- Porter's Five Forces
- A checklist of five pressures that decide how hard — or how easy — it is to make money in an industry. Named after Michael Porter, the Harvard professor who mapped them in 1979.
- Industry
- All the businesses that sell the same kind of thing. Every pizza shop together makes up the pizza industry.
- Competitive rivalry
- The first force: how many other businesses are already fighting for the same customers, and how hard they fight. High rivalry squeezes profits; low rivalry protects them.
- Threat of new entrants
- The second force: how easy it is for a brand-new competitor to open up and steal customers. Easy entry lets newcomers pile in the moment a business starts making money.
- Barrier to entry
- Anything that makes it hard or expensive for a brand-new business to jump into an industry — money, equipment, a license, or a secret recipe. High barriers act like a wall that protects the businesses already inside.
- Threat of substitutes
- The third force: completely different products that solve the same problem. Substitutes quietly set a ceiling on how much a business can charge.
- Substitute
- A completely different product that fills the same need — a frozen grocery-store pizza, or a taco, instead of a slice from a pizza shop. Not the same as a direct rival brand.
- Buyer power
- The fourth force: how much muscle customers have to push a price down. When buyers have endless choices and can compare prices instantly, they squeeze the seller.
- Supplier power
- The fifth force: how much muscle the people a business buys from have to push its costs up. The cure for supplier power is choice — being able to walk to another supplier.
- Bargaining power
- How much muscle one side has to push a price its way. Buyers use it to push prices down; suppliers use it to push a business's costs up. Both come from having alternatives.
- SWOT analysis
- A framework that lists one company's Strengths, Weaknesses, Opportunities, and Threats. SWOT reads a single company; Porter reads the whole industry the company competes in.
- Cost-benefit analysis
- Weighing what a decision would gain against what it would cost before making the call. Entering an industry is one big cost-benefit decision.
- Opportunity cost
- The best option you give up when you choose one thing over another. It is the biggest hidden cost, and a good decision counts it, not just money spent.
- Sunk cost
- Money or time already spent that cannot be recovered. It should not drive a choice going forward — deciding on the future, not on money already gone, avoids the sunk-cost trap.
- Anchoring
- Letting a first number — a price, a flashy sales projection, or a "we already told everyone" — unfairly drag a decision. A careful analyst checks the anchor against real comparisons.
- Incentive
- A reward or benefit that motivates a choice. Each of the five forces is really a story about incentives, because rivals, buyers, and suppliers all chase their own interests.
