Tuesday, November 15, 2011

SWOT analysis

Continuing with our year end planning, we are going to talk about SWOT analysis.  SWOT stands for Strengths, Weaknesses, Opportunities and Threats.  We like to use SWOT when starting a business plan as well as a year end planning tool.  It gives the business owner the chance to determine if a start-up has the right mix of strengths and opportunities to offset the weaknesses and threats.  As a year end planning tool, a SWOT analysis gives the owner the chance to look at the business with fresh eyes.

Strengths and Weaknesses refer to internal environmental factors a business faces.  What is the business good at and where are they lacking skills, facilities?  Strengths are the resources and capabilities that the business has to use to create a competitive advantage.  What can your business do better than your competition?  This can include patents, a well known brand name, a good reputation for quality and service, cost advantages from size or proprietary knowledge.

Weaknesses are things which leave a business at a competitive disadvantage such as a high cost structure, lack of access to good distribution channels, lack of a strong brand name, etc.

Opportunities and Threats are external environmental factors a business faces in their quest to succeed.  Opportunities can include unfulfilled customer needs: what do customers want that no one else is selling or manufacturing?  Creation of new technologies or loosening of regulations can also create opportunities for a business.  Failure of a competitor is another way a business can find an opportunity. 

Threats can come from a shift in customer tastes away from your products or services or the emergence of substitute products.  A business must always be looking to create the next big product because eventually someone else will make a product to compete with yours.

A good SWOT analysis involves laying out all the strengths, weaknesses, opportunities and threats a business faces.  How to best organize this information?  A TOWS matrix, which we will cover next week.

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