Porter’s 5 Forces for Product

+ Interview Tips for “What Questions Do You Have for Me?”

PMs are expected to write product strategies. And, yet, 99% don’t even understand Porter’s 5 Forces of strategy.

The concept is considered “revolutionary” in the field of strategy. I spent $200K on a Wharton MBA and read Porter’s 397 page book so you don’t have to.

The idea the 5 Forces start with is that competition is looked at too narrowly by (product) managers. Yes, you are competing with your direct competitors. But, you are also in a broader fight for profits with a large ecosystem of players.

This fight is with:

• Substitutes who can replace your product

• Customers who decide their willingness to pay for your product

• Suppliers who set the prices of inputs to your product

• New entrants who might steal some share

They represent the other four forces.

Let’s analyze airlines with the framework:

• There are numerous airlines

• Substitutes include car, train & bus

• Customers don’t fly when it’s expensive

• Supply is a duopoly

• New entrants can lease a plane & gate easily

All 5 forces are strong, hence profitability is terrible.

Compare this to soft drinks:

• Basically just 2 firms competing

• Substitutes are numerous

• Customers are addicted

• Unique ingredients make supply bargaining power very low

• Entering restaurants and supermarkets is very hard

Only 1 force is strong, so they mint money.

Now that you can do the analysis, how do you use the forces to improve your product strategy?

First, assess how competitive your industry is. If your industry is very competitive, consider not competing. Instead, grow the pie. Slightly redefine the problem you solve.

This is what happened with Virgin Airlines, for instance. Instead of competing directly, the company slightly redefined the problem. It created cool planes. As Richard Branson said, “we wanted to make it feel like a club on the plane.”

Second, assess why profitability is possible in the industry. If it’s because customers do not have much power to set the price, consider further increasing your price. If it’s because suppliers do not have bargaining power, negotiate a lower price. If it’s because substitutes are weak, enter their markets. If it’s because new entrants are unlikely, do not focus on building a moat against them.

For instance, with soda, its suppliers have little bargaining power. So, Coke and Pepsi negotiate very cheap input costs. Product-wise, customers are addicted. So they create slight variations, like Pepsi Max and Diet Coke.

In summary, 5 Forces analysis helps you step out of daily execution to evaluate the broader context as a PM. Should you compete directly? Should you focus on a single force? If you can conduct Porter’s 5 Forces while developing your product strategy, it will be stronger.

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Interview Tips: “What Questions Do You Have For Me?”

Every PM interview ends with “what questions do you have for me?” Yet, 95% of applicants don’t impress. Their questions demonstrate lack of curiosity, and they ask too few.

I’ve interviewed over 100 PMs over the last few months. Here’s how some ROCK this part of the interview.

First, shifted frame. In the interview, you are in the process of grasping for that offer. That’s why you run out of questions. But, what if you have a few offers? Then you’ll be looking to see which is best. Switch to the evaluative from the seeking frame.

Second, preparation. Before the interview, list out all the factors you want to learn more about the role. Ask these specific questions. When you run out, these 9 generic one’s work well too:

1. “How many dedicated engineers, designers, and analysts would this PM lead?”

A PM who is influencing other engineering teams has an uphill battle vs one leading a large engineering team. A PM with just engineers has a more uphill battle than one with designers and analysts.

2. “What product rituals does the team practice?”

Different product teams have different planning, review, and sprint cycles. Some practice regularly discovery. Others leave that for other teams. Some review results together. Other’s don’t.

3. “Would you describe the culture as product-led?”

Many orgs are engineering led (even if they say they are product led). Others are exec led. Some are design-led (like most gaming companies).

4. “How is PM retention here compared to previous places you worked?”

Retention is one of the best all-in indicators. If PMs often leave, you can expect some negative conditions. Perhaps they ask too much of PMs, or don’t empower them.

5. “What are the biggest challenges someone in this role will face?”

Each role is different. Some face challenges in getting permission to work on other’s surfaces. Others’ roadmaps are filled by foundational support for other teams.

6. “What are the toughest things about being a PM here?”

PMs can face a myriad of different challenges, from influencing to getting resources to graduating experiments.

7. “What do you like least about the culture here?”

Some move super fast, and PM’s roadmaps experience a lot of thrash. Even more move slowly, and PM’s struggle to ship many consequential features.

8. “Are you design, engineering, analytics, PM constrained - or something else?”

Every team is constrained somewhere, even at FAANG. Figure out what the constraint is.

9. “How is the process of working with legal and compliance?”

In highly regulated industries, bad legal teams gum up each and every feature. Others just slow them down.

Remember the ‘5 Whys’ technique. If the interviewer gives a concise response, follow up with specific questions. This shows you care about the answer and are good at getting to the “real” why as a PM.

Finally, use all the time and more. This shows you care and have options. It also demonstrates a curious, evaluative personality - great signs for a PM.

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Bonus: How Tock Succeeded in a Market Dominated by OpenTable

How did Tock succeed in a market dominated for 15 years by OpenTable?

Chapter 1 - Alinea

By 2010, Nick Kokonas had already had a successful career. A founder of Alinea, his restaurant was named, by many, the best in the world. But, this position also made him intimately familiar with the many problems restauranteurs faced.

One of the biggest was OpenTable. Customers would travel specifically to Chicago to eat at Alinea. And Nick didn’t know anything about them. OpenTable kept the information, like their email address.

This was antithetical to the goals of Alinea. He couldn’t create magical experiences based on knowing his customer. If a customer came back, he didn’t know. He couldn’t design a magical experience around the second, return meal.

Chapter 2 - Building for Himself

So, in 2010, Nick created his own system. It solved owning customer information like email. This helped Alinea design magical second experiences. It also helped them market to customers when opening new restaurants.

The system didn’t stop there. It also solved load management. “Tuesday is not Saturday.” There is more demand Saturday. People will pay more. Resy and other systems focused on surge pricing Saturday. Tock focused on free pricing Tuesday.

A third problem Tock solved for Alinea was no shows. It asked customers to pay a small deposit. It was a behavioral hack (Richard Thaler was on Alinea’s board). Even billionaires would call to collect their deposit if they had to cancel.

Chapter 3 - Founding

By 2014, these features were working magically for Alinea. Nick wanted to fix these problems for everyone - not just Alinea. So, he decided to “arm the restaurant rebels.”

Chapter 4 - Early Focus

In the early days, Tock had a unique strategy:

1. They focused on smaller markets, like Kansas City and Charleston

2. They tried to get the 5-10 very best restaurants in city, to seem like they “owned it”

3. They charged a fairly substantive price

This was very different from the competition. Resy, also founded in 2014, gave away the software to 100s of restaurants in big markets. OpenTable jacked up the pricing, with optimistic attribution, including fees for walk-ins. Yelp meanwhile introduced Waitlists only in 2018.

Chapter 5 - Scaling as a SaaS

As the reservation wars have raged on, OpenTable and Resy price like marketplaces. You pay per customer they bring. Tock, on the other hand, is SaaS and makes money off of payments processing of deposits.

OpenTable, Yelp, and Resy are good for restaurants who need customers. But bad for those who bring in their own. They say they bring in 92% of customers. But that’s because of their SEO. They are the front door.

Tock, on the other hand, doesn’t charge per customer. It is for restaurants who need to manage their many customers. It’s targeted a different segment of the market and priced differently.

The strategy is working - fabulously. Now, Tock is well past 15m accounts. And last year, it sold to Squarespace for $400M.