1 00:00:00.000 --> 00:00:01.275 Hello 2 00:00:01.475 --> 00:00:05.532 In this session, we're going to talk about the industry 3 00:00:06.357 --> 00:00:10.340 As entrepreneurs, understanding the industry 4 00:00:10.690 --> 00:00:12.369 is very critical 5 00:00:12.469 --> 00:00:15.299 Take a look at this picture 6 00:00:15.456 --> 00:00:17.156 I asked ChatGPT 7 00:00:17.305 --> 00:00:19.205 to draw the situation 8 00:00:19.405 --> 00:00:22.055 when I talk to my students 9 00:00:22.155 --> 00:00:24.455 So yeah, it's me 10 00:00:25.283 --> 00:00:28.433 Is it the same? Same tie, right? 11 00:00:28.433 --> 00:00:31.933 Anyways, he took my class 12 00:00:32.111 --> 00:00:34.610 so we talked about his carrer 13 00:00:34.746 --> 00:00:35.682 so I asked him, 14 00:00:35.682 --> 00:00:38.782 what do you want to do, what do you want to be after graduation? 15 00:00:38.932 --> 00:00:40.882 And he told me 16 00:00:40.981 --> 00:00:43.981 he wanted to make a defense drone 17 00:00:44.031 --> 00:00:46.631 which is a drone for military purposes 18 00:00:46.731 --> 00:00:49.131 because he majors in engineering 19 00:00:49.334 --> 00:00:55.034 And also he is very interested in those types of technology 20 00:00:55.136 --> 00:00:58.435 Then I asked him, Yeah? Wow, great idea 21 00:00:58.535 --> 00:01:01.235 Then, do you know your industry? 22 00:01:01.358 --> 00:01:02.758 Your target industry? 23 00:01:02.808 --> 00:01:05.157 Then, he was surprised 24 00:01:06.007 --> 00:01:09.557 Then, he said that he has no idea 25 00:01:09.629 --> 00:01:12.179 I don't know the industry, he said 26 00:01:12.462 --> 00:01:14.062 So I told him 27 00:01:14.112 --> 00:01:17.762 well, if you don't understand your industry, 28 00:01:17.812 --> 00:01:19.362 you're not an entrepreneur 29 00:01:19.398 --> 00:01:22.798 You're just building a product 30 00:01:22.798 --> 00:01:24.805 You're just an engineer, okay? 31 00:01:24.905 --> 00:01:28.755 Being an engineer is not enought 32 00:01:28.904 --> 00:01:30.454 to be an entrepreneur 33 00:01:30.704 --> 00:01:35.004 So I explained to him about the industry a little bit 34 00:01:35.154 --> 00:01:38.003 There are some characteristics of the industry 35 00:01:38.058 --> 00:01:40.408 such as industry life cycle 36 00:01:40.508 --> 00:01:42.457 and industry structure 37 00:01:42.457 --> 00:01:45.357 So, in order to pursure your opportunity 38 00:01:45.907 --> 00:01:48.795 you need to understand the industry in advance 39 00:01:48.845 --> 00:01:50.695 That is the prerequisite 40 00:01:50.856 --> 00:01:53.206 for being an entrepreneur, okay? 41 00:01:53.256 --> 00:01:56.356 So that's why, in this session 42 00:01:56.406 --> 00:01:59.155 we are going to talk about the industry 43 00:01:59.755 --> 00:02:00.955 Okay, are you ready? 44 00:02:01.160 --> 00:02:04.709 So, before we go into the industry 45 00:02:04.859 --> 00:02:07.709 we need to define industry itself 46 00:02:07.868 --> 00:02:10.418 How can we define industry? 47 00:02:10.468 --> 00:02:13.367 Industry is a group of companies 48 00:02:13.417 --> 00:02:16.267 that produces product or services 49 00:02:16.642 --> 00:02:19.272 that are perceived by consumers as 50 00:02:19.397 --> 00:02:21.597 It's kind of very similar 51 00:02:21.696 --> 00:02:22.996 Kind of very similar 52 00:02:23.446 --> 00:02:26.996 For example, there is Apple and 53 00:02:27.055 --> 00:02:28.405 Samsung Electronics 54 00:02:28.505 --> 00:02:32.354 Apple and Samsung Electronics both produce cell phones 55 00:02:32.404 --> 00:02:35.605 and they compete in the cell phone industry 56 00:02:35.755 --> 00:02:38.755 Apple produces iPhones 57 00:02:38.855 --> 00:02:41.196 and Samsung produces Galaxy 58 00:02:41.241 --> 00:02:44.791 So they both fight in the same industry 59 00:02:44.891 --> 00:02:47.440 which is the cell phone industry 60 00:02:47.588 --> 00:02:50.738 Of course, think about inside the cell phone industry 61 00:02:50.790 --> 00:02:53.990 There are many players, such as suppliers 62 00:02:54.039 --> 00:02:56.673 For example, we need 63 00:02:56.772 --> 00:02:58.872 great cameras, great lens 64 00:02:59.172 --> 00:03:02.722 so Japanese companies provide those types of 65 00:03:02.822 --> 00:03:05.272 advanced cameras and lens 66 00:03:05.371 --> 00:03:08.077 And, to make a great cell phone 67 00:03:08.127 --> 00:03:10.877 we need to have a great chip inside 68 00:03:10.977 --> 00:03:13.727 So, there are several players out there 69 00:03:13.776 --> 00:03:16.176 who made great chips 70 00:03:16.826 --> 00:03:19.526 What about 71 00:03:20.117 --> 00:03:22.117 mobile application providers? 72 00:03:22.216 --> 00:03:26.216 So many mobile application providers developed their own 73 00:03:26.307 --> 00:03:28.257 mobile application and 74 00:03:28.357 --> 00:03:30.406 tried to upload their moblie application 75 00:03:30.556 --> 00:03:31.856 throughout the cell phone 76 00:03:31.956 --> 00:03:33.506 So, think about it 77 00:03:33.506 --> 00:03:36.871 There are a lot of cell phone related companies 78 00:03:37.090 --> 00:03:39.390 Competitors and suppliers 79 00:03:39.490 --> 00:03:41.190 Or what about the consumers? 80 00:03:41.290 --> 00:03:43.690 There are a bunch of different types of consumers 81 00:03:43.890 --> 00:03:46.139 in and out of the country 82 00:03:47.789 --> 00:03:51.289 So why is understand the industry important? 