Advertising
Advertising

How Not to Start from Zero for New Startups

How Not to Start from Zero for New Startups

Looking to start a business but are unfamiliar with the potential profitability in the industry, and don’t really want to start everything from zero?

This simple tool is the perfect one for you to start with — Porter’s Five Forces Model. It is an effective tool to evaluate the existing market.

And if sometimes you are asked to analyze a market and identify its major competitors but you are struggling on where to begin; or, if you are looking to raise your company’s competitiveness in the industry, the Porter’s Five Forces Models could then be your remedy.

What exactly are the Porter’s Five Forces?

The Porter’s Five Forces Model is named after Michael E. Porter, an economist. He proposed the model in his 1979 book Competitive Strategy. While there are different names for the five forces to different experts, they are essentially the same. Generally, the five forces are as follows:

    1. Threat of Substitution

    It concerns the availability of substitutes products or services from the competitors. Porter’s definition of substitute good in the model refers to a good in another industry. The goods or services are substitutes if they can be used in place of one another. This force is affected by various factors including the cost for customers to switch to a substitute, buyer’s propensity to substitute and price-performance of substitutes.

    Advertising

    2. Threat of Established Rivals

    It considers the strength of the rivalry present in the current industry.There are a number of possible factors including number of competitors, pace of market growth and diversity of competition.

    3. Threat of New Entrants

    It refers to the potential threat posed by newcomers in the industry. It is also known as the barriers to entry as it measures the vitality of new entrants in an industry. Capital costs, branding of existing competitors and requirement of proprietary technology or patents are the major factors influencing the force.

    4. Bargaining Power of Suppliers

    It concerns the ease for suppliers or factor of production to raise prices. For example, the number of possible suppliers and whether they produce homogenous or differentiated products can influence the price to a great extent.

    5. Bargaining Power of Customers

    Advertising

    It considers the ease for customers to push for a lower price. To illustrate, it is more likely for customers to demand a lower price if they purchase a large amount of goods or services. Number of customers and brand name strength also affect the bargaining power of customers.

    The first three forces are from horizontal competition while the remaining are from vertical competition.

    What’s good about the Porter’s Five Forces?

    Every owner and stakeholder of a business has a question in common: how to maximise the profitability?

    By evaluating the industry using the model, we can grasp a clearer picture of the overall environment of the industry. In fact, the model can also be applied to have a better understanding of the current major competitors. Identifying their strengths and weaknesses allows us to devise a better strategy to further boost our competitiveness.

    We can also evaluate the potential of our business by comparing us with other competitors to see if the market has been saturated or not.

    On the other hand, the model tells us on what aspect we are better. Thus, we can put more effort to expand our competitive advantage in order to always stay ahead of the counterparts.

    Besides, after analysing the current and potential future states of the five competitive forces, we can seek to manipulate the forces in our favour. Adjusting the strategy can change the impact of competitive forces on the organization. A proper shift in direction can lead the company to a bright future.

    Advertising

    Anything challenging about the Porter’s Five Forces?

    Despite that Porter’s model may be applied to a lot of good use, it is a little too ideal to look at the industry. The model provides directions to evaluate an industry but such analysis is based on a perfect market assumption. In reality, the market is seldom if not never in such ideal conditions so it is impossible to perfectly evaluate an industry with this model. Instead, the model is only applicable to simple market structures.

    Morever, the model overlooks a sixth force – Complementors. Complementors refer to those who sell products and services that are best used in conjunction with a product or service from a competitor. Intel and Apple are a good example which they are in fierce competition yet there is obvious reliance of each other in the industry. Taking the sixth force in account makes the model more well-rounded.

    Lastly, the model also overlooks the technology component in today’s business world. As the model was proposed back in 1979, influencing power of technology was almost negligible compared to nowadays. Disregarding the technological aspect may render the whole analysis inaccurate. Hence, the factors in digitalisation or globalisation is usually added into the model now.

    When’s the best time to apply the model?

    When is a good time to make the best use of the Porter’s Five Forces Model? For business startups, it is unwise for entrepreneurs to start a company before exploring the profitability of a new entrants in the industry. In that case, the model can come in handy to analyse the market before putting in effort and investment.

