You Have Many Competitors

We typically think of “the competition” as those companies who sell goods and services identical or similar to our own.

However, competition can take many forms.

A simple but powerful tool for understanding where power lies in a business situation is using Porter’s Five Forces.  It’s useful because it helps you understand both the strength of your current competitive situation as well as the strength of a position you’re considering moving into.

Porter’s Five Forces says there are five important forces that determine competitive power in a business situation:

1. Direct Rivalry:  What we typically think of as competitors.
2. Threat of New Entry:  Determined by the ease with which new competitors can enter the market.
3. Substitutes:  Ability of customers to find a different way of doing what you do.
4. Supplier Power:  Ease with which your suppliers can drive up prices they charge you.
5. Customer Power:  Ease with which customers can drive down your prices.

Knowing how these five forces affect your business can help you create and execute an effective growth strategy.

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