SWOT Analysis is No Magic 8 Ball
by Tim Knox
Published on this site: July 16th, 2005 - See
more articles from this month...
Q: A key investor in my business has suggested that
I hire a consultant to do a SWOT Analysis to help plan for
the future. I try not to argue with my investors, but I'm
not so sure I need to have this done. What do you think? -
Laurie B.
A: Laurie, before you call in the SWOT team to deal
with this investor (sorry, couldn't resist that one), let
me tell you exactly what a SWOT Analysis is and how it can
not only help you plan for the future, but get a gauge of
how your business is doing today.
SWOT stands for Strengths, Weaknesses, Opportunities, and
Threats. A SWOT Analysis is a written exercise that can help
you clarify and focus on the specifics that make up the four
areas that most affect your business. The purpose of a SWOT
Analysis is to help you build on your business' strengths,
minimize and correct the weaknesses, and take the greatest
possible advantage of potential opportunities while formulating
a plan to deal with potential threats.
Think of a SWOT Analysis as a checkup for your business.
By spending a little time examining the internal and external
factors that affect your business' health you can better gauge
the present state of your business and identify things that
may adversely affect your business' health in the future.
It's a good idea for every business to perform a SWOT Analysis
on occasion, especially if you are doing strategic planning,
contemplating a change in direction or formulating new strategies
for distribution, marketing and sales.
Should you hire a consultant to perform a SWOT Analysis for
you? Speaking as a consultant who has been paid to perform
SWOT Analyses for companies in the past, I can honestly (and
yes, without bias) say that depends on three factors:
- the size of your company;
- how in-depth the SWOT Analysis needs to be; and
- how much of your investor's money you'd like to spend.
Larger corporations are most likely to hire professional
firms to perform such analyses, primarily due to the complex
nature of big business. Some corporate SWOT Analyses can run
on for several hundred pages. Typically, a consultant will
charge up to $100 or more per hour to perform a detailed corporate
SWOT Analysis and most large companies consider this money
well spent as a good SWOT Analysis can reveal otherwise ignored
factors that might increase the company's bottom line or help
avert future losses.
For a smaller business, however, a professional SWOT Analysis
can be an exercise in overkill. For your money you will get
an impressive, detailed report that will make for great show
at your next investor or board meeting and a wonderfully expensive
door stop the rest of the time. I don't mean to belittle the
value of a professional SWOT Analysis for small businesses.
It's just that smaller companies can learn as much from their
own efforts as that of an expensive consultant.
You can perform a simple SWOT Analysis with a #2 pencil and
a fast food napkin, but to get a truly accurate view of your
company's SWOT factor I suggest you do things a bit more formally
(and without the aid of condiments). I recommend that you
involve all the key players in your business, including management,
employees, your attorney, accountant, even your spouse. My
wife often gives me insights into my business just from listening
to me talk at dinner. Sometimes we business owners and managers
can't see the forest for the trees. It's good to have someone
else point out things we might miss.
Here's how to perform a simple SWOT Analysis. On a piece
of paper draw a vertical line down the center. Now draw a
horizontal line through the center of the page. The paper
is now divided into four quadrants. In the first quadrant
(upper left) write the word "Strengths." In the
quadrant next to that write "Weaknesses." Drop down
to the second tier and label the first quadrant (lower left)
"Opportunities" and the remaining quadrant "Threats."
Now just fill in each quadrant accordingly. Strengths and
weaknesses are internal factors that affect your business.
Opportunities and threats are the external factors. Let's
look at a quick overview of each.
Strengths are those things that make your business stronger.
Strengths might include: a product or service that sells well;
an established customer base; a good reputation in the marketplace;
a good track history; a high traffic location; strong management;
qualified employees; ownership of patents and trademarks;
and any other aspect that adds value to your business and
makes it stand out from the competition. Strengths should
always be gauged by the strengths of your competitors. If
your business does something well just to keep up with the
competition, it is not a strength. It is a necessity.
Weakness are the antitheses of strengths. Weaknesses are
those areas in which your company does not perform well or
could stand improvement. These are the areas of your business
that make you susceptible to negative market forces and aggressive
competitors. Weaknesses might include: poor management; employee
problems; lack of marketing and sales expertise; lack of capital;
bad location; poor products or services; damaged reputation;
etc.
Opportunities are those things that have the potential to
make your business stronger, more enduring, and more profitable.
Opportunities might include: new markets becoming available
or old markets that are expanding; possible mergers, acquisitions,
or strategic alliances; a competitor going out of business
or leaving the marketplace, making their customers open to
you; and the potential availability of a desired employee.
Threats are those things that have the potential to adversely
affect your business. Threats might include: changing marketplace
conditions; rising company debt; cash flow problems; a strong
competitor entering your market; competitors with lower prices;
possible laws or taxes that may negatively impact your profits;
and strategic partners going out of business.
Once you have filled in all four quadrants, you can use this
information to create strategies that will help you make the
best of the nformation learned. For example, once you have
identified your strengths you can better use them to determine
which opportunities to pursue and to help reduce your vulnerability
to potential threats.
Now that you know your weaknesses you can formulate strategies
to overcome them so you can pursue opportunities. Knowing
your weaknesses can also help you establish a defensive plan
to prevent your weaknesses from making your business particularly
susceptible to external threats.
Whether you use a consultant or create a SWOT Analysis on
your own it is important to remember that a SWOT Analysis
is a subjective analysis tool that can be strongly influenced
by the opinions of those performing the analysis. For small
businesses especially it is imperative to keep the analysis
simple and to the point. Don't overanalyze and don't immediately
take the results as gospel.
Remember, it's an analysis tool, not a magic 8 ball.
Here's to your success!
Tim Knox [email protected]
Tim is the founder of DropshipWholesale.net, an online
organization dedicated to the success of online and eBay entrepreneurs.
Related Links: http://www.prosperityandprofits.com
http://www.smallbusinessqa.com
http://www.dropshipwholesale.net
http://www.30dayblueprint.com
http://www.timknox.com
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