Using SWOT Analysis To Improve Your Business
Analyzing the strengths, weaknesses, opportunities, and threats
(SWOT) of a business is a well-established tool that is widely
used by academics, consultants, and advisors. Although it is a
simple concept, business owners often struggle when trying to
use it because it is so broad. It is difficult to determine
where to start, what questions to ask, and where to focus. The
obvious problems get attention while many other important issues
get overlooked. SWOT analysis is a great tool, but its effective
use requires additional structure.
Strengths and weaknesses relate to internal factors, while
opportunities and threats cover external ones. The internal
factors can be divided into five categories: management,
workforce, sales and marketing, operations, and financial. The
external factors are also divided into five categories: threat
of new entrants, bargaining power of suppliers, bargaining power
of customers, threat of rivalry from competitors, and threat of
substitution.
To approach the analysis in a structured way, prepare a
checklist using the categories mentioned above. Identify factors
within each category that are important to your business. Under
management for example, a major weakness for virtually every
small business is relying too heavily on the owner. What would
happen to the business if something happened to the owner? In
the workforce category a factor could be employee turnover and
the availability of new hires. The threat of new entrants might
include the possibility of a big box retailer opening near your
business. The bargaining power of suppliers and customers
categories should consider the possibility of losing a major
supplier or customer. Come up with several factors for each
category to complete the checklist. It is important that you do
not try to rate or solve each issue as you identify them. If you
do, you will get bogged down on each factor and never complete
the analysis.
Once the checklist is complete, you should rate each factor
based on its importance to your business. Use an alphabetical
scale from A to E, where A = very important, B = important, C =
some importance, D = little importance, and E = not important.
Next rate each factor based on proficiency (internal) or
vulnerability (external). Use a numerical scale from 1 to 5,
where 1 = very proficient or not vulnerable, 2 = proficient or
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little vulnerability, 3 = average proficiency or some
vulnerability, 4 = poor proficiency or vulnerable, and 5 =
deficient or very vulnerable.
The factors with the lowest letter and highest number (A5) are
the biggest weaknesses or threats. The ones with the lowest
letter and lowest number (A1) are the biggest strengths or
opportunities.
Using this structured approach makes a SWOT analysis possible
and practical for any small business. To make this process
worthwhile you must use this information to take action. Work to
fix the worst problems first, prepare for the biggest risks,
take advantage of the best opportunities, and build your
secondary strengths.
About the author:
David E. Coffman CPA/ABV, CVA has 30 years of experience working
with and operating small businesses. His "Scorecard for Small
Business" provides an easy to use framework to do an in-depth
analysis of any small business. Information about the
"Scorecard" is available at http://small-biz-scorecard.com
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