83 00:03:51.589 --> 00:03:53.288 The first one is 84 00:03:53.388 --> 00:03:54.905 we need to think about 85 00:03:55.055 --> 00:03:57.855 the industry lifecycle 86 00:03:58.854 --> 00:04:02.254 As a human being, the industry was born 87 00:04:02.943 --> 00:04:05.493 and it grows like a teenager 88 00:04:05.804 --> 00:04:09.403 and it gets into some kind of maturity stage 89 00:04:10.715 --> 00:04:11.815 And then later on 90 00:04:11.919 --> 00:04:14.069 the industry can decline 91 00:04:15.019 --> 00:04:16.119 So, for example 92 00:04:16.919 --> 00:04:20.469 what about a sewing machine, a sewing machine at home 93 00:04:20.668 --> 00:04:22.268 One hundred years ago, 94 00:04:22.268 --> 00:04:25.018 every household has a sewing machine 95 00:04:25.268 --> 00:04:27.468 So the sewing machine industry 96 00:04:27.568 --> 00:04:28.668 was booming 97 00:04:28.717 --> 00:04:29.917 But right now 98 00:04:30.017 --> 00:04:33.417 that particular industry has already declined 99 00:04:33.567 --> 00:04:35.883 What about the personal computer industry? 100 00:04:35.983 --> 00:04:37.983 We are going to talk about the personal computer industry 101 00:04:38.133 --> 00:04:40.133 today in the second session 102 00:04:40.549 --> 00:04:44.549 The personal computer industry was born in the late 1970s 103 00:04:44.847 --> 00:04:48.146 and then boomed in the 1980s, 1990s 104 00:04:48.348 --> 00:04:49.998 It's still boom, but right now 105 00:04:50.048 --> 00:04:54.248 We thought the personal computer industry was already matured 106 00:04:54.298 --> 00:04:55.198 Something like that 107 00:04:55.397 --> 00:04:57.997 So we need to think about the life cycle 108 00:04:58.200 --> 00:05:00.750 Understanding the industry life cycle 109 00:05:00.994 --> 00:05:03.927 provides us with a kind of a different perspective 110 00:05:04.080 --> 00:05:07.379 and also the industry life cycle brings us 111 00:05:07.609 --> 00:05:11.142 different challenges and different opportunities 112 00:05:11.975 --> 00:05:13.875 Again, it helps start-ups 113 00:05:15.457 --> 00:05:18.707 understand how to time their entry 114 00:05:18.761 --> 00:05:20.161 exit or 115 00:05:20.311 --> 00:05:22.761 many pivot based on the stage 116 00:05:24.243 --> 00:05:28.393 The second reason, we need to think about the industry structure 117 00:05:28.460 --> 00:05:30.710 In every industry 118 00:05:30.810 --> 00:05:33.010 there is a particular structure 119 00:05:33.310 --> 00:05:36.526 and those structures are surprisingly sticky 120 00:05:36.776 --> 00:05:39.426 So the industry structure also shapes 121 00:05:39.675 --> 00:05:41.725 your profit potential 122 00:05:41.975 --> 00:05:44.458 Again, it determines 123 00:05:44.608 --> 00:05:47.508 how much value you can retain 124 00:05:47.658 --> 00:05:49.558 from this particular industry 125 00:05:50.907 --> 00:05:54.257 Well, let's look at the industry lifecycle first 126 00:05:54.407 --> 00:05:55.407 Again 127 00:05:55.607 --> 00:05:58.507 industry evolves through series of 128 00:05:58.507 --> 00:06:00.156 the stage from 129 00:06:00.156 --> 00:06:01.840 the birth stage 130 00:06:01.939 --> 00:06:04.789 to the decline stage 131 00:06:05.203 --> 00:06:07.503 Again, industry goes through 132 00:06:07.739 --> 00:06:09.289 introduction, or birth 133 00:06:09.339 --> 00:06:10.339 and growth 134 00:06:10.438 --> 00:06:13.955 and shakeout and maturity and decline 135 00:06:15.005 --> 00:06:18.204 Industries have lifespans 136 00:06:18.504 --> 00:06:20.304 from birth to 137 00:06:20.804 --> 00:06:22.554 maturity to decline 138 00:06:23.004 --> 00:06:24.403 Startups 139 00:06:24.503 --> 00:06:27.853 are not just competing against rivals 140 00:06:28.203 --> 00:06:31.103 They are racing against industry timing 141 00:06:31.403 --> 00:06:32.736 So for example, 142 00:06:32.886 --> 00:06:35.835 Although you have a great product, great service, 143 00:06:36.085 --> 00:06:38.235 but if you 144 00:06:38.435 --> 00:06:41.701 if you join in a declining industry 145 00:06:42.001 --> 00:06:43.618 then you may fail 146 00:06:44.868 --> 00:06:47.717 even if you have a great service and a great product 147 00:06:48.367 --> 00:06:52.067 not because it's your fault but because of the industry life cycle 148 00:06:52.117 --> 00:06:54.067 You chose the wrong industry 149 00:06:54.266 --> 00:06:57.216 in terms of the industry life cycle 150 00:06:57.616 --> 00:07:00.516 So we need to think about the timing 151 00:07:00.599 --> 00:07:02.949 When to enter, or when to exit 152 00:07:03.007 --> 00:07:09.447 So, again, there are five different stages on industry life cycle 153 00:07:09.447 --> 00:07:11.727 First stage is introduction 154 00:07:11.727 --> 00:07:15.007 Introduction means new industry is born 155 00:07:15.007 --> 00:07:18.127 And second stage is growth stage 156 00:07:18.127 --> 00:07:22.886 Industry rapidly expanded 157 00:07:22.886 --> 00:07:26.367 And third stage is the shakeout stage 158 00:07:26.367 --> 00:07:29.607 Shakeout stage means competition intensified 159 00:07:29.695 --> 00:07:32.245 So many competitors already jumped in this industry 160 00:07:32.307 --> 00:07:36.847 and they compete a lot 161 00:07:36.847 --> 00:07:38.847 There is a fierce competition 162 00:07:38.894 --> 00:07:40.294 And the maturity stage 163 00:07:40.494 --> 00:07:44.644 Market is already grown 164 00:07:44.846 --> 00:07:50.137 and the industry gets into the maturity stage 165 00:07:51.043 --> 00:07:53.393 No growth and no decline, 166 00:07:53.487 --> 00:07:56.766 Just stay the same 167 00:07:56.766 --> 00:07:59.696 And the last stage is the decline stage 168 00:07:59.792 --> 00:08:01.342 Industry shrinked 169 00:08:01.392 --> 00:08:03.841 because of 170 00:08:04.025 --> 00:08:07.674 