1. The Entrepreneurial Process: Model of Competitive Forces
Patterns of Entrepreneurship
Analytical Tools

2. Model of Competitive Forces
Michael Porter’s Competitive Advantage, 1985, outlines five forces determining segment structural attractiveness
Potential Entrants
Suppliers (Supplier Power)
Buyers (Buyer Power)
Industry Competitors to Potential Business (Segment Rivals)
Substitutes (Threat of Substitutes)

3. Threats and Scenario-Based Questions
Competitive analysis must examine not only current competitors but answer following questions from diagram:
Threat of intense segment rivalry
Worst case scenario: Intense competition in stable or declining industry
Threat of new entrants
Worst case scenario: Entry barriers are low and exit barriers are high
Threat of substitute products
Worst case scenario: Many actual/potential substitutes for product that compete on price
Threat of buyers’ growing bargaining power
Worst case scenario: Buyers possess strong or growing bargaining power and force down prices, demand more services
Typically occurs with undifferentiated products and buyers’ switching costs are low
Threat of suppliers’ growing bargaining power
Worst case scenario: company’s suppliers can raise prices or reduce quantity supplied
Typically occurs with products with few substitutes and when supplied product is a key input and when switching supplier costs are high

4. Barriers Effect on Risk and Profitability
Exit Barriers
Entry
Barriers

5. Fundamentals of Industry Analysis
Key points to include in an industry structure analysis:
Number of sellers and degree of differentiation
Is product homogenous or highly differentiated?
Is industry structure monopolistic, oligopoly or fragmented?
Cost structure
What are the major cost drivers? Manufacturing costs? Distribution costs? Marketing costs? Shipping costs?
Degree of vertical integration
Are companies incented to vertically integrate in the proposed business’s industry? (Example: oil companies buying oil exploration firms or clothes retailers manufacturing their own brands)
Degree of globalization
Does company need to compete on global basis? What economies of scale are needed?

6. Analytical Inquiry Analyzing competitors:
What is competitor seeking in marketplace? What drives their strategy?
Share of market: What is competitor’s share of target market?
Share of mind: What competitor has the highest name recall?
Share of trust: What competitor did surveyed customers name as that from whom they would prefer to buy the product?
Who are the closest competitors to the proposed business, e.g., competitors in the same sub markets offering direct substitutes, if any?
What are the indirect competitors to the proposed business?
Example: a magazine publisher’s indirect competitors are other entertainment products, including television, radio, Internet, films, DVDs and newspapers. They are competing for the consumer’s often limited leisure time and leisure dollars.

7. Formal Investigation of Competitors
Additional Formal Analysis of Competitors
Product description
Market positioning (relative strength and weaknesses, as seen by customers)
Market practices: channels, pricing, promotion, service
Estimated market share (if relevant)
Reactions to competition
Implications for opportunity
Mission and business objectives
Management capabilities and limitations

8. “Best Practice” Gathering
Benchmarking and Best Practice gathering can be helpful in determining competitive advantages of proposed business
Benchmarking is the process of diagnosing how and why some companies perform tasks more efficiently or more effectively.
Ultimate aim for firm is to improve its own practices
Competitive benchmarking is costly but available from some consulting firms
Non-competitive benchmarking (studying “best-in-class” companies in other industries) is less valuable but still can offer valuable insight
A budding business can implement these “best-in-class” measures to beat competition
Process for gathering best practices:
a) Determine which function of proposed company to study b) Identify key variables to measure and “best-in-class” companies (start-ups or mature) c) Measure performance of companies versus projected performance of proposed business d) Specify programs to close gin business plan to close gap in building new business