- Threat of new entrants
- Threat of substitutes
- Internal rivalry
A 5 force analysis generally evaluates the degree of threat of each of the above factors and delivers a verdict on what the industry is like.
That said, the funda I wanted to talk about, are a couple of snippets related to such analysis. One - if you want to enter an industry, enter to win. It doesn't make sense to enter just for the heck of entering it. There is no cosmic, karmic connection between a new entrant and an industry. The goal, like Eli Goldratt says is to make money at the end of the day! So, keeping up ol' man Welch's point about being number 1, number 2 or out, when you analyze a new idea, a new plan, you must think about why you're doing what you're doing. Will it result in monetary or societal benefits (everything cannot be weighed against money, right). If not, it's ok to drop the idea. No issues at all. Second, figure out your ranking in the industry. Like for instance, Naukri.com, entered the online job search market as a first entrant, and is still number 1. Jeevansaathi.com, by the same founder entered 3rd, and it has been almost 5 years and they are yet to break even. They still are third and they hope to make it this year. At that time, think back, on the reasons why you want to keep that venture going in the industry, whether being 3rd in the industry is helping you protect your interests vis-a-vis your flagship product, or whether you don't care that you're third, because pulling out of the venture can hurt your interests elsewhere, say brand-wise. So, a continuous evaluation and rethinking exercise is in order. At the end of the day, I'll have to come back to the age old cliche - change is all that is permanent! And that brings me to my second snippet - does it make sense to keep fighting competition all the time?
The answer, surprisingly is NO. At times, you're better off collaborating with the enemy than fighting her. You may not believe it, but Coke and Pepsi, who have forever been perceived as being at loggerheads with each other, have more or less worked in tandem while structuring the industry. They have together ensured complete control on the 'buyers' and 'suppliers' part of the 5 forces model in the cola industry. Think of this. You cannot take on wars that have a foregone conclusion. If newspapers were to think of the internet as the enemy, would they have ever found respite? Would we have had epapers and the news sites? And had there been no news sites, would it have been possible for all the desis in foreign lands to keep abreast with the latest goings on in their muhalla, town, city and so on?
So, change is inevitable. The easier you notice the need to change, the better. The more flexible and amenable to change you are, the better it is for you as a firm! Good night!