    Also, the model can be a good tool for an operating businessto fine-tune its strategies for better growth. It is especially useful when the business is experiencing stagnant progress and has no clues where goes wrong. The model may provide the answer for the dissatisfaction.

    Here we demonstrate how the Porter’s Five Forces Model can be used to evaluate a business. Two world-renowned business, Facebook and Nike, are chosen.

    Example 1: Facebook

    Advertising

    The social networking market is significantly competitive and is constantly under rapid changes. Due to frequent introduction of new technologies, Facebook has to cope with the situation by continuous innovation and adaption to the ever-changing environment. Besides, the social networking market is unlike other market for its ease to enter the industry.

    Consequently, increased number of competitors intensifies the competition further, making the Threat of New Entrants and Established Rivals greater. Lastly, as the mobile market is emerging while the switching cost for users from computer to mobile is low, the Threat of Substitution is also great.

    Example 2: Nike

    The Threat of Established Rivalry is the major worry for Nike, as there is established as well as upcoming counterparts in the market. The low barrier to entry also poses a big threat to Nike as the large number of competitors will significantly impact the profitability. If Nike is unable to adapt to the customers’ trends, the growth can be severely impacted or even recorded in negative digits.

    Besides, the Bargaining Power of Customers is also worth consideration as the wholesaler can request for greater discounts for their tremendous demands.

    Featured photo credit: Flaticon via flaticon.com

    More by this author

    Jeffrey Lau

    Editor. Sport Lover. Animal Lover.

    20 Most Fun Jobs in the World (That Also Pay Well) How to Think Positive Every Day How Our Brains Trick Us into Believing the Wrong Things The Best Catalogue of Books from Every Category in 2017 What We Think Love Is and What Love Really Is

    Trending in Work

    1 How to Lead a Team More Effectively and Be a True Leader at Work 2 10 Business Networking Tips: Grow Your Professional Network 3 4 Effective Ways to Motivate Employees During the Busy Holiday Season 4 8 Things to Remember When You Don’t Know What to Do with Your Life 5 11 Ways to Revive Company Culture

    Read Next

    Advertising
    Advertising

    Last Updated on December 5, 2018

    How to Lead a Team More Effectively and Be a True Leader at Work

    How to Lead a Team More Effectively and Be a True Leader at Work

    Being an efficient manager and a charismatic boss at the same time can seem like an impossible task. Is there a way to deliver the desired results for your business while remaining liked and respected by your staff?

    We all know bad examples of team leaders who seem to fail at one aspect or the other, or even at both. But we’ve also heard of awesome managers who seem to juggle both things well enough.

    How do they do it?

    By sticking to few proven ways that let them maintain a positive karma score while remaining efficient. In this article, we’ll guide you through 11 smart management tips on how to lead a team and become something more than a boss – a leader.

    1. Find a Management Strategy and Stick to It

    There’s nothing worse than a boss that keeps changing his or her opinions and assignments depending on their mood or a book they read this week. Chaotic decisions increase the insecurity and frustration of your team, so you better find your strategy and stick to it.

    If you do find some new methods you want your staff to follow, make sure they don’t contradict the general direction you are taking. Otherwise, you risk making your team take one step forward and two steps back.

    2. Set Goals​ and Track Progress in Reaching Them

    Set individual and collective goals​ for your team and track the progress in reaching them. This might sound obvious at first, but too often we find ourselves stuck between daily customer requests and monthly reports, and the bigger goal or vision seems to fade away.

    According to Elon Musk (and many other successful CEOs around the Globe), it’s crucial to have a clear and motivating aim to where the company is heading. His aim for the space transportation company SpaceX is “to make humankind a multi-planetary species”.[1] That’s a huge goal but the company is slowly moving closer to it by reaching smaller steps and milestones, like launching self-landing rockets. This is also a very inspiring and meaningful goal that helps employees endure the company’s extremely high expectations and 60 to 70-hour work weeks.[2]

    Even if your goals are not as grand, setting and reaching milestones will give you a clear insight into the team’s overall efficiency and daily progress. With time, you will be able to see the weak spots and improve your results.​

    Advertising

    3. Demand Learning from Your Team

    CEO of print on demand startup Printful, Davis Siksnans, believes that:[3]

    “The key for a company going through rapid growth is to empower your employees’ self-development.”

