Threat of Entry – If an industry earns a capital in excess of its cost of capital, it will act as a magnet to firms outside the business (Grant 2015). Put simply, if there are no restrictions on new entrants into the industry the rate of profit will fall towards the competitive level (Grant, 2015). In other words the more competitive the industry, the less profitable it is. Thus it will be worthy to check if there are barriers to entry in that industry such as high capital requirements, product differentiation, economies of scale, governmental and legal barriers etc. The more of these there are the less competitive and the more profitable the industry would be.
Bargaining powers of suppliers and buyers – This refers to whether the buyers are price sensitive or not and these would depend on a number of factors (Grant, 2015). For example in the car manufacturing and sales industry, it importance of a car usually outweighs its cost. Some cars are differentiated as luxury cars thus they are sold at a premium e.g Jaguar Land Rover’s Land Rover. Car manufacturers may have to be insensitive to price in a bid to get the important car parts they require in the manufacturing process, finally car manufacturers today are in intense competition with each other thus they put pressure on their suppliers to reduce prices. The same is the case for supplier bargaining power, except the roles are reversed and the firms in the industry are the buyers and the producers of their inputs are the suppliers.
Rivalry between firms would depend on the number and size of the rivals and whether they are relatively similar (Grant, 2015). If they are similar they may avoid price wars in favor of collusive pricing strategies. Also the extent to which the products are differentiated determines the intensity of competition – more differentiation means less competition and price cuts whilst the opposite is the case (Grant, 2015).
The five competitive forces
Fig.1 (Porter, 2008)
Having identified the intensity of competition in the industry and the target, the next step would be to identify a suitable strategy of value offering to the customers. In simple terms this could be either through product differentiation or price differentiation (Grant, 2015). Product differentiation strategy offers the consumers a product which benefits the consumer in a way no other product does whilst differentiation or cost leadership offers a price value which is below that offered by other suppliers or producers in the market (Grant, 2015). An example of a company with a cost leadership strategy is Primark.
Financials and Forecasts
There are a number of financial forecasts that could be created for the purposes of a business plan however the most suitable financial forecast for a start-up is a market driven sales forecast as it does not require the detail that a full financial forecast would require. A full financial forecast is more suitable for an already established business as historical financials of that business would be readily available.
It is worthy to note that a market driven sales forecast for a start-up will involve some general estimates which must be justifiable and realistic. A market driven forecast can be presented as shown below
Business Segment or Customer Segment | Market Size | Market Demand Growth %/year | Forecast Market size(￡000) in 3 years | Company competitive position on a scale of 0-5 | Likely mark |
