Applying Porter's Five Forces Model to Your SMB Strategy

Michael Porter, the famed Harvard professor and the premier thought leader on business strategy, created the Five Forces model.  This model is an effective business unit strategy tool for the small or medium business.  Basically, this model is an effective way to look at your business from the outside-in and analyze the value of an industry structure.  This Competitive Forces model is developed by the identifying the five fundamental competitive forces shaping your small or medium business (SMB):

1. The Entry of Competitors.  Your SMB should ask questions like: What is the level of difficulty for new entrants to start competing.  Is the barrier to entry high or low?  If so, what are the barriers?  Identify them and address them strategically.

2. Threat of Substitutes.  Your SMB should think about how easy its product or service be substituted and made less expensive.  What are the variables at play with regard to marketplace alternatives.

3. Bargaining Power of the Suppliers.  Your SMB should understand the strength of sellers in the market for your product or service and determine whether or not a multitude of suppliers exist for your product or service or if can your product develop a monopoly?

4. Bargaining Power of the Buyers.  Your SMB should determine the strength of the buyers and determine whether or not you can work together to create synergy and growth.

5. Rivalry Among the Existing Players.  Your SMB should determine the level of competition between the existing players or if there is one dominant business or many competing companies with equal strength and size.

In theory, a sixth force could be added that includes the impact of government.  If your SMB is affected by this "force" you will need to make sure you examine it and develop strategy and tactics to effectively compete.

What is your SMB doing today to assess the changing landscape of the U.S and global markets.  This blog attracts readers from more than 75 countries around the world.  If you are only thinking local and not global you will surely miss many market opportunities for growth and market share leadership.  How is your SMB competing today?