because of just outside new product or 171 00:08:07.895 --> 00:08:09.526 kind of new substitute 172 00:08:09.526 --> 00:08:11.026 something like that 173 00:08:11.526 --> 00:08:14.727 So, please keep that in your mind 174 00:08:14.727 --> 00:08:18.246 Industry goes through the stages 175 00:08:18.246 --> 00:08:21.246 We say it is industry life cycle 176 00:08:22.246 --> 00:08:24.846 This is industry life cycle 177 00:08:24.889 --> 00:08:26.889 Based on the stage 178 00:08:27.546 --> 00:08:31.396 we can understand the consumers, what it looks like 179 00:08:31.396 --> 00:08:32.938 and competitors, what it looks like 180 00:08:32.938 --> 00:08:35.738 For example, in the birth stage 181 00:08:35.946 --> 00:08:37.346 in every industry 182 00:08:37.545 --> 00:08:39.407 in every industry, there are not too many consumers 183 00:08:39.407 --> 00:08:42.087 out there because consumers didn't know what it is 184 00:08:42.787 --> 00:08:44.087 Consumers don't know what it is 185 00:08:44.220 --> 00:08:45.220 For example, 186 00:08:45.386 --> 00:08:49.036 when personal computer released for the first time, 187 00:08:49.136 --> 00:08:53.656 only few consumers understand 188 00:08:53.656 --> 00:08:54.697 what it is 189 00:08:54.835 --> 00:08:57.535 Most of the consumers don't know what it is, 190 00:08:57.547 --> 00:08:59.407 and they thought that, why do we need 191 00:08:59.407 --> 00:09:01.216 a personal computer? 192 00:09:01.616 --> 00:09:04.047 Because we have a calculator 193 00:09:04.047 --> 00:09:06.286 We have electric calculators 194 00:09:06.286 --> 00:09:09.807 What about printer machine? 195 00:09:09.807 --> 00:09:14.007 In 1949, Xerox released the printer machine 196 00:09:14.007 --> 00:09:17.007 Not too many people understand the value of the printer machine 197 00:09:17.007 --> 00:09:18.486 Why? 198 00:09:18.486 --> 00:09:19.636 Because we have people 199 00:09:20.015 --> 00:09:23.315 So, if we need the copy of papers, 200 00:09:23.316 --> 00:09:26.165 then we can ask people to write it down again 201 00:09:26.235 --> 00:09:28.646 why do we need to 202 00:09:28.646 --> 00:09:31.046 have an expensive machine? 203 00:09:31.046 --> 00:09:32.046 I don't understand 204 00:09:32.064 --> 00:09:35.914 So, again, there are few consumers out there 205 00:09:36.046 --> 00:09:40.286 if the industry stage is a growth stage 206 00:09:40.413 --> 00:09:42.963 At the same time, if the industry is a growth stage, 207 00:09:42.963 --> 00:09:44.926 and there are not too many competitors, 208 00:09:45.126 --> 00:09:48.927 none of them or very few competitors exist 209 00:09:49.607 --> 00:09:54.707 but, you know, once industrys go into the growth stage 210 00:09:54.907 --> 00:09:57.466 then there are many early adopters 211 00:09:57.607 --> 00:10:01.307 and so many competitors join in this industry 212 00:10:01.307 --> 00:10:05.206 Then later, industry goes to the shakeout stage 213 00:10:05.260 --> 00:10:08.410 In the shakeout stage, industry grows rapidly 214 00:10:08.410 --> 00:10:11.956 and consumers expanded, 215 00:10:12.106 --> 00:10:16.647 and so many competitors fight each other 216 00:10:16.695 --> 00:10:19.497 and the weakest competitors 217 00:10:19.847 --> 00:10:24.507 can be died, okay 218 00:10:24.608 --> 00:10:26.357 can be dead, sorry 219 00:10:26.646 --> 00:10:31.157 And then later, you know, industry goes into the maturity stage 220 00:10:31.157 --> 00:10:35.057 Then we can see, wow, there are already mass markets out there 221 00:10:35.106 --> 00:10:37.956 and the competitors in this industry 222 00:10:38.056 --> 00:10:41.156 in this industry stage, competitors fight to 223 00:10:41.206 --> 00:10:43.046 achieve the market share, 224 00:10:43.046 --> 00:10:44.897 like a car industry 225 00:10:44.955 --> 00:10:48.955 When car industry goes into the maturity stage, 226 00:10:48.997 --> 00:10:51.167 and so many car makers fight 227 00:10:51.171 --> 00:10:53.171 to acquire the market share 228 00:10:53.171 --> 00:10:56.447 then later industry declines, okay? 229 00:10:56.566 --> 00:10:58.566 Some of industry disappeared 230 00:10:58.603 --> 00:11:01.253 Some of industry remained, but very small 231 00:11:01.416 --> 00:11:04.247 Shrinked because of new technology, 232 00:11:04.247 --> 00:11:06.247 new product, as I already mentioned that 233 00:11:06.247 --> 00:11:09.797 Again, remember, industry goes through the stage 234 00:11:09.969 --> 00:11:12.319 from the birth to the die, okay? 235 00:11:14.302 --> 00:11:17.451 So, let's go back to the 236 00:11:17.551 --> 00:11:21.501 the defense drone case that I mentioned 237 00:11:21.601 --> 00:11:23.207 in the beginning 238 00:11:23.207 --> 00:11:24.447 of the session 239 00:11:24.500 --> 00:11:27.500 I explained to my student, 240 00:11:27.547 --> 00:11:30.447 let's think about the drone industry 241 00:11:30.500 --> 00:11:32.549 Well, it looks same, 242 00:11:32.749 --> 00:11:36.097 but actually there are two different types of industry exist 243 00:11:36.097 --> 00:11:38.047 in the drone industry 244 00:11:38.047 --> 00:11:41.567 The first industry is consumer drone industry 245 00:11:41.567 --> 00:11:45.327 Second industry is defense drone industry 246 00:11:45.698 --> 00:11:48.448 So, the consumer drone industry 247 00:11:48.497 --> 00:11:50.597 already started many years ago, 248 00:11:50.597 --> 00:11:53.127 and right now, think about it 249 00:11:53.127 --> 00:11:54.327 You are here, right? 