Why S.W.O.T. Analysis is Still Relevant for New Businesses

April 7, 2016

in Plan Your Expansion

Authored by Brad Bortone

Why S.W.O.T. Analysis is Still Relevant for New Businesses

The S.W.O.T. Analysis, a classic business strategy tool in which you evaluate your Strengths, Weaknesses, Opportunities, and Threats, is well known in the business planning process. Many companies once used this method during strategic planning as a way to form strategies and make decisions on new business ventures or initiatives.

In general use, S.W.O.T. can be broken down as such:

  • Strengths: What advantages does your company/product have that no one else has? What makes you most unique? What makes you most compelling to a prospect or customer?
  • Weaknesses: Where can you improve? Where have you made mistakes in the past? What do you not have that other companies/products in your industry have?
  • Opportunities: What trends lend to your strengths? What is the “expansion” potential over time?
  • Threats: What challenges do you face? What are your competitors doing? What is the overall competitive landscape?

Though many companies have moved beyond S.W.O.T. analyses for general business planning, it is still a powerful resource for sales and marketing decision-making, which is invaluable when starting or expanding a company across oceans and borders.

By creating matrices and employing this traditional tool to each of your sales and marketing activities, you can take advantage of your strengths, uncover new opportunities, minimize your weaknesses, and eliminate your threats in amazing ways. The following marketing tasks can all benefit from a time-tested S.W.O.T. analysis:

Deciding Marketing Channels

Use the S.W.O.T. analysis to evaluate each tactic in your marketing plan. This will allow you to focus marketing efforts on the vehicles where you have the most advantage or opportunity and the most minimal amount of weakness or risk.

What better way to capture the market than by providing newer products? If your firm can come up with new ideas, then your marketing strategy will be based on innovation and novelty. This can easily be determined through S.W.O.T.

Competitor Research

Many companies do a form of S.W.O.T. analysis on key competitors. Combined with the information from a company’s self-analysis, the management team begins to get a picture of how the company should position itself against competitors.

It’s a lot like chess, trying to locate where the opposition is vulnerable. Conversely, it serves as an early warning signal to avoid meeting a competitor’s strengths head on if the competitor has an overwhelming advantage. S.W.O.T. analysis shows a company where they might succeed in light of a competitive advantage.

Optimizing Operations

If your company or shop is located in a busy city area, then you are likely to have a very good business. It makes it convenient for your customers to be able to visit your shop. This is a big strength that you may have over your competitors.

When the management team looks at the company’s weaknesses, it is not to assign blame for past shortfalls in performance. It is to identify the most critical areas that need to be improved in order for the business to more effectively compete.

A realistic assessment of weaknesses also prevents strategic blunders like entering a market with products that are not up to par to what well-established competitors are offering. Continuous improvement in all areas of a company’s operations is an important aspect of staying ahead of competitors.

Resource Management

Every company—even the largest ones in a market—has a finite supply of manpower, production capacity, and capital. Evaluating the company’s strengths helps it determine how to allocate these resources in a manner that will result in the highest possible potential for revenue growth and profitability.

In turn, a management team can then examine where a new company can compete most effectively. The company often discovers it has competitive strengths that have not been fully utilized in the past.

Discovering Growth Opportunities

Growth in business requires seeking out new opportunities, including new potential customer groups, broader product distribution, developing new categories of products and services and geographic expansion.

In a S.W.O.T. analysis, the management team identifies emerging opportunities to take advantage of right now, and tries to forecast longer-term opportunities so advance planning can be made to be ready to enter the market when the time is right.

Risk Assessment

A risk in S.W.O.T. analysis is an occurrence outside the company’s control, which could have a negative or a positive impact on performance. There is always the chance that a company may face many threats beyond those caused by direct competitors, and changes in the regulatory environment that can have an adverse impact on performance.

Consumer tastes can abruptly change, such as when a recession causes consumers to cut back on purchasing luxury goods and services. Negative risks are less threatening to an organization when it takes the time to develop contingency plans to quickly implement should threats become a reality.

No matter the purpose, using the S.W.O.T. analysis can force thoughtful, strategic, and creative thinking. And, when used properly, the S.W.O.T. analysis not only helps you identify your strengths, weaknesses, opportunities, and threats, but it also helps you determine your strategies for addressing each factor.

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