Hello
In this session, we're going to talk about the industry
As entrepreneurs, understanding the industry
is very critical
Take a look at this picture
I asked ChatGPT
to draw the situation
when I talk to my students
So yeah, it's me
Is it the same? Same tie, right?
Anyways, he took my class
so we talked about his carrer
so I asked him,
what do you want to do, what do you want to be after graduation?
And he told me
he wanted to make a defense drone
which is a drone for military purposes
because he majors in engineering
And also he is very interested in those types of technology
Then I asked him, Yeah? Wow, great idea
Then, do you know your industry?
Your target industry?
Then, he was surprised
Then, he said that he has no idea
I don't know the industry, he said
So I told him
well, if you don't understand your industry,
you're not an entrepreneur
You're just building a product
You're just an engineer, okay?
Being an engineer is not enought
to be an entrepreneur
So I explained to him about the industry a little bit
There are some characteristics of the industry
such as industry life cycle
and industry structure
So, in order to pursure your opportunity
you need to understand the industry in advance
That is the prerequisite
for being an entrepreneur, okay?
So that's why, in this session
we are going to talk about the industry
Okay, are you ready?
So, before we go into the industry
we need to define industry itself
How can we define industry?
Industry is a group of companies
that produces product or services
that are perceived by consumers as
It's kind of very similar
Kind of very similar
For example, there is Apple and
Samsung Electronics
Apple and Samsung Electronics both produce cell phones
and they compete in the cell phone industry
Apple produces iPhones
and Samsung produces Galaxy
So they both fight in the same industry
which is the cell phone industry
Of course, think about inside the cell phone industry
There are many players, such as suppliers
For example, we need
great cameras, great lens
so Japanese companies provide those types of
advanced cameras and lens
And, to make a great cell phone
we need to have a great chip inside
So, there are several players out there
who made great chips
What about
mobile application providers?
So many mobile application providers developed their own
mobile application and
tried to upload their moblie application
throughout the cell phone
So, think about it
There are a lot of cell phone related companies
Competitors and suppliers
Or what about the consumers?
There are a bunch of different types of consumers
in and out of the country
So why is understand the industry important?
The first one is
we need to think about
the industry lifecycle
As a human being, the industry was born
and it grows like a teenager
and it gets into some kind of maturity stage
And then later on
the industry can decline
So, for example
what about a sewing machine, a sewing machine at home
One hundred years ago,
every household has a sewing machine
So the sewing machine industry
was booming
But right now
that particular industry has already declined
What about the personal computer industry?
We are going to talk about the personal computer industry
today in the second session
The personal computer industry was born in the late 1970s
and then boomed in the 1980s, 1990s
It's still boom, but right now
We thought the personal computer industry was already matured
Something like that
So we need to think about the life cycle
Understanding the industry life cycle
provides us with a kind of a different perspective
and also the industry life cycle brings us
different challenges and different opportunities
Again, it helps start-ups
understand how to time their entry
exit or
many pivot based on the stage
The second reason, we need to think about the industry structure
In every industry
there is a particular structure
and those structures are surprisingly sticky
So the industry structure also shapes
your profit potential
Again, it determines
how much value you can retain
from this particular industry
Well, let's look at the industry lifecycle first
Again
industry evolves through series of
the stage from
the birth stage
to the decline stage
Again, industry goes through
introduction, or birth
and growth
and shakeout and maturity and decline
Industries have lifespans
from birth to
maturity to decline
Startups
are not just competing against rivals
They are racing against industry timing
So for example,
Although you have a great product, great service,
but if you
if you join in a declining industry
then you may fail
even if you have a great service and a great product
not because it's your fault but because of the industry life cycle
You chose the wrong industry
in terms of the industry life cycle
So we need to think about the timing
When to enter, or when to exit
So, again, there are five different stages on industry life cycle
First stage is introduction
Introduction means new industry is born
And second stage is growth stage
Industry rapidly expanded
And third stage is the shakeout stage
Shakeout stage means competition intensified
So many competitors already jumped in this industry
and they compete a lot
There is a fierce competition
And the maturity stage
Market is already grown
and the industry gets into the maturity stage
No growth and no decline,
Just stay the same
And the last stage is the decline stage
Industry shrinked
because of
because of just outside new product or
kind of new substitute
something like that
So, please keep that in your mind
Industry goes through the stages
We say it is industry life cycle
This is industry life cycle
Based on the stage
we can understand the consumers, what it looks like
and competitors, what it looks like
For example, in the birth stage
in every industry
in every industry, there are not too many consumers
out there because consumers didn't know what it is
Consumers don't know what it is
For example,
when personal computer released for the first time,
only few consumers understand
what it is
Most of the consumers don't know what it is,
and they thought that, why do we need
a personal computer?
