Strategy framework guide
Porter's Five Forces Template: Why This Industry Is Profitable — Or Isn't
Porter's Five Forces answers one question: where does the profit in this industry go, and can we keep any of it? It is an industry-structure analysis, not a competitor list — which is exactly where most attempts go wrong.
What a Porter's Five Forces actually is
The five forces are competitive rivalry, the threat of new entrants, the threat of substitutes, supplier power, and buyer power. Together they explain why some industries sustain high margins for decades and others compete themselves to zero. You assess the industry, then decide where to position within it.
The five forces, and how to assess each
Competitive rivalry
How many credible competitors, how similar are the offers, and is anyone competing on price because they have no other lever?
Example: Several well-funded players with near-identical claims; discounting appearing in renewal negotiations.
Threat of new entrants
What stops a well-funded newcomer entering next quarter — capital, data, regulation, brand, switching costs?
Example: Low technical barrier, but distribution and trust with strategy leaders take years to build.
Threat of substitutes
What do customers use instead of the whole category — including doing nothing, or solving it manually?
Example: A consulting sprint, an internal analyst with a spreadsheet, or a general-purpose assistant.
Supplier power
How concentrated are our critical inputs, and could a supplier raise prices or change terms without us having an alternative?
Example: Model providers are concentrated, but an abstraction layer keeps switching cost low.
Buyer power
How concentrated are buyers, how easily can they switch, and how much do they know about alternative prices?
Example: Mid-market buyers are fragmented and less price-coordinated; a handful of enterprise accounts would concentrate risk.
How to run it, step by step
1. Define the industry narrowly enough to be real
'Software' is not an industry for this purpose. 'Strategy tooling sold to mid-market strategy teams' is. Define it by who buys, what they compare you to, and where the money comes from.
2. Rate each force high, medium, or low — with a reason
The rating matters less than the evidence beside it. Name the concentration, the switching cost, the price behaviour you can observe.
3. Find the force that caps your margin
Usually one force dominates. Identify it, because that force — not the average of five — determines your realistic profitability.
4. Decide how you'll blunt that force
Raise switching costs, differentiate so rivalry is not price-based, diversify suppliers, or move to a buyer segment with less power. This is where the analysis becomes a strategy.
5. Re-run it when structure moves
Industry structure changes with consolidation, regulation, and technology shifts. Attach a review to each: an acquisition, a new entrant with funding, a platform bundling your core feature.
Mistakes that make it worthless
- Turning it into a competitor list instead of an assessment of industry structure.
- Defining the industry so broadly that every force reads 'medium'.
- Forgetting substitutes, including the customer simply doing nothing.
- Rating forces without evidence of concentration, switching cost, or price behaviour.
- Stopping at the diagnosis rather than deciding which force to blunt.
The part a template can't do for you
A template captures a moment. The hard part is what happens afterwards: remembering which assumptions you accepted, noticing when one stops holding, and having something argue back when your conclusion is convenient rather than correct. That is what an always-on strategy sparring partner does — it keeps the analysis honest as conditions change, instead of leaving it to age in a slide deck.
Get a strategy sparring partnerFrequently asked questions
- What is Porter's Five Forces used for?
- To judge whether an industry can sustain profit, and to choose a position within it. It is most valuable before market entry, before a major investment, or when margins are slipping and you need to know why.
- Is there a sixth force?
- Complementors — products that make yours more valuable — are often added. Include them when your value depends heavily on an ecosystem you don't control.
- How is it different from SWOT?
- Five Forces assesses the industry's structural profitability. SWOT assesses your position within it. Run Five Forces first; it tells you what the SWOT's opportunities and threats are really worth.
- How often should it be refreshed?
- Annually in a stable industry, and immediately after a structural event: consolidation, a funded new entrant, a regulatory change, or a platform bundling your core feature.