Understanding the SWOT Analysis

Understanding the SWOT Analysis

A SWOT analysis, which stands for strengths, weaknesses, opportunities and threats, is a tool that was developed in the 1960s for Fortune 500 companies. Today, any size company can benefit from conducting this exercise.

SWOT Analysis - Strengths & Weaknesses

Your business’s strengths and weaknesses are the characteristics that give it an advantage over its competitors. They are the internal components of your business that are both tangible and measurable. Your strengths are measured relative to your competitors. For example, you might only give yourself a grade of B in customer service, but if your competitors are only C’s, you are stronger than them. One of my strengths in selling music was that I always had the top 100 hits each and every week. My customers knew that if they wanted a recording, I would be the store to have it in stock.

Weaknesses are the characteristics that place a business at a disadvantage relative to their competition. One of my weaknesses was that I did not have the lowest prices. Because I was a single store, my wholesale prices were higher than some of my competitors. So I was always looking for ways to overcome that weakness by offering my customers more value.

When you do this exercise, you will probably find more strengths than weaknesses. That’s why it’s important to do it with others. Sometimes it’s hard to see our own weaknesses.

SWOT Analysis - Opportunities & Threats

These are external characteristics. They represent something that is happening outside your business that will either help or hurt you. Opportunities are the elements that a business can exploit to its advantage over its competitors. An opportunity that made a huge difference in my business was opening a second record store in a new location. I was able to decrease my inventory costs since I was no longer a single record store and could buy at more of a discount, as well as increasing my sales because I gained a whole new customer base.

Threats are the elements in the environment that could cause trouble for a business. This is typically something that you don’t have much control over. My second record store was located in a college town. Once my competitors saw how well I was doing, several of them opened stores nearby. The college students also sold records out of the Student Union, for no profit. I couldn’t do much about either of those situations, but I could continue to look for ways to increase the value I was giving to my customers.

Finding people to help you with a SWOT exercise is easy. They can be employees, customers, vendors, colleague, friends and family. The important thing is that you conduct it in a group setting. It is critical that the people you choose to participate know something about your business and/or industry. Think of the SWOT exercise as a structured brainstorming session. Include everything that you can remotely think of, even if it seems silly or a stretch. You’ll always be able to pare down the list later.

-barney

 
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