Because we have a calculator
We have electric calculators
What about printer machine?
In 1949, Xerox released the printer machine
Not too many people understand the value of the printer machine
Why?
Because we have people
So, if we need the copy of papers,
then we can ask people to write it down again
why do we need to
have an expensive machine?
I don't understand
So, again, there are few consumers out there
if the industry stage is a growth stage
At the same time, if the industry is a growth stage,
and there are not too many competitors,
none of them or very few competitors exist
but, you know, once industrys go into the growth stage
then there are many early adopters
and so many competitors join in this industry
Then later, industry goes to the shakeout stage
In the shakeout stage, industry grows rapidly
and consumers expanded,
and so many competitors fight each other
and the weakest competitors
can be died, okay
can be dead, sorry
And then later, you know, industry goes into the maturity stage
Then we can see, wow, there are already mass markets out there
and the competitors in this industry
in this industry stage, competitors fight to
achieve the market share,
like a car industry
When car industry goes into the maturity stage,
and so many car makers fight
to acquire the market share
then later industry declines, okay?
Some of industry disappeared
Some of industry remained, but very small
Shrinked because of new technology,
new product, as I already mentioned that
Again, remember, industry goes through the stage
from the birth to the die, okay?
So, let's go back to the
the defense drone case that I mentioned
in the beginning
of the session
I explained to my student,
let's think about the drone industry
Well, it looks same,
but actually there are two different types of industry exist
in the drone industry
The first industry is consumer drone industry
Second industry is defense drone industry
So, the consumer drone industry
already started many years ago,
and right now, think about it
You are here, right?
You are here at the bottom
You are here
When we talk about the defense drone idea
the consumer drone industry already
goes into the maturity stage
but the defense drone is just growing, okay?
Just growing
So I suggest you understand the kind of stage
two different types of stages
of your defense drone industry, okay?
So, the defense drone industry is just growing like
like Ukraine and Russia war
Then probably there are so many potential competitors
try to jump in this market
and probably there are many alternatives that exist
and they probably show the different model
different idea, different technology
so the competition will be intensified, okay?
You need to understand these types of the situation
before you actually join
in the defense drone industry, right?
Okay, let's move to the structure concept
So far, we have discussed about the stage concept
and right now, we are going to talk about
the structural concept of the industry
Have we heard about the five forces
Five forces?
Five forces means some kind of power
Powers
and five forces argue that
every single industry has
five external powers out there
five powers, five forces, okay?
Who are they?
Probably they are competitors
and suppliers
and consumers, of course,
and the future competitors, okay?
They didn't enter the market yet,
but they will do
We say these are the future competitors
and later substitute, and those five
forces are very important, okay?
This is a kind of a basic concept of five forces
Look at this
The structure of the consumers, and suppliers,
and current or future competitors, and substitute
We say those five, those five elements,
those five forces, or those five powers
are called as five forces
So the five forces argue that
the probability varies significantly
from industry to industry
In the 1930s,
economists, especially in Harvard University
found the industry structure
probability link
Wow, there is some significant relationship between industry structure, which is
five forces, and the company's probabilities
And then they said that
industry structure determines both
company's behavior and the performance
Okay, look at this picture
The economists found that and drew the graph
And in the middle, right, in the middle, so many companies achieved around
15% of the profit margin
But think about it, some of the industry enjoyed more than 35
on your right side,
enjoyed 35 or higher profit margin
And on the other hand, on your left side
some of the industry didn't have at least
5% of the profit margin
They suffer from lack of the profitability
It is not because of the company's fault
it is because of the industry structure
For example, it is not your fault
Not your fault
It's a problem of the industry
You located in wrong industry, okay?
This is the idea
Look at another chart
and this is the probability of the
selected United States industries
At the top, security brokers and dealers
enjoyed more than 40% of the profit margin
Soft drink followed next,
and the prepackaged software followed next
And what about at the bottom?
At the bottom, can you see?