    His company with 500 employees spanning two continents demands a culture of learning and provides all the tools necessary to do it.

    Their idea is –  as the company scales, people have to grow in their positions too, which means that they have to be constantly learning. Siksnans says:

    “We try to hire people for what they might become, but they need to have that drive.“

    Alternatively, you can provide educational courses for your employees or invite informal lecturers to educate and inspire your team. You can also encourage peer-to-peer learning by asking employees to teach their particular experience or skill to co-workers.

    4. Invest in a Pleasant Work Environment

    Studies show that a well-designed office environment can increase your team’s overall performance by as much as 20%. You’ll be surprised to see that even very small interior tweaks that don’t require major investments can improve your workers’ performance.

    Some ideas for a more productive and pleasing work environment:

    • Invest in modern furniture – offer ergonomic chairs, standing desks, and individually arranged workplaces​.
    • Start an in-house library – reading for pleasure just 30 minutes a day is proven to be enough to become more effective at work,[4] improve focus, and deal with problems like depression and anxiety.​
    • Play jazzy office music – rhythmic background music will help workers feel more energetic and enthusiastic while doing everyday tasks.​
    • Set up entertainment or break rooms – being able to relax and have fun at work creates a strong commitment, helps employees relax and clear their minds, and boosts productivity.​
    • Bring in uplifting office decor – it’s been found that art in the workplace can boost productivity,[5] lower stress, and even encourage employees to innovate.​
    • Decorate the office with live plants for freshness and a welcoming feel. Furthermore, plants are found to ensure better air quality and increase workers’ productivity by 15%.[6]

    5. Be Kind and Sincere to Your Team

    Did you know that 50% of employees quit because they dislike working with their manager?[7] In fact, most times when people leave their jobs they actually leave their managers. Being friendly and sincere may not be enough to be a successful manager, but it’s a big part of it.

    Advertising

    Some ways to show you appreciate and care for your staff:

    • Celebrate the progress and achievements of your employees. And don’t be shy to simply say thanks.​
    • Talk to your employees regularly and really listen to what they have to say. Address their concerns, help them reach their goals and do your best to improve their work and daily life.
    • If you’re having a bad day, don’t pour out your stress and anger on the staff. Instead, try to recharge yourself by appreciating the achievements of your team and setting the next goals.
    • Try not to overload your team with work. Every company has rush periods when it’s okay to have more work than usual. But remember that people cannot work under prolonged pressure and stress.
    • Don’t be selfish – it can be very demotivating to see that the manager only focuses on what you can do for him and doesn’t care about your goals and well-being.​ As the CEO of Xerox Anne M. Mulcahy put it,[8]

      “Employees who believe that management is concerned about them as a whole person — not just an employee — are more productive, more satisfied, more fulfilled.”

    Whenever you are having doubts about your kind attitude, remember – satisfied employees are productive employees which lead to satisfied customers and eventually – success for your company.

    6. Offer Flexible Work Hours

    The traditional Monday to Friday, 9 to 5 job is beginning to slip away. Increasingly more people are working remotely or having flexible work hours, and we can expect this trend to continue. To adapt to these changing habits and remain competitive in the labor market, more employers are offering the chance to choose your own work hours, work from home or even from another city or country.

    Offering flexible hours is a powerful way to inspire your existing staff and give them intrinsic motivation. Why not let your employees choose their preferred working hours while keeping the 8-hour day? For example, night owls are unhappy and unproductive if they have to come to work before 10 AM, while others might prefer to start at 7 and finish earlier.

    You can go even farther and hire remote workers – this way you’ll be able to recruit from a global talent pool and even save money on office expenses like desks, stationery, electricity, etc.[9]

    7. Track Your Team’s Productive Time

    Not monitoring your employees’ progress and efficiency can result in poor performance and slacking. Instead of letting things go with the flow, you should consider installing time-tracking software on your employees’ computers and see who’s doing great and who might need a productivity boost.