250 00:11:54.327 --> 00:11:55.327 You are here at the bottom 251 00:11:55.327 --> 00:11:56.327 You are here 252 00:11:56.363 --> 00:12:00.563 When we talk about the defense drone idea 253 00:12:00.813 --> 00:12:03.727 the consumer drone industry already 254 00:12:03.762 --> 00:12:05.962 goes into the maturity stage 255 00:12:05.977 --> 00:12:09.887 but the defense drone is just growing, okay? 256 00:12:09.887 --> 00:12:10.837 Just growing 257 00:12:10.895 --> 00:12:15.794 So I suggest you understand the kind of stage 258 00:12:15.936 --> 00:12:18.036 two different types of stages 259 00:12:18.136 --> 00:12:21.567 of your defense drone industry, okay? 260 00:12:21.743 --> 00:12:25.557 So, the defense drone industry is just growing like 261 00:12:25.557 --> 00:12:29.516 like Ukraine and Russia war 262 00:12:29.592 --> 00:12:33.792 Then probably there are so many potential competitors 263 00:12:33.916 --> 00:12:36.027 try to jump in this market 264 00:12:36.192 --> 00:12:38.691 and probably there are many alternatives that exist 265 00:12:38.727 --> 00:12:41.886 and they probably show the different model 266 00:12:41.941 --> 00:12:43.791 different idea, different technology 267 00:12:43.836 --> 00:12:48.616 so the competition will be intensified, okay? 268 00:12:48.616 --> 00:12:52.687 You need to understand these types of the situation 269 00:12:52.806 --> 00:12:56.006 before you actually join 270 00:12:56.006 --> 00:12:58.407 in the defense drone industry, right? 271 00:12:59.257 --> 00:13:04.405 Okay, let's move to the structure concept 272 00:13:04.405 --> 00:13:07.455 So far, we have discussed about the stage concept 273 00:13:07.455 --> 00:13:09.766 and right now, we are going to talk about 274 00:13:09.766 --> 00:13:12.687 the structural concept of the industry 275 00:13:12.737 --> 00:13:15.287 Have we heard about the five forces 276 00:13:15.387 --> 00:13:16.776 Five forces? 277 00:13:17.037 --> 00:13:19.286 Five forces means some kind of power 278 00:13:19.353 --> 00:13:20.353 Powers 279 00:13:20.667 --> 00:13:23.027 and five forces argue that 280 00:13:23.086 --> 00:13:26.136 every single industry has 281 00:13:26.186 --> 00:13:29.935 five external powers out there 282 00:13:29.976 --> 00:13:33.566 five powers, five forces, okay? 283 00:13:33.566 --> 00:13:34.566 Who are they? 284 00:13:34.585 --> 00:13:38.684 Probably they are competitors 285 00:13:39.084 --> 00:13:41.784 and suppliers 286 00:13:42.015 --> 00:13:45.047 and consumers, of course, 287 00:13:45.047 --> 00:13:48.967 and the future competitors, okay? 288 00:13:49.133 --> 00:13:51.983 They didn't enter the market yet, 289 00:13:52.017 --> 00:13:55.032 but they will do 290 00:13:55.032 --> 00:13:58.182 We say these are the future competitors 291 00:13:58.317 --> 00:14:01.607 and later substitute, and those five 292 00:14:01.607 --> 00:14:03.966 forces are very important, okay? 293 00:14:03.966 --> 00:14:08.047 This is a kind of a basic concept of five forces 294 00:14:08.047 --> 00:14:08.830 Look at this 295 00:14:08.830 --> 00:14:11.780 The structure of the consumers, and suppliers, 296 00:14:11.997 --> 00:14:16.557 and current or future competitors, and substitute 297 00:14:16.629 --> 00:14:19.679 We say those five, those five elements, 298 00:14:19.707 --> 00:14:23.927 those five forces, or those five powers 299 00:14:23.927 --> 00:14:27.287 are called as five forces 300 00:14:27.528 --> 00:14:30.028 So the five forces argue that 301 00:14:30.187 --> 00:14:33.506 the probability varies significantly 302 00:14:33.506 --> 00:14:35.806 from industry to industry 303 00:14:35.977 --> 00:14:38.077 In the 1930s, 304 00:14:38.177 --> 00:14:41.027 economists, especially in Harvard University 305 00:14:41.206 --> 00:14:45.447 found the industry structure 306 00:14:45.447 --> 00:14:46.447 probability link 307 00:14:46.447 --> 00:14:51.597 Wow, there is some significant relationship between industry structure, which is 308 00:14:51.597 --> 00:14:55.277 five forces, and the company's probabilities 309 00:14:55.441 --> 00:14:56.941 And then they said that 310 00:14:57.127 --> 00:15:00.347 industry structure determines both 311 00:15:00.347 --> 00:15:03.234 company's behavior and the performance 312 00:15:05.000 --> 00:15:08.120 Okay, look at this picture 313 00:15:08.120 --> 00:15:12.280 The economists found that and drew the graph 314 00:15:12.280 --> 00:15:17.040 And in the middle, right, in the middle, so many companies achieved around 315 00:15:17.040 --> 00:15:20.840 15% of the profit margin 316 00:15:20.888 --> 00:15:25.988 But think about it, some of the industry enjoyed more than 35 317 00:15:26.089 --> 00:15:28.360 on your right side, 318 00:15:28.360 --> 00:15:32.369 enjoyed 35 or higher profit margin 319 00:15:32.420 --> 00:15:35.020 And on the other hand, on your left side 320 00:15:35.219 --> 00:15:38.119 some of the industry didn't have at least 321 00:15:38.119 --> 00:15:40.560 5% of the profit margin 322 00:15:40.560 --> 00:15:43.960 They suffer from lack of the profitability 323 00:15:44.036 --> 00:15:47.185 It is not because of the company's fault 324 00:15:47.310 --> 00:15:50.279 it is because of the industry structure 325 00:15:50.279 --> 00:15:53.799 For example, it is not your fault 326 00:15:53.799 --> 00:15:54.799 Not your fault 327 00:15:54.799 --> 00:15:57.439 It's a problem of the industry 328 00:15:57.439 --> 00:16:00.439 You located in wrong industry, okay? 329 00:16:00.439 --> 00:16:02.410 This is the idea 330 00:16:03.866 --> 00:16:07.366 Look at another chart 331 00:16:07.409 --> 00:16:09.069 and this is the probability of the 332 00:16:09.069 --> 00:16:11.559 selected United States industries 333 00:16:11.632 --> 00:16:16.132 At the top, security brokers and dealers 334 00:16:16.258 --> 00:16:19.629 enjoyed more than 40% of the profit margin 335 00:16:19.714 --> 00:16:22.264 Soft drink followed next, 336 00:16:22.329 --> 00:16:26.320 and the prepackaged software followed next 337 00:16:26.320 --> 00:16:28.279 And what about at the bottom? 