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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.

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    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

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    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.

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    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

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    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

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    Jeffrey Lau

    Editor. Sport Lover. Animal Lover.

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    Last Updated on October 18, 2018

    10 Key Characteristics of a Highly Successful Entrepreneur

    10 Key Characteristics of a Highly Successful Entrepreneur

    When it comes to starting your own business and pursuing your dream of becoming an entrepreneur, it can be advantageous to go all in and embrace the flexibility of finally quitting your day job.

    Keep in mind, though, that it takes a special kind of person to take the business world by storm: a person who has cultivated the key characteristics of entrepreneurial success.

    People with these characteristics are likely to succeed, whereas people without them have difficulty moving forward with even the most brilliant business ideas.

    These characteristics of an entrepreneur are so important that I’ve decided to cover all 10 of them in detail so that you can start your business with your best foot forward.

    1. Successful Entrepreneurs Practice Discipline

    Plenty of business experts claim that you can’t get anywhere as an entrepreneur without vision or creativity, but that’s simply not the truth. Instead, the one quality that no entrepreneur can be successful without is discipline.

    To build an idea into a business, you have to have the discipline to spend time slogging through the least fun parts of running a business (like the bookkeeping), rather than taking that time to do something fun.

    Andrew Carnegie, one of the most financially successful Americans of all time, grew up working dull and difficult jobs in factories. Despite going to bed hungry some nights, he continued doing his best work. He was eventually hired by a railroad company and continued to move up the ladder until starting his own successful businesses. Carnegie is a fine example of an entrepreneur dedicated to discipline and hard work. He truly earned his dreams of prosperity and success.

    When you’re the boss, there’s no one to keep you at work except yourself — and there’s no short-term consequences for skipping out early.

    Sure, if an entrepreneur plays hooky enough he knows that the business just won’t happen, but it’s very hard to convince someone that ‘just this once’ won’t hurt (and to keep ‘just this once’ from becoming a daily occurrence).

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    2. Successful Entrepreneurs Keep Calm

    Things go wrong when you run your own business.

    Most entrepreneurs go through crises with their businesses — and more than a few wind up with outright failures on their hands. But when you’re responsible for a business, you have to be able to keep calm in any situation. Any other reaction — whether you lose your temper or get flustered — compounds the problem.

    Instead, a good entrepreneur must have the ability to keep his cool in an emergency or crisis. It may not make the problem easier to solve, but it certainly won’t make it harder.

    Honestly, losing your calm is a quick path to becoming the kind of person who gives up in the face of adversity. Instead giving in to frustration, remember classic entrepreneur Benjamin Franklin.

    Franklin kept his calm as he experimented and tweaked his inventions again and again in pursuit of success. He didn’t give up during his many failures – he chose to innovate. You can choose innovation, too.

    If an entrepreneur can handle failure without frustration or anger, s/he can move past it to find success.

    3. Successful Entrepreneurs Pay Attention to Details

    Restricting your attention to the big picture can be even more problematic than ‘sweating the small stuff.’

    As an entrepreneur, unless venture capital has magically dropped out of the sky, a small expense can be a killer. It’s attention to detail that can make a small business successful when it has competition and it’s attention to detail that can keep costs down.

    Attention to detail can be difficult to maintain — going over ledgers can be tedious even when you aren’t trying to pay close attention — but keeping your eye on a long-term vision is just asking for a problem to sneak in under a radar.

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    After a business grows, an entrepreneur might be able to hire someone to worry about the details. In the beginning, though, only one person can take responsibility for the details.

    Skeptical about the importance of details? Look no further than Howard Schultz, who grew a small coffee shop called Starbucks into one of the most globally successful coffee businesses in the world through his extreme attention to detail.

    He is famous for taking all aspects of growing a business into account, paying attention not only to financially smart business decisions, but also focusing on socially responsible business decisions. Details can take you far.

    4. Successful Entrepreneurs Embrace Risks

    No entrepreneur has a sure thing, no matter how much money s/he stands to earn on a given product. Even if a product tests well, the market can change, the warehouse can burn down and a whole slew of other misfortune can befall a small business.

    It’s absolutely risky to run a business of your own and while you can get some insurance, it’s not like most investment options. Even worse, if something does go wrong, it’s the entrepreneur’s responsibility — no matter the actual cause. In order to deal with all of that without developing an ulcer, you have to have a good tolerance for risk.

    You don’t need to channel your inner frat boy and take on absolutely stupid risks, but you need to know just how much you can afford to risk — and get a good idea of how likely you are to lose it. If the numbers make you uncomfortable, the risk is too great.