    But don’t get it wrong – there’s no need to become big brother and watch every step your employees take. If you use the time-tracker as a spying tool, you will only see increasing suspicion and insecurity around you, and your employees’ happiness levels will drop.

    On the contrary, choose software that allows employees to mark private time that won’t be tracked. In addition, consider these time-management tactics:

    Advertising

    • Allow flexible work hours. (see Tip No 6)
    • Encourage breaks – studies show that employees who take regular breaks are more productive than those who don’t.[10]
    • Enable remote work to show your employees that you trust them and that they can work from home or even from another country (if they can maintain sufficient productivity).
    • Consider offering bonuses to your most productive employees (those who show productivity levels above 90 or 95%).

    8. Use Only Constructive Criticism

    Constructive criticism means offering valid and rational opinions about the work of others, involving both positive comments and remarks about what should be improved. Constructive criticism is usually expressed in a friendly manner rather than an oppositional one.

    When you evaluate your team’s work, give them feedback that’s helpful, specific, and sincere. Don’t be shy to praise, but also be direct and even strict when necessary.

    9. Don’t Give Special Treatment to Yourself

    The boss’s actions are – directly or indirectly – observed by your team. This means that your employees look up to you and often mimic your attitude towards your work and the company – especially if your actions don’t show commitment. Nobody wants to work for a leader who doesn’t go all in or inspire motivation.

    What you should do is lead by example. If you expect your employees to arrive at work on time and work 8 hours, do the same yourself. If you want them to show initiative, show it yourself and encourage others to do the same.

    Jeff Weiner is the CEO of LinkedIn – a company of 3,000 employees that consistently ranks as one of the best workplaces with a 92 percent employee-approval rating.[11] Weiner’s workdays are reported to be equally long or even longer than those of his employees, allowing him to stay “extremely credible as a leader.”

    10. Empower Your Employees

    Here’s a common mistake many managers make:

    They don’t motivate their staff and assume they simply love to work for their company.​ Such belief can result in painful losses for the company – especially these days when many companies are in desperate need of a reliable workforce.

    Instead of directly thinking about bonuses and perks, consider intrinsic motivation. For example, enable flat organization in your team and listen to your employees’ ideas when they come up with opinions and suggestions. Your company might actually benefit a great deal from the feedback, and the unique ideas employees come up with.

    You can also start an initiative where employees can freely share or pitch their business ideas to you or the founders of the company. If the idea is accepted by the management, the project can be developed, and the employee can have equity options.

    Advertising

    If people feel they have an impact in the company, they become more motivated, engaged and interested in the company’s growth.

    11. Nurture Your Company Culture

    Company culture is the personality of a company that defines the overall work environment and relationships between teammates. It also includes company mission, values, ethics, and goals.

    Some examples of company cultures are the Horizontal corporate culture (collaborative and equal; popular among startups and free-spirited businesses) and Conventional corporate culture (a more risk-averse and hierarchy-based approach common in traditional companies).

    However, you don’t have to stick to pre-existing boxes when creating your corporate culture. You might think of your team as a family, a sports team, or even a hippie camp if it fits your business and purpose. But keep in mind that by the time a company’s size reaches 20 employees, the company culture is set,[12] and any changes will need to be implemented in smaller teams.

    Whichever personality you choose for your company, make sure to live by it and nurture it. Some things that might help:

    Team building events, relevant books in your office library and proper on-boarding for the new employees to get everyone on the same page from the very beginning.

    Be a Leader, Not a Boss

    Using the words of Printful’s CEO Davis Siksnans, the ultimate goal is to “Hire great people who don’t have to be managed.”

    However, when you do need to demonstrate some initiative and control, act as a leader rather than as a boss.

    In other words, don’t be afraid to show the personality behind your role. And keep these 11 tips close to your heart.

    Featured photo credit: rawpixel via unsplash.com

    Reference

    Read Next