This is the airline industry
Airline industry just achieved
5.9% of the profit margin
And the others, the mail order houses, hotels
hotel have just 10%
profit margin 10%
So, as you can see, the probability of the companies
can be different significantly
from the industry to industry
Okay, so again, there are several different types of the participants
in each industry
So, many different types of the players
The first players would be the competitors, of course
Second one, potential competitors, potential
As I already mentioned that, they didn't
they didn't join this industry yet
but they will do later
I don't know who are they
It depends on your industry
And suppliers, of course, suppliers
And the consumers, right?
And the substitute
Well, there are five different types of players
Those five players exist in every single industry
So, those five players are universal
On the other hand
the particular name of five forces are different
Particular names are different but
existence of those five forces are true, right?
So, all market players, all industry players
engage in continuous struggle for the profit margin
For example, think about your consumers
Consumers always want to pay less
and always they ask to get more
and deliver fast all the time
And think about your suppliers
Suppliers, on the other hand, always want to be paid more
and deliver less
deliver slow, okay?
And what about substitute?
You can think about your own substitute
Substitutes always want to take out your consumers,
take your consumers from you
by showing kindof different types of service and product
Kind of they are evil, right?
They didn't fight with you directly
But indirectly, they try to steal your consumers
They are substitute, right?
And Dr Michael Porter at Harvard Business School
he argued that
direct compeand consumers and suppliers and potential competitors
to the industry
and the substitute providers are all competing
for their share of the profit in the single industry
So that's why we care for those five
not just for the competitors
He said that managers who fail to consider all the market players
put their company at risk
So this is Michael Porter's Five Forces Framework
I will explain those Five Forces Framework
This is a kind of very simple tool for understanding how your industry profits
are distributed among the players
And this is a very, very cool guideline for evaluating
the relative strengths of the forces
influencing your profitability
Have you seen these types of pictures?
This picture illustrates Porter's Five Forces Analysis Tool
So, inside the circle,
there is a competitor, of course, because competitors are very important
forces, okay, competitors
There are no industries without competitors
And so many competitors out there, and we compete with them
And look at the top, there is
future competitors
We should not only consider the current competitors,
but also think about the future competitors,
And also, on your right side, there is consumers
On your left side, there is suppliers
At the bottom, there is substitutes
So put together, we need to consider all five industry players
The first thing to do
you need to identify your own five forces
Again, although five forces exist in every single industry
but specific names of the five forces are different,
depending on your industry
For example, if your industry is a car maker industry
you are car makers
This is an automobile industry, right?
And the competitors, suppliers, and substitutes
you can understand who is your competitor,
who is your consumer, who is your substitute
But think about if your industry is a water industry, water
it's a beverage
And of course, there are suppliers, and there are consumers, and there are substitutes,
and there are future competitors, et cetera, et cetera
But you know, specific name of suppliers are different
from the water beverage industry
to the car industry
Some consumers overlap, but particular consumers are different
Competitors, of course, competitors are totally different from the industry to industry
Water beverage industry, we have a similar beverage company as our competitors
Car, automobile industry, we have another car makers as our competitors
Toyota, Daimler, or Volkswagen, those are all my competitors, right?
So the competitors are different
So anyway, the first thing to do when you use the Porter's file forces analysis
You need to identify your specific file forces
This is the first thing to do
Second thing to do
after finishing identification of the file forces
you need to specify and evaluate
relative strengths between you and your file forces
Again, you need to specify the relative strengths
between you and your competitors
Sometimes you can have a power, you can have more power over your competitor suppliers
But sometimes, sometimes, some case, your suppliers can have more power over you
Your competitors can have more power over you, right?
So every different industry have different relative powers
relative strengths
So anyway, we need to specify the,
relative strengths, relative threat of your five forces
But there's a rule of thumb, the general rule is the more powerful the force is
the less attractive for you
Of course
I will show you why this is happening
If the, look at this
If the supplier powers, second rule
if the supplier power is increased
If your supplier has more power over you, then what happens?
In the end, your profit will be decreased Why?
Because again, every suppliers
want to get paid more
So if the supplier have power over you, then you should pay more
And then of course, your cost is increased, right?
It's so obvious
What about buyers?
What about consumers?
If consumers have more power over you,
in the end, your profit will be decreased
Why?