338 00:16:28.279 --> 00:16:29.680 At the bottom, can you see? 339 00:16:29.680 --> 00:16:31.530 This is the airline industry 340 00:16:31.530 --> 00:16:34.530 Airline industry just achieved 341 00:16:34.700 --> 00:16:38.320 5.9% of the profit margin 342 00:16:38.379 --> 00:16:41.379 And the others, the mail order houses, hotels 343 00:16:41.570 --> 00:16:44.330 hotel have just 10% 344 00:16:44.330 --> 00:16:46.080 profit margin 10% 345 00:16:46.128 --> 00:16:49.378 So, as you can see, the probability of the companies 346 00:16:49.530 --> 00:16:53.239 can be different significantly 347 00:16:53.239 --> 00:16:56.079 from the industry to industry 348 00:16:57.279 --> 00:17:01.219 Okay, so again, there are several different types of the participants 349 00:17:01.219 --> 00:17:04.219 in each industry 350 00:17:04.519 --> 00:17:07.400 So, many different types of the players 351 00:17:07.400 --> 00:17:11.120 The first players would be the competitors, of course 352 00:17:11.120 --> 00:17:13.300 Second one, potential competitors, potential 353 00:17:13.425 --> 00:17:15.775 As I already mentioned that, they didn't 354 00:17:15.950 --> 00:17:18.029 they didn't join this industry yet 355 00:17:18.029 --> 00:17:19.919 but they will do later 356 00:17:19.919 --> 00:17:21.000 I don't know who are they 357 00:17:21.000 --> 00:17:23.199 It depends on your industry 358 00:17:23.199 --> 00:17:26.199 And suppliers, of course, suppliers 359 00:17:26.199 --> 00:17:28.240 And the consumers, right? 360 00:17:28.240 --> 00:17:29.240 And the substitute 361 00:17:29.240 --> 00:17:34.099 Well, there are five different types of players 362 00:17:34.099 --> 00:17:37.960 Those five players exist in every single industry 363 00:17:37.960 --> 00:17:41.159 So, those five players are universal 364 00:17:41.321 --> 00:17:43.771 On the other hand 365 00:17:44.209 --> 00:17:49.954 the particular name of five forces are different 366 00:17:49.954 --> 00:17:51.953 Particular names are different but 367 00:17:52.060 --> 00:17:56.160 existence of those five forces are true, right? 368 00:17:56.619 --> 00:18:01.019 So, all market players, all industry players 369 00:18:01.168 --> 00:18:06.199 engage in continuous struggle for the profit margin 370 00:18:06.199 --> 00:18:09.799 For example, think about your consumers 371 00:18:09.901 --> 00:18:12.751 Consumers always want to pay less 372 00:18:12.951 --> 00:18:17.450 and always they ask to get more 373 00:18:17.698 --> 00:18:20.040 and deliver fast all the time 374 00:18:20.440 --> 00:18:22.460 And think about your suppliers 375 00:18:22.516 --> 00:18:26.266 Suppliers, on the other hand, always want to be paid more 376 00:18:26.266 --> 00:18:27.630 and deliver less 377 00:18:27.630 --> 00:18:30.199 deliver slow, okay? 378 00:18:30.199 --> 00:18:32.440 And what about substitute? 379 00:18:32.440 --> 00:18:34.789 You can think about your own substitute 380 00:18:34.865 --> 00:18:39.864 Substitutes always want to take out your consumers, 381 00:18:39.864 --> 00:18:42.750 take your consumers from you 382 00:18:42.791 --> 00:18:45.990 by showing kindof different types of service and product 383 00:18:46.429 --> 00:18:49.000 Kind of they are evil, right? 384 00:18:49.000 --> 00:18:51.679 They didn't fight with you directly 385 00:18:51.759 --> 00:18:56.489 But indirectly, they try to steal your consumers 386 00:18:57.389 --> 00:19:00.220 They are substitute, right? 387 00:19:00.362 --> 00:19:05.411 And Dr Michael Porter at Harvard Business School 388 00:19:05.719 --> 00:19:07.179 he argued that 389 00:19:07.344 --> 00:19:11.594 direct compeand consumers and suppliers and potential competitors 390 00:19:11.679 --> 00:19:12.750 to the industry 391 00:19:12.843 --> 00:19:16.443 and the substitute providers are all competing 392 00:19:16.443 --> 00:19:20.199 for their share of the profit in the single industry 393 00:19:20.409 --> 00:19:22.559 So that's why we care for those five 394 00:19:22.559 --> 00:19:27.269 not just for the competitors 395 00:19:27.769 --> 00:19:33.000 He said that managers who fail to consider all the market players 396 00:19:33.000 --> 00:19:35.129 put their company at risk 397 00:19:37.029 --> 00:19:41.839 So this is Michael Porter's Five Forces Framework 398 00:19:41.839 --> 00:19:45.359 I will explain those Five Forces Framework 399 00:19:45.359 --> 00:19:50.870 This is a kind of very simple tool for understanding how your industry profits 400 00:19:50.870 --> 00:19:54.449 are distributed among the players 401 00:19:54.955 --> 00:19:59.855 And this is a very, very cool guideline for evaluating 402 00:19:59.855 --> 00:20:02.880 the relative strengths of the forces 403 00:20:02.880 --> 00:20:06.550 influencing your profitability 404 00:20:07.200 --> 00:20:08.720 Have you seen these types of pictures? 