SWOT analysis is an important tool for any business owner who wants to increase profits. It is especially useful when preparing an annual profit enhancement plan. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
During the last economic downturn, many companies were forced to cut staff and marketing in order to survive. They basically stopped taking risks and accepted the poor economy as the new normal. The problem with this is that it leads to complacency, despair, and frustration. Performing a SWOT analysis is a great tool for breaking out of this funk.
A SWOT analysis is usually in the form of a matrix, starting with strengths and weaknesses at the top, and opportunities and threats down at the bottom. For each heading you and your staff should brainstorm and write down every idea you come up with.
Notice that strengths and weaknesses are related to internal functions of your company, which you can control. Opportunities and threats are external items affecting you and your company. You normally have little or no way to change them.
In the strengths section, write down those attributes of the organization that your customers, your staff, and you feel are helpful to achieving your goals and delivering your product or service. Ask key questions such as What do we do well? What experience do we have? What do we offer that is better than what our competitors have? What services bring in the most money? What do our customers think our strengths are?
Under weaknesses, write down things that are detrimental to your success. For example: What areas could we improve? What resources do we not have? Where do we lose money? What products or services do our competitors offer that we don’t? What do our competitors do better than us?
Opportunities are those things that we can take advantage of that we aren’t doing now. For example: How can we do more for our existing clients? What other products or services can we offer? How can adopting new technology help us enhance our service? Is there a new target niche or audience that we have the potential to reach? How can we turn our strengths into opportunities for improved profits? What trends are out there that we can take advantage of? Is there an opportunity to team up with somebody?
Looking for threats can be the difference between long-term survival and failure. In this section you should ask: What threats are common in our industry? What vulnerabilities do our weaknesses expose us to? What’s going on in the economy? What obstacles can we anticipate? What new technology is out there and how can it help us?
This may be one of the most important uses of a SWOT analysis. Most business owners are action inclined and look at any sort of planning as a waste of time. But think about Blockbuster for a moment. A few years back, Blockbuster was leading the industry in home video entertainment. Unfortunately, they didn’t do a SWOT. They didn’t see the threat or the opportunity that the Internet posed to their business model. This left an opening that Netflix easily exploited, building a highly successful business based first on delivery of the movie to your home by mail and later by online streaming. Blockbuster also failed to see the threat that RedBox represented.
Truthfully, with their capitalization and market share, Blockbuster should have been the leader in both areas and kept both Netflix and RedBox from ever getting off the ground. Instead, they’re in bankruptcy court.
Moral of the story: Do an annual SWOT analysis so your business doesn’t become obsolete like Blockbuster!