published on 28.06.23
Launching a business idea requires a combination of several qualities: an entrepreneurial mindset, the ability to lead, financial acumen, excellent strategic management of resources, and the creativity to develop innovative products/services. However, possessing all these attributes that characterize an entrepreneurial spirit is not always enough. A methodical and carefully prepared business plan is crucial in determining whether or not a business idea will be profitable. This document is and must be the cornerstone of the business idea. In order to build this strong foundation, we can use different tools to help us define (on paper) our idea, vision and strategies in an existing sector.
Many tools can be used to create a business plan, such as the typical SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), which identifies how an organization is performing and enables effective decision making and strategic planning. Others prefer the Business Model Canvas, which is increasingly being used by entrepreneurs who want to condense their business model down to nine elements (and a single sheet of paper). This is a very graphic approach that allows entrepreneurs to shape their idea and see if it works. Those who are closer to creating a successful startup use Lean Manufacturing, which was originally developed by Toyota and aims to achieve greater productivity, taking into account labor and resource savings in the manufacturing of specific products. This tool reduces the investor’s risk and also provides data on viability.
However, there is another strategic method, which is widely recognized in project management, and can also be useful in the development of a well-designed and structured business plan. When developing a business plan, you must understand, assess and analyze the sector where you want to operate. One way of doing so is by using a method called Porter’s 5 Forces. This model was defined by economist and professor Michael Porter in his book Competitive Strategy, and its purpose is to analyze and evaluate a business idea for a specific sector and verify its profitability. This analysis is performed based on the 5 forces that affect any company or potential business. Working with this tool helps to develop an understanding and recognition of the forces that can put pressure on a business, how to take advantage of opportunities, and which strategies are effective in combating threats to ensure that the business is profitable.
Thoroughly implementing the Porter’s 5 Forces framework requires careful consideration of all the possibilities within each type of threat and whether they represent a large or small risk to the business idea you want to launch. This knowledge is priceless for entrepreneurs because they will be able to judge whether or not they should move forward with the creation and building of the business. Thanks to Porter’s 5 Forces, we can envisage a prospective company within the current map of competition, gauge the profitability of the sector, devise an effective business strategy that minimizes risks, verify the availability and capacity of suppliers, identify market niches, create a product/service that is difficult to replace and, ultimately, develop a marketing plan, as part of the business plan, that achieves the previously established objectives.
If you’re interested in starting a business, it’s time to apply Porter’s 5 Forces. Let’s get started!
This relates to the ability or degree of power you should have in order to negotiate issues such as price, flexibility of payment and the delivery times of goods. Good agreements with suppliers are essential for success as an entrepreneur, and under no circumstances should you ever work with only one supplier.
In order for this one of Porter’s forces to help you with your business plan, you need to ask and answer the following questions:
This Porter’s force relates to the power of customers. It varies greatly depending on whether you create a unique product/service that is difficult to obtain or if the business concept is to sell a mass-market product that can easily be found in any store. In short, the more competition there is, the more power consumers have.
If you’re an entrepreneur and you want to be able to measure this force, you have to ask yourself all these questions:
It is often very difficult being the newcomer trying to break into a well-established industry. This threat, described by Michael Porter, refers to the barriers to entry in the sector and whether they are high enough to prevent a lot of new companies from competing, or whether they are very low and the market could easily be inundated with new competitors.
It is important to bear in mind that competition can be fierce. Using this force, the business plan can include measures for gaining a bigger advantage over the competition. For this reason, it is important to conduct a market study and answer the following questions before launching a new business:
Entrepreneurs tend to analyze this Porter’s force incorrectly. The threat of substitute products relates to the consumer’s ability to choose a different product/service (not just a competitor’s) instead of our own to solve the same problem or fulfill the same need. For example, the first microwaves competed with conventional ovens (substitute product) even though this was a new product.
The threat from substitute products, which can be regarded as a kind of indirect competition, is often overlooked. When starting a business, it is therefore important to take this force into account and implement strategies to counteract the power of these products. Advertising and promotions in the various sales channels are often used to counter this danger. However, before developing a well-defined strategy to minimize this threat, the entrepreneur must ask themselves a few questions:
Competitive rivalry is a reasonably obvious force and relates to gathering information on the competition, in order to obtain the necessary data to devise a strategy that will allow an entrepreneur to stand out from the large crowd of competing companies. In turn, it is important to bear in mind that each competitor establishes a series of strategies for distinguishing itself from others. In fact, there are many aspects that increase rivalry, such as the number of competitors, whether they are well positioned, their fixed costs, etc.
As we have done above, we will define a series of questions that the entrepreneur must answer. The key to and strategy for differentiation from the competition will be derived from analyzing the answers to these questions:
In summary, as we have seen, developing a business plan using tools that allow you to clearly define the business idea is very important for entrepreneurship. Furthermore, a detailed market study must be conducted; the strategy we are going to use must be carefully considered; our competitive advantage must be established; the profitability of the prospective company must be calculated; and we must innovate with distinctive products/services, all the while being very attentive to the sector we are going to target. Ultimately, competitiveness is a positive thing since it creates the necessary environment to bring out the entrepreneurial spirit that many of us carry inside. And in turn, entrepreneurship drives and improves competitiveness, builds community, enables economic diversification and is essential for job creation.
Author: Joan Margarit, Marketing and Communication Analyst
Learn more about our Bachelor in Management here:
‹ Previous news Next news ›
To provide the best experiences, we use technologies such as cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Failure to consent or withdrawal of consent may adversely affect certain features and functions.