405 00:20:08.720 --> 00:20:13.890 This picture illustrates Porter's Five Forces Analysis Tool 406 00:20:14.136 --> 00:20:16.536 So, inside the circle, 407 00:20:16.640 --> 00:20:20.679 there is a competitor, of course, because competitors are very important 408 00:20:20.679 --> 00:20:23.600 forces, okay, competitors 409 00:20:23.600 --> 00:20:26.059 There are no industries without competitors 410 00:20:26.359 --> 00:20:30.250 And so many competitors out there, and we compete with them 411 00:20:30.250 --> 00:20:34.729 And look at the top, there is 412 00:20:34.884 --> 00:20:36.633 future competitors 413 00:20:37.600 --> 00:20:43.449 We should not only consider the current competitors, 414 00:20:43.628 --> 00:20:46.349 but also think about the future competitors, 415 00:20:46.999 --> 00:20:50.620 And also, on your right side, there is consumers 416 00:20:50.620 --> 00:20:53.600 On your left side, there is suppliers 417 00:20:53.600 --> 00:20:55.519 At the bottom, there is substitutes 418 00:20:55.519 --> 00:21:01.109 So put together, we need to consider all five industry players 419 00:21:01.497 --> 00:21:03.397 The first thing to do 420 00:21:03.459 --> 00:21:07.109 you need to identify your own five forces 421 00:21:07.146 --> 00:21:11.596 Again, although five forces exist in every single industry 422 00:21:11.808 --> 00:21:15.629 but specific names of the five forces are different, 423 00:21:15.629 --> 00:21:17.850 depending on your industry 424 00:21:17.945 --> 00:21:21.945 For example, if your industry is a car maker industry 425 00:21:21.945 --> 00:21:23.690 you are car makers 426 00:21:23.690 --> 00:21:25.529 This is an automobile industry, right? 427 00:21:25.644 --> 00:21:29.144 And the competitors, suppliers, and substitutes 428 00:21:29.329 --> 00:21:33.880 you can understand who is your competitor, 429 00:21:33.880 --> 00:21:38.360 who is your consumer, who is your substitute 430 00:21:38.393 --> 00:21:42.542 But think about if your industry is a water industry, water 431 00:21:42.542 --> 00:21:44.600 it's a beverage 432 00:21:44.600 --> 00:21:47.959 And of course, there are suppliers, and there are consumers, and there are substitutes, 433 00:21:47.959 --> 00:21:51.339 and there are future competitors, et cetera, et cetera 434 00:21:51.441 --> 00:21:55.391 But you know, specific name of suppliers are different 435 00:21:55.541 --> 00:21:58.519 from the water beverage industry 436 00:21:58.519 --> 00:22:00.480 to the car industry 437 00:22:00.519 --> 00:22:04.679 Some consumers overlap, but particular consumers are different 438 00:22:04.679 --> 00:22:09.880 Competitors, of course, competitors are totally different from the industry to industry 439 00:22:09.880 --> 00:22:15.239 Water beverage industry, we have a similar beverage company as our competitors 440 00:22:15.239 --> 00:22:20.600 Car, automobile industry, we have another car makers as our competitors 441 00:22:20.600 --> 00:22:26.920 Toyota, Daimler, or Volkswagen, those are all my competitors, right? 442 00:22:26.920 --> 00:22:28.160 So the competitors are different 443 00:22:28.160 --> 00:22:34.510 So anyway, the first thing to do when you use the Porter's file forces analysis 444 00:22:34.510 --> 00:22:38.920 You need to identify your specific file forces 445 00:22:38.920 --> 00:22:40.359 This is the first thing to do 446 00:22:40.435 --> 00:22:41.985 Second thing to do 447 00:22:42.085 --> 00:22:47.784 after finishing identification of the file forces 448 00:22:48.158 --> 00:22:51.070 you need to specify and evaluate 449 00:22:51.070 --> 00:22:55.520 relative strengths between you and your file forces 450 00:22:55.566 --> 00:22:59.466 Again, you need to specify the relative strengths 451 00:22:59.570 --> 00:23:02.920 between you and your competitors 452 00:23:02.920 --> 00:23:09.880 Sometimes you can have a power, you can have more power over your competitor suppliers 453 00:23:09.880 --> 00:23:15.839 But sometimes, sometimes, some case, your suppliers can have more power over you 454 00:23:15.839 --> 00:23:18.720 Your competitors can have more power over you, right? 455 00:23:18.720 --> 00:23:24.270 So every different industry have different relative powers 456 00:23:24.270 --> 00:23:25.169 relative strengths 457 00:23:25.169 --> 00:23:28.629 So anyway, we need to specify the, 458 00:23:28.929 --> 00:23:33.399 relative strengths, relative threat of your five forces 459 00:23:33.399 --> 00:23:39.830 But there's a rule of thumb, the general rule is the more powerful the force is 460 00:23:39.830 --> 00:23:41.900 the less attractive for you 461 00:23:41.900 --> 00:23:43.200 Of course 462 00:23:43.200 --> 00:23:45.200 I will show you why this is happening 463 00:23:45.200 --> 00:23:47.359 If the, look at this 464 00:23:47.477 --> 00:23:50.077 If the supplier powers, second rule 465 00:23:50.109 --> 00:23:53.380 if the supplier power is increased 466 00:23:53.380 --> 00:23:58.309 If your supplier has more power over you, then what happens? 467 00:23:58.359 --> 00:24:01.440 In the end, your profit will be decreased Why? 468 00:24:01.640 --> 00:24:05.540 Because again, every suppliers 469 00:24:05.640 --> 00:24:09.760 want to get paid more 470 00:24:09.760 --> 00:24:14.159 So if the supplier have power over you, then you should pay more 471 00:24:14.159 --> 00:24:18.159 And then of course, your cost is increased, right? 472 00:24:18.509 --> 00:24:19.909 It's so obvious 473 00:24:20.159 --> 00:24:21.359 What about buyers? 474 00:24:21.359 --> 00:24:22.359 What about consumers? 