Five Forces Analysis

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The enthusiasm and excitement of starting a new business can quickly diminish when you realise you are faced with the task of analysing the complex business landscape that is spread out in front of you. The number of factors to consider can be overwhelming leading to errors in judgement and unnecessary risk taking. This article aims to assist you in tackling this process by providing a simplified overview of the Five Forces Analysis model. This is not a step by step guide, nor a list of dos and don’ts, but rather a set of factors that should be considered when assessing the competitive intensity and attractiveness of a market. The Five Forces Analysis was created by Harvard Professor Michael Porter in 1979 and it provides a framework for industry analysis and business development. Porter proposes there to be five forces which either inhibit or prohibit a company’s ability to succeed in a given market.

1. Threat of new entrants
2. Threat of substitutes
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Intensity of rivalry

Threat of new entrants
A market is much more attractive if it is difficult to enter. This may sound odd at first as it seems more logical to pursue a market that is easy to enter. However, if you can do it so can everyone else, and if it is extremely easy for other businesses to enter a market with little skill, experience or start-up costs you will find it extremely difficult to create and capture any value from that market.

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