Business is like the game of Poker
A beginning poker player watches the man directly across from him and nobody else. He studies that one opponent’s face, counts that one opponent’s chips, and plays the whole night against a single rival. Then he is surprised — again and again — by the quiet player on his left who has been taking his money an hour at a time. The lesson is the first one this book’s table teaches: you are never playing against one opponent. You are playing against everyone seated at the table, and each of them reaches your stack by a different route.
Business works the same way, and a generation ago the Harvard professor Michael Porter gave the other players names. He called them the five forces, and any owner who cannot list them is reading half the table. A business does not keep the money it earns by right. It keeps what is left after five different hands have pulled at the pot, and a plan that accounts for only one or two of them is not a plan. It is a hope with a spreadsheet attached.
The first force is the one every owner sees: direct rivals, the competitors selling the same thing to the same customers. They take your chips openly, in price wars and lost accounts, and they are the force everyone prepares for — which is precisely why preparing for them alone is not enough.
The second force arrives quietly: new entrants. In poker he is the stranger who buys in at midnight with a fresh stack and no respect for the regulars. In business he is the out-of-town builder who discovers your market, the online seller who discovers your product, the well-funded chain that discovers your town. You may beat every rival you know and still lose the game to a player who was not at the table when you sat down. The question is never just who is competing with you. It is who could, and what is stopping them.
The third force never sits in your seat at all: substitutes. A substitute does not sell what you sell. It makes your customer stop needing it. The video store was not beaten by a better video store; it was beaten by a different game played on a different table. In my own trade, the new home competes with every existing house on the market, priced lower because it is used. Owners who watch only their industry miss the substitute entirely, because it does not look like competition until it has already taken the customer.
The fourth and fifth forces are the ones at your own elbows: suppliers and buyers. A supplier who is your only source of something essential does not compete with you — he taxes you, raising the price of your chips whenever he pleases. A buyer big enough to matter does the same from the other side, squeezing your price down year after year because he knows you cannot afford to lose him. Between a strong supplier and a strong customer, a business can work hard, sell plenty, and keep almost nothing, a middleman in its own enterprise.
I spent years in real estate development, where all five forces sit in plain view. The rival builders are obvious. The new entrant is the regional firm that shows up when the market heats up and vanishes when it cools. The substitute is the existing housing stock. The suppliers are the landowners and the lumber yards, and anyone who has watched a land seller hold the last parcel a project needs has met supplier power in person. And the buyers — homebuyers in a slow market, lenders in a tight one — can press terms that leave the builder holding the risk and little of the reward. Every one of those hands was in the pot whether my pro formas mentioned them or not.
Here is the takeaway. Before you write another business plan, take one sheet of paper and name your five forces honestly: the rivals you face, the entrants who could arrive, the substitute your customer might choose instead, the suppliers who could tax you, and the buyers who could squeeze you. For each one, write down how it takes your chips and what, if anything, you hold against it. If a line on that page comes back blank, you have found the player who has been beating you without your noticing. The table was never one man across from you. It is the whole room, and the whole room is playing.