475 00:24:22.406 --> 00:24:25.656 If consumers have more power over you, 476 00:24:25.840 --> 00:24:28.799 in the end, your profit will be decreased 477 00:24:28.799 --> 00:24:29.799 Why? 478 00:24:29.905 --> 00:24:31.405 Because as I already mentioned again, 479 00:24:31.599 --> 00:24:37.140 every consumers want to pay less, 480 00:24:37.140 --> 00:24:38.440 want to pay less 481 00:24:38.504 --> 00:24:40.554 So if consumers have power over you 482 00:24:40.554 --> 00:24:45.290 then they ask you to raise down the current prices 483 00:24:45.290 --> 00:24:48.280 So you should follow consumers' needs 484 00:24:48.280 --> 00:24:50.000 You need to raise down your prices 485 00:24:50.000 --> 00:24:52.119 So your prices is going down 486 00:24:52.119 --> 00:24:55.619 And again, every consumers, every consumers want to get 487 00:24:55.802 --> 00:24:57.302 get your product fast 488 00:24:57.469 --> 00:25:00.799 And also they want to get high quality of the product 489 00:25:01.000 --> 00:25:05.910 in order to meet the consumer's need, you need to make a better quality product 490 00:25:06.017 --> 00:25:09.017 you need to deliver fast, and then 491 00:25:09.217 --> 00:25:12.880 it's all money involved, so your cost will be increased 492 00:25:13.000 --> 00:25:16.050 So if the consumers have more power over you 493 00:25:16.130 --> 00:25:19.850 then your price is going down and your cost is going up 494 00:25:20.160 --> 00:25:24.499 So that's why your profit ended up going down 495 00:25:24.499 --> 00:25:25.799 This is obvious 496 00:25:25.799 --> 00:25:27.719 So that's why there is a rule of thumb 497 00:25:27.719 --> 00:25:31.240 The more powerful the forces out there, the less attractive 498 00:25:31.240 --> 00:25:36.690 Oppositely, the less powerful the forces, the more attractive for you 499 00:25:38.140 --> 00:25:43.210 Well, let's apply the Porter's five forces analysis 500 00:25:43.263 --> 00:25:46.363 If we apply industrial analysis, 501 00:25:46.410 --> 00:25:50.720 then it helps us to identify the outside opportunities 502 00:25:50.745 --> 00:25:52.695 to increase your profit 503 00:25:52.820 --> 00:25:56.690 and it discerns the threat to existing profit 504 00:25:56.690 --> 00:25:59.999 and develops a way to counter them 505 00:26:00.261 --> 00:26:04.460 And it helps us to decide whether to enter 506 00:26:04.510 --> 00:26:06.840 this market or not 507 00:26:06.840 --> 00:26:11.339 And also it helps us to decide whether to exit this market or not 508 00:26:12.009 --> 00:26:15.209 And also, helps us to position your company 509 00:26:15.359 --> 00:26:17.864 to succeed in a given industry 510 00:26:19.514 --> 00:26:24.864 And also, it helps us to assess the effect of the major changes 511 00:26:24.864 --> 00:26:28.114 that shape the industry environment 512 00:26:32.864 --> 00:26:34.864 So, to summarize, 513 00:26:34.864 --> 00:26:38.514 if we apply the industry analysis 514 00:26:39.464 --> 00:26:41.814 before you enter the particular industry, 515 00:26:41.989 --> 00:26:44.289 it helps us to find out 516 00:26:44.464 --> 00:26:47.514 or create some kind of attractive environment 517 00:26:47.564 --> 00:26:51.864 And also, it helps us to develop a competitive advantage 518 00:26:51.864 --> 00:26:54.864 that enables your company to be more profitable 519 00:26:54.864 --> 00:26:58.414 than your competitors, despite the industry 520 00:26:58.414 --> 00:27:00.314 Despite the given industry 521 00:27:00.864 --> 00:27:03.864 So, again, before you enter the industry, 522 00:27:03.864 --> 00:27:06.864 you need to analyze the industry structure first 523 00:27:07.864 --> 00:27:13.264 Well, let's apply the industry structure concept, 524 00:27:13.264 --> 00:27:15.464 Porter's Power Forces Analysis, 525 00:27:15.464 --> 00:27:17.864 to the defense drone industry, 526 00:27:17.864 --> 00:27:23.564 as I already mentioned that in the beginning of the session, right? 527 00:27:23.564 --> 00:27:27.214 What about the current rivals? 528 00:27:27.214 --> 00:27:28.864 Current rivals, yes 529 00:27:28.864 --> 00:27:33.864 There are many existing defense companies, right? 530 00:27:34.864 --> 00:27:38.864 And traditionally, the defense companies are big companies, 531 00:27:39.864 --> 00:27:41.864 such as Lockheed Martin 532 00:27:41.864 --> 00:27:44.864 Lockheed Martin has a long history 533 00:27:44.864 --> 00:27:49.864 and has valuable assets 534 00:27:49.864 --> 00:27:54.514 and has a strong network with the government 535 00:27:54.864 --> 00:27:58.314 And they have a lot of employees, a lot of money, technology 536 00:27:58.314 --> 00:28:01.864 Wow, it's a very strong competitor, of course 537 00:28:01.864 --> 00:28:05.864 And also, there are new startups 538 00:28:05.864 --> 00:28:09.864 such as Anduril and the other Israeli startups 539 00:28:10.178 --> 00:28:12.778 And these startups 540 00:28:12.978 --> 00:28:16.864 were founded by a very smart guy, 541 00:28:16.864 --> 00:28:20.564 and they had experience in a military area 542 00:28:20.864 --> 00:28:24.314 And also, they had some kind of engineering knowledge 543 00:28:24.764 --> 00:28:28.864 And also, they were backed from the venture capitalists 544 00:28:28.864 --> 00:28:32.714 So again, there are strong startups 545 00:28:33.364 --> 00:28:37.164 So when you enter the defense drone, 546 00:28:38.514 --> 00:28:42.964 you need to imagine that you should fight with existing 547 00:28:43.224 --> 00:28:44.724 very strong competitors 548 00:28:44.864 --> 00:28:46.914 Okay, this is the current rival situation 549 00:28:46.964 --> 00:28:48.864 What about future rivals? 550 00:28:48.864 --> 00:28:51.864 Okay, future rivals, well, actually, 551 00:28:51.864 --> 00:28:56.414 not too many rivals can be expected to enter this market 552 00:28:56.414 --> 00:28:59.864 Why? Because this market is already competitive 553 00:29:00.364 --> 00:29:01.914 And what about consumers? 