eCommerce start-ups can be a lucrative investment. By providing a product or service that’s in consumer demand, you can fill a market need while making serious money. But you cannot make a successful business without first selecting a target audience and building an appropriate company plan and infrastructure around it. And in order to do this, you must first define your niche. This is where Porter’s Five Forces comes in.

Defining Your Niche

Defining your niche is the process by which you select your target audience. Generally, when selecting a niche, you’re going to want to be as specific as possible.

One of the easiest ways to do this is to examine current trends to fit a popular consumer demand—but this may only work in the short term.

Because trends change, it’s better to select a niche where you can actually develop market authority in the long term.

And again, you’re going to want to be as specific as possible. By selecting a specific audience, you can better cater to their needs and start a thriving eCommerce start-up.

As you attempt to define your niche, ask yourself or your team the following questions:

  • What product or service are we trying to offer?
  • Who is most likely to buy our products?
  • What’s our company’s mission?
  • What are our values?

By answering these questions, you can have a better idea of just what it is your company will do.

Consider the following example:

I once met a man at a business event who was discussing how his eCommerce business had brought in millions of dollars in profit that year.

When asked what his business was in, he replied that he specialized in providing oversized shoes. His website only sold shoes that were size 14+.

His decision to choose a rather defined market worked well for him—and so can it for you, too.

By having a specific audience and niche in mind, you can better solve the questions that will help you establish a successful long-term business plan.

Developing a Business Plan

Your business plan should answer all the questions listed above, as well as outline just how you plan to meet the needs of your consumers.

It’s a good idea to have your business plan in writing, as you’ll be more inclined to follow it, and all your employees can have a better understanding of what they’re meant to do.

As part of your business plan, it’s important that you choose a name for your business. This will be critical to building your brand’s reputation and working your way into the market.

You can facilitate your growth by securing an online domain name and company website.

Once this is done, be sure to register your business so that you can operate legally in your area. Understanding the different types of business licenses is important, as you want to choose the model that’s right for your company.

Using Porter’s Five Forces to Grow Your Business

Having a strong understanding of your market is key to your company’s lasting success.

Porter’s Five Forces is a business model that can help you diagnose the state of the market and identify key strengths and weaknesses within it.

With this knowledge, you can better position yourself in relation to your competitors so that you can enjoy longer-lasting success.

Porter’s Five Forces are:

1. Market Competition

Ideally, as a company, you want to have the least number of competitors as possible.

You’re also going to want to avoid markets in which you have big-name competition. Large industries can offer goods and services cheaper while also leveraging their brand names for better profits.

It can be incredibly difficult to break into a market that’s already dominated by other industries—and unless you have game-changing innovation, it’s probably not worth it.

Instead, you may find that it’s better to start in a market that’s got few competitors and work your way to the top.

2. Entry Barriers

While at first you may think that it’s better to join an industry that’s got few entry barriers, this can come back to haunt you in the long run.

Markets that have few barriers—such as absolute cost advantages, big-name brands, and economies of scale—will actually work to threaten your business.

The easier it is for new entrants to the market, the more competition you will have, so keep this in mind when selecting your niche.

3. Customer Power

Customer power can have a strong influence on how you do business.

If you enter a market with few customers, each one will have a greater sway over your business. The more powerful individuals are, the more your business is going to have to cater to each specifically.

Keep in mind that customers will work to drive prices down, placing more demands on your business. The smaller your customer pool, the more influence they will have.

4. Supplier Power

Suppliers on the other hand, will work to drive prices up. Having more suppliers is a benefit for your company, as you will have more options. The fewer suppliers there are, the more power they have in controlling the cost of goods.

5. Threat of Substitute Goods or Services

Sometimes your business will face threats that are outside the market.

You won’t only be competing with other companies in your industry. You’ll also be competing with anything that can fill the market need.

Booksellers, for example, must compete with anything that can consume their customers’ downtime—from TV to hiking to anything else that an individual chooses to do.

The Bottom Line

Establishing an eCommerce start-up requires a targeted business plan that defines your company’s niche and role in the market.

By catering to your target audience’s needs, you can build market authority and grow your business.

To do so, consider Porter’s Five Forces as a way to analyze the market you’re looking to get into. By doing so, you can increase your market power and boost business revenue.