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.