Small Business Q & A: SWOT Analysis Is No Magic 8 Ball

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 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 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@dropshipwholesale.net
For information on starting your own online or eBay business,
visit http://www.dropshipwholesale.net