Imagine that you own an upscale store specializing in custom-made furniture. You have just learned that a large furniture retailer that also sells custom furniture at a lower price is opening a store one block away from yours. How will this development affect your business? Negative possibilities are competing with them on price or being put out of business. On the other hand, buyers going to their store could stop by yours instead, greatly increasing sales numbers. Smart business owners always consider possible problems ahead of time and have a plan in place to react immediately. But how do they do this? It’s called SWOT Analysis.
SWOT stands for strengths, weaknesses, opportunities, and threats. This type of business analysis gives business owners the ability to examine internal and external forces that currently influence their business or may do so in the future. Used correctly, SWOT Analysis allows you to achieve your full potential as a business owner, and to grow your business to its maximum potential. Used correctly, a good SWOT Analysis gives owners a good foundation to develop strategic, marketing, and financial plans.
Let’s take a look at the first two components. Strengths and weaknesses are internal and apply to both yourself and your business. For example, strengths could be your expertise at sales, or a new or unique product that your business produces. When examining strengths, look at any aspect of your business that adds value. Weaknesses are very similar. Some examples could be your lack of experience in marketing, a poor business location, or a bad reputation on social media. The key to weaknesses is any part of your business that removes value from your goods or services.
Next, let’s examine opportunities and threats. These two factors are external in nature but apply to yourself and your business as well. Some examples of opportunities might be a joint venture, the failure of a competitor, or the opening of a new market segment. Some examples of threats are new competitors, a price war, or new taxes or regulations imposed upon your business.
SWOT is a tool that enables you to look ahead and identify both potential problems, and your business strengths to maximize growth. Many describe it as a subjective form of “what if” for your business. The idea is to help you recognize opportunity areas you are not exploiting and likely threats. When you have identified these threats, you can be prepared to minimize their damage if they do happen. Here are some basic rules to follow when performing SWOT Analysis on your business:
- Be realistic about the strengths and weaknesses of your business
- Show where your business is today, and where you want it in the future
- Be highly specific
- Relate your analysis to the competition
- Keep it short and sweet. Don’t overanalyze
- Remember its subjective nature and wide range of interpretation
Most small business owners find themselves in charge of sales, management, marketing, finance, accounting, etc. Why? Believe it or not, it’s usually not lack of funds. It’s usually the owner’s mindset, which tells them they must perform all these duties for some reasons. Some examples include the money they have at stake, lack of quality employees; they want it done right, and lack of trust in others. To grow their business more effectively, business owners need to change this mindset. That’s where SWOT Analysis comes in.
There are many benefits of using SWOT Analysis on your business. It allows you to focus on your strengths, identify your weaknesses so you can outsource them, and to turn future threats into opportunities. The first step is to identify your unique abilities. You should honestly appraise your personal areas of strength or core competencies. These strengths will identify your unique selling proposition, giving you a competitive edge. If you focus your activities on that you do best and outsource the rest, you will become a more effective manager.
High Income-Producing Activities, or HIPAs, are those activities that create revenue for your business. These activities include sales, marketing, management, and product and process knowledge. You should realistically assess your skills in each of these areas. For sales, examine your skills at generating leads, converting leads into clients, and your selling style. For marketing, look at your media buying experience, marketing strategies and tactics, persuasive marketing abilities, and your social media marketing experience. For management, consider your skill at managing others, training, tracking results, and providing feedback. In product knowledge, consider the benefits of products, price points, and product positioning. Process knowledge includes your ability to position your product to your client’s wants and needs, and in the end providing them with what they need, not what they want.
After examining your skill level in each of these areas, you should have a good list of your strengths and weaknesses. Focus your activities on those HIPAs that you are good at, and for any areas of weakness, hire or outsource to someone who is proficient at these tasks. If money is an issue, internships through local colleges or training programs can increase your business’ level of effectiveness. Remember, one or a combination of weaknesses can be fatal to your business.
Remember, the mindset is the key here. Most threats are an opportunity in disguise. You must be prepared to take advantage of opportunities before your competitors do. Spend ninety percent of your time on the HIPAs that use your strengths, and don’t be afraid to hire or delegate out activities that are weak for you. Complete your SWOT Analysis right away, and form a plan of action that will lead you to success. Good luck!