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Respond to at least two other student posts
In this chapter it talked about starting up a company that already has a strong presence and how hard it can be to succeed and thrive in the business. For example, it talked about Subway and how success they have become. Subway became the most successful restaurant company (over McDonalds) versus their competitor- Quiznos that has a revenue of 15% of Subway. Subway was successful due to their popular influence from a celebrity and the newest health craze for people to begin eating healthier. Their moto is “Subway, Eat Fresh” which is refreshing because most fast-food companies are greasy foods that don’t always sit well especially when traveling. I remember when I was in high school, we had 2 or 3 Subways in our town, and a Quiznos. After nearly 3 years, the Quiznos shop shut down and Subway was leading the way. They then began offering coupons which drew more people in.
I looked up companies that have failed due to similar more innovative businesses in the market. The top company that was mentioned was Blockbuster- they did great for a while, but then Netflix came out with a brilliant idea of mailing movies to the subscriber’s houses. The mailings were prepaid, and you could order the movie online. This was genius because you didn’t have to drive or walk into the store if you knew what you were looking to get on a certain day. Blockbuster tried competing with Netflix but ended up closing their locations. Netflix knew that if they could capture the market, they could take over the movie streaming world. They did exactly that and they are now the top streaming service in the nation. They still offer the DVD rentals to home, but that is now a side of their business that no longer thrives as much. As you all know Netflix now makes their money off the streaming services. While Redbox is now saturating the DVD rental market by offering a kiosk rental system in locations all over outside stores.
Chapter three introduced the idea of Five Forces Analysis. I chose to research this because the visual in the text I found to be especially interesting and appealing. I include the visual from the text below. The five forces of the model are suppliers, new entrants, buyers, substitutes and rivalry. The concept was introduced over 30 years ago by Michael Porter of Harvard Business School, and entails an analysis of the five criteria of the model to evaluate the profit potential of an industry.
In order to evaluate an industries profit potential, it is important to note what competitors exist in the market and what threat they pose to the market share of the proposed or existing business. If a competitor dominates the marketplace, is there an opportunity to grab their market share? Or is their grip on the market quite firm? This is the analysis that goes into the five forces analysis by a C-Suite exec or entrepreneur. In addition to showing profit potential and current position of the market, the analysis also helps for strategic planning. If the entrepreneur can understand the market conditions they can more effectively devise a plan of attack for business growth potential.
The presence of potential new entrants is also rather important, as well as how easy it would be for a new entrant to join the space. Is the service/product proprietary? Does the industry pose high start up costs to entry that would stop potential entrants from competing? These kinds of considerations can be analyzed to determine the risk of someone coming and stealing market share from the business. The business needs to be resilient and therefor needs to be prepared for if a competitor does enter the market. Understanding this potential allows the business to poise itself to protect its business unit from potential new entrants.
I also learned about the importance of evaluating business suppliers. In your supply chain how at risk are you? What would happen if your supplier were to increase your prices by 50% or close all together? Are there other suppliers in the market that could replace the current supplier? These kinds of consideration also help a firm evaluate and make decisions about business resource planning. In order to effectively manage the firms resources they need to plan around the supply chain and what constraints lie therein. Putting together contingency plans and alternate supplies helps business continuity in case of a hiccup in the supply chain.
Similarly, buyer power has a lot to do with the opposite end of the demand chain. The business can evaluate based on how volatile their client list is if they are adequately prepared for a lost client. If the firm has only 2-3 large clients, they may be devastated if they lost one of the accounts. This is similar to my personal business, since I am a landlord and I only have 4-5 tenants at one time, if I lose just one tenant it is harmful to my bottom line.
Lastly, from my research I learned about how the threat of substitution plays into the five forces. A substitution is the use of an alternative product or service. This reminded me a lot of economics because it is similar to elasticity. If a product is elastic, it is highly sensitive to pricing changes and demand will change accordingly. If the product is inelastic then demand will not drop greatly with changes in price. The analysis that is done to determine the threat of a substitution is very similar to elasticity. If an easy substitute exists for the firms product or service, than it can be considered a threat and should be considered for the firms business resiliency plan.
https://www.investopedia.com/terms/p/porter.asp (Links to an external site.)
https://www.mindtools.com/pages/article/newTMC_08.htm (Links to an external site.)