Because as I already mentioned again,
every consumers want to pay less,
want to pay less
So if consumers have power over you
then they ask you to raise down the current prices
So you should follow consumers' needs
You need to raise down your prices
So your prices is going down
And again, every consumers, every consumers want to get
get your product fast
And also they want to get high quality of the product
in order to meet the consumer's need, you need to make a better quality product
you need to deliver fast, and then
it's all money involved, so your cost will be increased
So if the consumers have more power over you
then your price is going down and your cost is going up
So that's why your profit ended up going down
This is obvious
So that's why there is a rule of thumb
The more powerful the forces out there, the less attractive
Oppositely, the less powerful the forces, the more attractive for you
Well, let's apply the Porter's five forces analysis
If we apply industrial analysis,
then it helps us to identify the outside opportunities
to increase your profit
and it discerns the threat to existing profit
and develops a way to counter them
And it helps us to decide whether to enter
this market or not
And also it helps us to decide whether to exit this market or not
And also, helps us to position your company
to succeed in a given industry
And also, it helps us to assess the effect of the major changes
that shape the industry environment
So, to summarize,
if we apply the industry analysis
before you enter the particular industry,
it helps us to find out
or create some kind of attractive environment
And also, it helps us to develop a competitive advantage
that enables your company to be more profitable
than your competitors, despite the industry
Despite the given industry
So, again, before you enter the industry,
you need to analyze the industry structure first
Well, let's apply the industry structure concept,
Porter's Power Forces Analysis,
to the defense drone industry,
as I already mentioned that in the beginning of the session, right?
What about the current rivals?
Current rivals, yes
There are many existing defense companies, right?
And traditionally, the defense companies are big companies,
such as Lockheed Martin
Lockheed Martin has a long history
and has valuable assets
and has a strong network with the government
And they have a lot of employees, a lot of money, technology
Wow, it's a very strong competitor, of course
And also, there are new startups
such as Anduril and the other Israeli startups
And these startups
were founded by a very smart guy,
and they had experience in a military area
And also, they had some kind of engineering knowledge
And also, they were backed from the venture capitalists
So again, there are strong startups
So when you enter the defense drone,
you need to imagine that you should fight with existing
very strong competitors
Okay, this is the current rival situation
What about future rivals?
Okay, future rivals, well, actually,
not too many rivals can be expected to enter this market
Why? Because this market is already competitive
And what about consumers?
Your consumers are not just general individuals like us
Your consumers are government, right?
Korean government, Russian government,
Ukrainian government, American government
How to deal with the government?
Dealing with the government is very tough
You know that
And also, you need to talk with military agencies
Wow, military agencies are very strong and they're tough
Oh my God, right?
And those are your consumers
And what about suppliers?
Yes, of course, there are sensor makers and system providers
and tech companies such as GPS
Well suppliers are kind of normal
And what about substitutes?
Well, we are making defense drones
But there is a manned aircraft
and also software-based surveillance
and there are other types of substitutes that exist
Okay, we're done
We've done to identify your five forces in a particular industry
Okay, we've done
And then we move to the second stage,
the second part,
which is to specify the relative strength
between you and the five forces
Let's analyze the relative strength between you and your five forces
What about the current rivals?
Yes, current rivals, as I already explained,
they have huge power over you
You are very small
You are nothing
You are nobody
compared to your competitors
And Lockheed Martin is a huge company
You are just alone
And just two or three schoolmates
You are nobody from South Korea
Okay, and what about the future competitors?
Future competitors, yes, probably very low
Future competitors don't have power over you in this case
What about consumers?
Again, your consumers are government or military agencies
Yes, they have high power
And what about suppliers?
Yes, suppliers' power can be middle or kind of high
And substitute?
Substitute power, I think kind of middle,
sometimes low or middle
So, we're done to satisfy
the relative strength between you and your five forces
Then, we can make those evaluations
into the scores
Let's say the score number one from number one, number five
If we identify your forces have very high power over you,
then it marks five
What about current rivals?
Five Okay, what about future rivals?
Future rivals is kind of low
Low mean, I think a little bit too
And consumers?
Consumers are not very high,
but consumers have high power over you,
which is four, score four
What about suppliers?
Middle or high?
So, what about 3.5, right?
And substitute?
Substitute have kind of a middle power over you
So, substitute has three
So, put together how much?
Okay, nine, 12, 14, 17.5
17.5 out of 25
What do you think?
Is this industry attractive or not?
17.5 means your five forces put together 17.5 powers over you out of 25
Okay, so I think it's kind of very high,
very high level of threat over you
So, in this case, we say defense drone industry
can be unattractive industry for you currently