554 00:29:02.014 --> 00:29:05.864 Your consumers are not just general individuals like us 555 00:29:05.864 --> 00:29:08.864 Your consumers are government, right? 556 00:29:08.864 --> 00:29:11.214 Korean government, Russian government, 557 00:29:11.364 --> 00:29:14.664 Ukrainian government, American government 558 00:29:14.664 --> 00:29:16.464 How to deal with the government? 559 00:29:16.464 --> 00:29:18.864 Dealing with the government is very tough 560 00:29:18.864 --> 00:29:19.864 You know that 561 00:29:19.864 --> 00:29:23.264 And also, you need to talk with military agencies 562 00:29:23.264 --> 00:29:26.664 Wow, military agencies are very strong and they're tough 563 00:29:26.714 --> 00:29:28.164 Oh my God, right? 564 00:29:28.164 --> 00:29:30.864 And those are your consumers 565 00:29:31.014 --> 00:29:32.714 And what about suppliers? 566 00:29:32.714 --> 00:29:34.864 Yes, of course, there are sensor makers and system providers 567 00:29:34.864 --> 00:29:38.314 and tech companies such as GPS 568 00:29:38.314 --> 00:29:41.814 Well suppliers are kind of normal 569 00:29:41.814 --> 00:29:43.464 And what about substitutes? 570 00:29:43.464 --> 00:29:46.864 Well, we are making defense drones 571 00:29:46.864 --> 00:29:49.114 But there is a manned aircraft 572 00:29:49.164 --> 00:29:52.614 and also software-based surveillance 573 00:29:52.614 --> 00:29:55.864 and there are other types of substitutes that exist 574 00:29:55.864 --> 00:29:57.364 Okay, we're done 575 00:29:57.364 --> 00:30:02.864 We've done to identify your five forces in a particular industry 576 00:30:02.864 --> 00:30:03.864 Okay, we've done 577 00:30:03.864 --> 00:30:08.864 And then we move to the second stage, 578 00:30:08.864 --> 00:30:09.864 the second part, 579 00:30:09.864 --> 00:30:14.264 which is to specify the relative strength 580 00:30:14.264 --> 00:30:18.864 between you and the five forces 581 00:30:18.864 --> 00:30:23.864 Let's analyze the relative strength between you and your five forces 582 00:30:23.864 --> 00:30:27.464 What about the current rivals? 583 00:30:27.464 --> 00:30:30.614 Yes, current rivals, as I already explained, 584 00:30:30.614 --> 00:30:33.764 they have huge power over you 585 00:30:33.814 --> 00:30:35.314 You are very small 586 00:30:35.464 --> 00:30:36.464 You are nothing 587 00:30:36.514 --> 00:30:37.514 You are nobody 588 00:30:37.514 --> 00:30:40.064 compared to your competitors 589 00:30:40.114 --> 00:30:42.714 And Lockheed Martin is a huge company 590 00:30:42.864 --> 00:30:43.864 You are just alone 591 00:30:43.864 --> 00:30:48.864 And just two or three schoolmates 592 00:30:48.864 --> 00:30:52.464 You are nobody from South Korea 593 00:30:52.464 --> 00:30:55.864 Okay, and what about the future competitors? 594 00:30:55.864 --> 00:30:58.864 Future competitors, yes, probably very low 595 00:30:59.214 --> 00:31:04.614 Future competitors don't have power over you in this case 596 00:31:04.664 --> 00:31:05.664 What about consumers? 597 00:31:05.814 --> 00:31:08.864 Again, your consumers are government or military agencies 598 00:31:08.864 --> 00:31:10.864 Yes, they have high power 599 00:31:12.214 --> 00:31:13.764 And what about suppliers? 600 00:31:13.764 --> 00:31:17.664 Yes, suppliers' power can be middle or kind of high 601 00:31:17.664 --> 00:31:18.664 And substitute? 602 00:31:18.664 --> 00:31:21.864 Substitute power, I think kind of middle, 603 00:31:21.864 --> 00:31:24.864 sometimes low or middle 604 00:31:24.864 --> 00:31:29.514 So, we're done to satisfy 605 00:31:29.564 --> 00:31:33.414 the relative strength between you and your five forces 606 00:31:33.454 --> 00:31:38.653 Then, we can make those evaluations 607 00:31:38.863 --> 00:31:42.414 into the scores 608 00:31:42.414 --> 00:31:48.064 Let's say the score number one from number one, number five 609 00:31:48.714 --> 00:31:53.564 If we identify your forces have very high power over you, 610 00:31:53.564 --> 00:31:55.314 then it marks five 611 00:31:55.364 --> 00:31:56.964 What about current rivals? 612 00:31:56.997 --> 00:31:58.897 Five Okay, what about future rivals? 613 00:31:58.897 --> 00:32:00.864 Future rivals is kind of low 614 00:32:00.864 --> 00:32:03.864 Low mean, I think a little bit too 615 00:32:03.864 --> 00:32:04.864 And consumers? 616 00:32:04.864 --> 00:32:06.864 Consumers are not very high, 617 00:32:06.864 --> 00:32:09.864 but consumers have high power over you, 618 00:32:09.864 --> 00:32:11.864 which is four, score four 619 00:32:11.864 --> 00:32:12.864 What about suppliers? 620 00:32:12.864 --> 00:32:14.864 Middle or high? 621 00:32:14.864 --> 00:32:17.864 So, what about 3.5, right? 622 00:32:17.864 --> 00:32:18.864 And substitute? 623 00:32:18.864 --> 00:32:21.864 Substitute have kind of a middle power over you 624 00:32:21.864 --> 00:32:23.864 So, substitute has three 625 00:32:23.864 --> 00:32:25.864 So, put together how much? 626 00:32:25.864 --> 00:32:29.864 Okay, nine, 12, 14, 17.5 627 00:32:29.864 --> 00:32:32.414 17.5 out of 25 628 00:32:32.414 --> 00:32:33.215 What do you think? 629 00:32:33.215 --> 00:32:35.864 Is this industry attractive or not? 630 00:32:35.864 --> 00:32:42.864 17.5 means your five forces put together 17.5 powers over you out of 25 631 00:32:42.864 --> 00:32:45.864 Okay, so I think it's kind of very high, 632 00:32:45.864 --> 00:32:48.864 very high level of threat over you 633 00:32:48.864 --> 00:32:53.864 So, in this case, we say defense drone industry 634 00:32:53.864 --> 00:32:57.414 can be unattractive industry for you currently