Many business owners fear the global economy and labor market, but is that the only danger on your horizon? There are other forces (phantom competitors) that can impact your long-term success and this newsletter will help you to discover them for your industry.

This newsletter is a summary of what Michael Porter, a professor at Harvard Business School, calls Industry Attractiveness, or the Five Forces Model. I will attempt to present his model in a way that can be easily understood and applied to your specific business situation. I hope you find this helpful to identify and compete with the "Phantoms" that threaten your business.

One of the biggest mistakes made by smaller, entrepreneurial businesses is to assume they do not need to think about strategy. All businesses should be concerned about strategy and how to position themselves in their competitive environment.

Whether you're starting a business or trying to compete in an existing business, the first issue to address is the attractiveness of your industry. Analyzing your industry attractiveness (IA) will help you decide if you should get into a new industry, get out of the one you're in or redefine it. Porter identified five basic forces of competition. I have referred to them as "Phantoms" because most businesses do not understand that these forces are the phantom competitors that impact them every day. The first task is to understand your position in the industry and either hold onto a good position or improve a bad position. Even a poor performing industry can offer opportunities for a business that establishes the proper niche by applying strategic thinking.

The IA chart shown above plots the five forces for any industry. The ideal position would be the outer edge of each axis.

Starting at the lower-left of our IA chart you see Rivalry Among Existing Firms. This is what most businesses consider their "competition." When competitors in your industry are threatened, does it turn into a blood-bath or do all firms follow acceptable practices? Our IA example chart reflects an aggressive rivalry, which indicates a problem for new businesses entering the market, attempts at cutting prices or anyone attempting to "shake-up" the industry.

Moving clockwise on our IA example chart is Threat of Substitute Products or Services. Many are caught by surprise when they learn that there is nearly always another way for your customers to satisfy their needs. It could entail the use of plastic instead of metal, software to replace paper or web-meetings to replace travel. Alternatives are always emerging and can impact your profitability. Prospects may even choose to do nothing by simply "living with" their problem.

The Threat of New Entrants indicates how easy it is for others to get into the same business. New entrants can increase the output of the industry's goods or services, which can lower prices and reduce profits. By creating barriers that inhibit these new entrants, all the current companies in the industry will benefit. If you are considering the entry in an industry, you are the phantom competitor. As the new entrant, you must consider how difficult it will be for you to overcome the existing barriers.

The Bargaining Power of Suppliers is not usually seen as a competitive force, but should be. Suppliers can impact your costs as much or more than a new entrant. Some suppliers may identify a greater business opportunity by becoming one of your direct competitors. If you are dependent on a single supplier and have no means to switch suppliers, your position on the IA chart is lowered, reducing the attractiveness of the industry. If you can eliminate a supplier by producing their product or service in-house, you can improve the industry attractiveness.

The Bargaining Power of Buyers determines the flexibility you have in your pricing strategy. If you're selling to Wal-Mart, or other big box retailers, you are at the mercy of their pricing, inventory maintenance, returns, and in-store advertising policies. If you are selling a unique product or service into an underserved market you have greater flexibility and a more attractive industry.

• You sell a highly-desired product or service.
• It is very difficult for new companies to enter the market.
• There is no reasonable substitute for your product or service.
• Your product or service is produced from easily found resources and there are numerous suppliers.
• Customers seldom attempt to bargain over price and are willing to pay top dollar to solve their problem.
• Your competitors don't compete on price.

So where do you go from here?
All together there are about 100 questions you could answer to determine your industry's attractiveness. With those answers and the appropriate strategic application you could plot each of the five forces for your industry. The greatest problem for most business owners or managers is knowing the right questions to ask and how to properly apply the right strategic methodology.

The Business Insight Solution
We've seen thousands of companies benefit from analyzing their industry and identifying new ways to improve their situation. By performing our Business Insight analysis they have created barriers to competitors entering the market, found innovative alternatives to their supplier problems, eliminated customer's bargaining power and realized new ways to solve their customers' problem. Our Business Insight analysis will ask the right questions and apply Michael Porter's strategic model to your business. We are so confident that you will benefit from our Business Insight analysis that we guarantee your money back if you are not satisfied.

• Michael Porter's Competitive Five Forces
• GE Business Strategy Matrix
• Boston Consulting Group Matrix
• SWOT Analysis
• Product Life Cycle Analysis
• Pricing Strategy
• and 100 other models.

• A written critique of your strategy
• Observations on strategic inconsistencies
• Over 30 graphs that analyze key market concepts (including Industry Attractiveness)
• List of strategic strengths and weaknesses
• A success potential rating in eleven areas

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