market, so you have a clear understanding of what you offer, how you deliver value, and who you serve. Then, identify the relevant forces and their drivers. Assessing the strength of each force is key – use a scale from low to high or assign a numerical score based on your analysis. A five forces diagram can help sum up your findings. Finally, interpret the results and formulate your strategy. Use the results to identify opportunities and threats, strengths and weaknesses, as well as strategic options and actions that can help improve your competitive advantage and create value for customers.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?