Running a business analysis using Porter’s Five Forces (P5F) is an exciting opportunity to dig deeper into your customers’ motivations and behaviors. It’s a great way to gain new insights into your business, and it’s often used in strategic planning to identify potential growth areas and breakthrough ideas.
This guide will provide you with the basic information you need to run a successful Porter’s Five Forces session, but it won’t go into depth about what Porter’s Five Forces analysis is. Instead, this article will provide you with the background information you need to run a successful session! Let’s get into it.
Choosing a facilitator
Now, I personally recommend finding an outside consultant to run the session. But I also know that sometimes cost is a barrier to entry. Choosing a facilitator can be challenging, but choose someone who is familiar with the business and the five forces.
Office managers, business partners, board members, investors, and directors are all very different people, but all great places to start looking for a facilitator.
Preparing for the session
Before we talk about the session itself, let’s talk about you. You need to be prepared to have your business analyzed. A lot of business owners and entrepreneurs are terrified of this! No one likes to be told that their business sucks. Just try to remember it’s not a personal attack, it’s an opportunity to grow. (I know it’s hard sometimes – take deep breaths!)
If you’re the facilitator, make sure you have a list of questions, a clear head, and your Porter’s Five Forces worksheet handy. Make sure there are enough copies for everyone in the room. A whiteboard and projector also work perfectly – just don’t forget to take a picture and transcribe it later.
I strongly recommend taking 15–30 minutes before the session to go over the worksheet and questions, and to take some time to clear your head. Personally, I’ll meditate, stretch, and get my physical environment clear and ready to go.
Opening the floor for discussion
A simple phrase of introduction is all you need. Start with the first force and work through, asking questions and getting feedback along the way. Kick off the session with a simple, “What kind of competition do we have in the industry?”
This will get the conversation flowing the right way. I highly recommend taking steps to make everyone feel safe to share their opinions. An HR representative is great to have present if you have one. If not, just make sure everyone feels comfortable, and most importantly, don’t discredit anyone or brush them off.
Recording the feedback
Either the facilitator or a note taker should take notes on the P5F worksheet that will become the “master copy”. Record everything on the worksheet and if something needs to be expanded on, revisit it later on in the session to keep the flow of the conversation going.
Starter questions for Porter’s Five Forces analysis
Use these starter questions to help get the conversation started. Don’t forget to have a copy of the worksheet for everyone with you!
Threats of new entrants
- What costs are required to enter the market?
- What are the barriers to entry? (e.g. trademarks, patents, regulatory body approval, etc.)
- What does it take to make the business scalable?
- Are your key business concepts protected? (trademarked, patented, or registered with a regulatory body).
- How strictly is your market regulated? (e.g. If you run a marijuana dispensary or financial services company you’ll have a higher level of regulation).
Threat of substitutes
- How is your business or service different from its competitors?
- Are there any direct substitute products available in the market?
- What is the cost of switching to a substitute service or product?
- How difficult is it to switch to a competitor? (Note: From a user experience perspective, if your answer is more than “super easy” you want to evaluate if the opportunity to make it simpler will give you an overall advantage or disadvantage).
- What products or services can you provide to replace a competitor?
Supplier’s bargaining power
- How many suppliers does your business have?
- How unique are the products or services that they provide to you?
- How many alternative suppliers can you find? How do they compare? How much would you have to invest to switch to them? How long would it take?
Buyer bargaining powers
- How many buyers control a large percentage of your sales?
- What is your average order value or ticket price?
- Could your buyers switch suppliers? What costs would switching incur?
- What ROI does your product deliver to your customers?
- How many competitors do you have? Who are your biggest competitors?
- How does the quality of your competition compare to your products and services? What are the differences?
- What makes you unique?
- Is there a cost for your customers to switch to a competitor?
Reporting and wrapping it up
After the session, gather all the papers or take a picture of your whiteboard to transcribe everything into a central document. Once the final report is complete, make sure everyone gets a copy. Or, to save paper, make sure the report is available on a shared drive, Dropbox, or in another common area.
Much like the SWOT analysis, the P5F worksheet is a living document that should be updated as new information arises. While I call P5F the backup to the SWOT, they should really both be used in tandem, though for different applications.
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