    Embracing risks is essential for growth and additional success, as well. Walt Disney, for example, could have stayed comfortable with his advances in the film and animation industries, but decided to expand his brand with a new dream: a theme park that soared above the competition. Without taking this risk, the incredibly successful Disney theme park empire would never have come about.

    An entrepreneur has to be willing to accept pretty big risks, with some level of comfort.

    5. Successful Entrepreneurs are Balanced

    You can take any characteristic too far. There’s a point at which attention to detail can become obsession or calm can become unemotional response.

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    As an entrepreneur, you have to be able to balance your characteristics, getting the most of them without going over the edge. But balance for an entrepreneur goes far beyond keeping your characteristics in check, though.

    Just as an entrepreneur doesn’t have a boss to keep them at work when necessary, they don’t have one to send them home when they’re done. If you are working for yourself, you have to decide how to balance your work and home life — and if you have a day job to add into the equation, balance just gets more complicated.

    Oprah Winfrey, one of the most successful and influential entrepreneurs out there, understands the importance of balance. Winfrey has a lot going on; she runs her own media kingdom, acts, produces films, publishes print, and more. In an interview with Fast Company,[1] she talks about her efforts to balance priorities and self care, saying that she must ask herself what is truly important in each limited day.

    You may or may not have as much on your plate as Oprah, but learning how to balance whatever you have going on in life will certainly help you farther along down the road as you learn to be a great entrepreneur.

    6. Successful Entrepreneurs are Passionate and Motivated

    In order to develop any of the above characteristics, you must have a foundation of passion. Staying disciplined day after day during the building of your business takes unrivaled motivation.

    Before you start any business, ask yourself if you can sustain true excitement about your idea during even the darkest days ahead of you. If the answer is yes, then good for you! Nurture your natural motivation by taking these action steps throughout your business journey:

    • Commit to making short and long-term goals. Check in with them often to stay on task.
    • Have a plan in place for the inevitable days when you feel discouraged. Make a list of things that will help keep you motivated and focused.
    • Share your ideas with trusted individuals who are just as excited as you are. They will help keep your enthusiasm rolling even when you are feeling down.

    By being prepared for apathetic days and holding fast to your authentic passion, you can actually enjoy your journey to success.

    7. Successful Entrepreneurs Adapt

    Remember this one word: flexibility. Seasoned entrepreneurs know that change is not only a part of life, but also a part of the business world. Expect change and choose to adapt.

    As a new entrepreneur, it will be tempting to cling to your original business plan with no exceptions, even if you notice it isn’t working. Good entrepreneurs know that it’s okay to make smart, informed changes in order to ensure efficiency.

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    8. Successful Entrepreneurs are Marketing and Sales Experts

    No matter what kind of business you are starting, a knowledge of marketing and sales will save you many headaches. A passion for creating a beautiful handmade lifestyle product is not enough to run a successful lifestyle brand; it is critical that you understand key business principles in addition to your natural skills or great product line.

    Not sure how to start? Taking business courses is a great idea, but you can also easily brush up on sales and marketing through free online resources. Check out these 10 Sales Skills Everyone Should Master To Be Successful to begin now.

    9. Successful Entrepreneurs Have Strong Money Management

    Along with sales and marketing skills, money management is a very useful tool in the box of the entrepreneur. Understanding how to best manage your money can be the difference between early success and early failure in the business world.

    If money management isn’t your strongest skill, prepare to hire a financial expert to help you with any tricky business that comes up. Financial guidance and knowledge is never a bad idea.

    10. Successful Entrepreneurs Ask Questions and Continually Improve

    Pride is a natural human quality, but it’s important to humbly conduct some constructive criticism every now and again on both yourself as a leader and your new business as a whole.

    Assess how things are going and be willing to make positive changes if necessary. Here’re 15 ways to cultivate lifelong learning.

    If you are always improving, then how can you ultimately fail?

    The Bottom Line

    Let me remind you of one important fact: the qualities of an entrepreneur listed here are not exclusively available to some people and elusive to others.

    Although some people may have natural strengths and weaknesses, these qualities can be learned by anyone interested in taking up the entrepreneurial challenge. It might not be easy to change old habits, but it is absolutely possible to cultivate these characteristics in yourself.

    Whether you’re a business owner or an aspiring entrepreneur, with hard work, you can train yourself to develop the qualities that truly determine the entrepreneurial spirit and future success.

    Featured photo credit: Unsplash via unsplash.com

    Reference

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