SWOT Analysis Is No Magic 8 Ball
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Article Title: SWOT Analysis Is No Magic 8 Ball
Author: Tim Knox
Word Count: 1202
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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: (1) the size
of your company; (2) how in-depth the SWOT Analysis needs to
be; and (3) how much of your investor's money you'd like to
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
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
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
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 information 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 Tim@smallbusinessqa.com
About The Author: Tim is the founder of DropshipWholesale.net,
an online organization dedicated to the success of online and
eBay entrepreneurs. Related Links:
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