How to fill in the Porter's Five Forces
Work out whether an industry is worth competing in, and where the profit leaks. This guide walks every block in the recommended order — what belongs there, the questions that unlock it, and patterns from real canvases.
Porter's Five Forces asks a question most strategy tools skip: is this industry structurally capable of being profitable at all? Five forces determine that — rivalry between existing competitors, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of suppliers.
The practical output is a judgement about where profit is leaking out of your industry and to whom. Strong buyers capture it. Strong suppliers capture it. Easy entry competes it away. Understanding which force is strongest tells you what your strategy has to defend against — and sometimes tells you not to enter at all.
Introduced by Michael E. Porter in a 1979 Harvard Business Review article and developed in Competitive Strategy (1980). It remains the standard framework for industry structure analysis in business education.
Competitive Rivalry
How hard do existing competitors fight?
The intensity of competition among firms already in the industry. High rivalry shows up as price competition, heavy marketing spend, and rapid feature matching. It intensifies when competitors are numerous and similarly sized, growth is slow, fixed costs are high, products are undifferentiated, and exit barriers keep failing firms in the market longer than they should stay.
Ask yourself
- How many direct competitors, and how similar are we?
- Is the market growing or are we fighting over a fixed pie?
- How often does competition become a price war?
- What stops a losing competitor from simply exiting?
Patterns that work
- Concentration — a few large players or many small ones
- Growth rate — slow growth turns competition zero-sum
- Differentiation — the less there is, the more price does the work
- Exit barriers — specialised assets and contracts that trap firms in
Threat of New Entrants
How easily can someone new start competing?
How hard it is for a new competitor to enter and take share. Low barriers mean any profit you make attracts imitators, which caps your long-run returns even if today looks comfortable. Barriers include capital requirements, economies of scale, brand loyalty, regulation and licensing, access to distribution, and proprietary technology.
Ask yourself
- What would it cost someone to start competing seriously?
- How long before a new entrant reaches our quality?
- Do we benefit from regulation, licensing, or scale?
- Has technology recently lowered the entry cost?
Patterns that work
- Capital and scale requirements
- Regulation and licensing as a protective moat
- Access to distribution and shelf space
- Brand loyalty and switching costs already established
Threat of Substitutes
What else solves the same problem?
Different products or approaches that meet the same underlying need. The classic error is defining substitutes too narrowly — the substitute for a train journey is not another train company, it is a car, a plane, or a video call. Substitutes cap your pricing power, because a price rise pushes customers sideways rather than to a direct competitor.
Ask yourself
- How else could the customer get this job done?
- What is the substitute's price-performance versus ours?
- How costly is it for a customer to switch approach?
- What did customers do before our category existed?
Patterns that work
- Define substitutes by the job, not by the product category
- Compare price-performance, not features
- 'Do nothing' is nearly always a live substitute
Bargaining Power of Buyers
How much leverage do customers have over price?
How much pressure customers can put on your margins. Buyer power rises when they are few and large, when your product is undifferentiated, when switching is easy, when they are price-sensitive, and when they could plausibly do it themselves. Customer concentration is the single sharpest indicator: if one client is 30% of revenue, they set your terms, not you.
Ask yourself
- What share of revenue do our largest customers represent?
- How easily can a customer switch to a competitor?
- Do buyers know our costs and comparable prices?
- Could a large customer do this in-house instead?
Patterns that work
- Concentration — one client at 30% of revenue sets your terms
- Switching costs — what it actually takes to leave you
- Price transparency and buyer sophistication
- Backward integration — the buyer could build it themselves
Bargaining Power of Suppliers
How much leverage do your inputs have?
How much pressure suppliers can put on your costs. Supplier power rises when there are few of them, when their input is critical or unique, when switching is expensive, and when they could move downstream and compete with you directly. In software this force is frequently underestimated: cloud providers, payment processors, and platform owners are all suppliers with meaningful power.
Ask yourself
- How many viable suppliers exist for each critical input?
- What would switching a key supplier cost in time and money?
- Could a supplier move downstream and compete with us?
- Which single supplier would hurt most to lose?
Patterns that work
- Supplier concentration relative to your industry
- Uniqueness of the input and availability of alternatives
- Forward integration — the supplier becoming a competitor
- In software: cloud, payments, app stores, and key APIs
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