Porter’s 5 Forces… But It’s a College Party

Let’s be real – learning business strategy feels like reading through terms and conditions of an app. Boring, confusing and like a waste of time.

Opening a textbook or business article feels like you are learning corporate sudoku – like bro, I just want to understand how companies strategize.

So let’s fix that today, we are throwing a college party and guess who’s making a special appearance? That’s right, Michael Porter.

Let’s crash this strategy party!!

1.      The threat of new entrants = The freshman trying to sneak in

Imagine this, you are at an invite-only party, mostly juniors and seniors. Suddenly, freshmen stroll in like they own the place. They are the new entrants in the market.

If no one stops these freshmen from entering the party (aka entering the market), then more people start joining, causing chaos in the party. But if there was bouncer barring entry to them (barrier to entry in a market like high startup costs or strong brand loyalty), the freshman will have to put in much more efforts to get in.

Real-world drip: Imagine how difficult it is for a new streaming company to enter the market due to the presence of Netflix, Prime, and Disney plus.

2.      Bargaining Power of Suppliers = The Guy Who Brought the Booze

No one cares about the guy who got the booze till the booze is almost over, he’s the VIP now. This is called supply power. If only one guy has got the booze – like the jungle juice, he has all the power. He could raise the price, dip or even stop supplying.

But if someone else gets a 12-pack, their power drops fast. So, the more options you have, the less power the supplier has.

Hot take: Apple’s chip suppliers are the mercy of  Apple but once the situation changes, chip shortages = supplies are the VIP at the party.

3.     Bargaining Power of Buyers = The Group Chat Deciding if the Party’s Mid or Not

Word always spreads fast. If the party’s mid, the group chat is already planning their exit and looking for a better party. In real life, the buyer or the customers are the ones with power if they have multiple options to choose from.

If they can leave or ask for discount, you better change the game. But if you are the only one throwing a party, they will tolerate the low booze and bad DJ.

Cultural ref: Remember the days when people wanted to change from Spotify to Joe Rogan but no one actually shifted – it was because of low buying power.

4. Threat of Substitutes = Netflix and Chill Instead of Pulling Up

You have thrown the biggest party in college but some people just want to watch the new season of Euphoria on Netflix. Or maybe they just want to go gaming.

All these other options where people are willing to spend time and money are called substitutes.

Substitutes aren’t always direct competitors in business – it’s anything else customers pick over you.

Business tea: Going out to eat vs uber eats vs cooking at home: classic example of substitute war.

5. Industry Rivalry = That Other Party Down the Street

It’s 11 pm, your party is a blast but your group chat is blowing up with notifications about the party down the street. Suddenly people are dipping.

That’s rivalry – when multiple parties (companies) are aiming for the same crowd (customers). The more number of parties there are – the more intense the battle can be.

This can get messy with price wars, vibe wars, influencer poaching, etc. In businesses, they show up as price wars, marketing stunts, copied products, etc – no one wins easily.

Real world tea: McDonalds has a new burger, and Burger King responds with a clown themed roast – fast food wars are chaotic, but we love it.

Wrap-up:

So, Porter’s 5 forces is jus a party checklist. Who is trying too sneak in? Who got the booze, speakers? Will the crowd leave for a different party? What else could they be doing? Is your rival party better?

It doesn’t matter if you are starting a new business or throwing the biggest part – the rules are all pretty similar. Know the rules, remember the forces, play the game and maybe you will be the one everyone talks about for the coming weeks.