A few weeks back, I wrote a piece on strategy and why understanding the external environment is an essential early step in developing a business strategy.
Drawing on the classic business tool of PESTLE analysis, I used the fictional Unscrambled Beans Café — an independent specialty coffee shop based in a large international city with growth plans — to illustrate in this article how business founders can begin to anticipate and adapt to external changes.
(Here’s a link to that article)
Crafting A Strategy to Thrive in a Challenging World
What is Strategy — and Why Does Everyone Need One?
I argued that, by using tools like PESTLE, businesses can gain early clarity on political, economic, social, technological, legal, and environmental shifts that affect their future, helping them craft a strategy that prevents strategic drift and positions them to thrive in a changing environment.
PESTLE helps map the broad, systemic forces shaping the business landscape. However, to build a truly resilient strategy, business leaders also need to focus on the specific industry dynamics and competitive pressures they’re facing.
That’s where Porter’s Five Forces comes in.
Porter’s Five Forces - Understanding Competitive Pressure
Developed by Michael Porter, a Harvard Business School professor and a leading figure in modern strategy, this strategic framework—rooted in economics— helps businesses analyse the structure of their industry and understand the intensity of competition, the power of suppliers and customers, and the threats posed by new entrants and substitutes. It gets to the heart of one of strategy’s most important questions: what drives profitability in their industry?
When businesses truly understand these forces, they’re not only better equipped to compete, they can also begin to shape the industry in ways that work to their advantage.
Let’s take a closer look at the five forces Porter identified — each one shaping the strategic landscape a business must navigate:
Industrial Rivalry Among Competitors: The types of things to consider here are the number and size of existing competitors, how their products differ, the intensity of their rivalry, and the potential for further growth within the industry.
Threat of New Entrants: New arrivals into the industry increase the battle for market share, which increases price pressures and the level of investment in marketing, innovation, services, and other factors that support competitiveness. The significance of the threat really depends on how high the barriers are to entering this industry. The more entrants, the less potential for higher profit.
Threat of Substitutes: There are alternative products on the market that give the customer the same level of satisfaction or value but fulfill their needs by different means. There is a threat that customers may switch to these alternatives. Price and choice of alternatives are key.
Bargaining Power of Suppliers: Within a business's supply chain, the power of suppliers to raise their prices or reduce their quality is a threat to profitability. Their power is a function of how many competitive suppliers there are to choose from in the supply chain. In general terms, the more choices of suppliers, the less power each has.
Bargaining Power of Buyers: What should be assessed here is the degree to which customers can pressure the business to lower its prices or deliver a better product or service for the same price or less, particularly if alternatives are plentiful and switching costs are low.
Industry Competitors — The Case of The Unscrambled Beans Café
Using Porter’s Five Forces helps reveal just how tough and high-pressure the coffee industry can be for the Unscrambled Beans founders.
Here are some of the key dynamics at play:
The business depends on coffee beans, in this case, ethical ones. But ethical bean suppliers were few and highly selective, and world coffee prices were rising due to climate pressures. That is a difficult challenge for an independent café.
The barriers to entry were low. That means that with enough capital and a good location, almost anyone could start a café.
As a result, the city’s coffee scene was increasingly saturated. Independent cafés, global brands, and digital-native startups were all competing for the same footfall.
With so many options and reduced spending power, customers were price-sensitive and willing to experiment. Loyalty was hard to earn — people could just as easily switch to teas, smoothies, or energy drinks depending on the weather, or brew premium coffee at home.
In short, change and transformation were everywhere. From shifting customer preferences to intensifying competitive pressures, the landscape was evolving fast. If the founders want to scale into a successful chain, they need a clear strategy to deal with the environment they are in — one that helps them stand out, adapt continuously, and stay ahead of the curve. This framework helps with that.
What Strategy Can Enable The Unscrambled Beans Café(s) To Do Next
Armed with these insights, the founders are now better equipped to begin building a more complete strategy that better places them to succeed amongst such tough competition. There is a lot of value in difference, and everybody has a fair shot at succeeding profitably if they get their strategy right.
A year from now, the Unscrambled Beans Café could be in a very different place. By taking a more strategic approach, the business could, for example, reposition itself as a healthy, local, ethical coffee brand, leaning into wellness, good value, and low waste, which has partnered with regional bean suppliers to reduce reliance on volatile international imports.
Moreover, as part of their strategy, they could also develop their own digital loyalty app and capability to offer mobile pre-ordering. If they follow local politics more closely and make better use of available data insights from planning authorities, they could also better choose future shop openings by avoiding over-saturated or restricted zones, thus realising their goal of a city-wide café chain. With the business stabilised, they could also begin to develop new products with perhaps a rotating menu of seasonal drinks, capturing customer curiosity and brand loyalty so that customers don’t want to go anywhere else.
The likely result? A resumption in growth and an improvement in profit margins. And most importantly, with a stronger strategy, smart business decisions become much clearer to make, because there is a strategic logic guiding the business. Most importantly, they would now be in a position to better control the impact of external change rather than reacting to it.
The Unscrambled Beans story teaches us that strategy isn’t optional — in reality, it’s foundational for any profitable business.
Tools like PESTLE and Porter’s Five Forces don’t give us all the answers, but they do help us initially ask the right questions. And in a world where the coffee never stops brewing and the competition never sleeps, asking the right questions is half the battle.
All of us in business need a strategy to survive change and to use that change to our advantage. And the world needs great coffee shops, because that is where great articles are often written. 🍵😁