Making tough business decisions is, well, tough. Consulting a Magic 8 Ball is generally considered a bad idea, so what to do when faced with a difficult situation? Luckily, there are business analysis tools that can help. One of these came to light when I asked my friend Phyllis, a successful entrepreneur, about the hardest challenges she’s faced in her career. She said she made the biggest business decision of her life with the help of SWOT.
“A SWAT team?” I asked, not quite able to imagine how a team of burly guys in tactical gear could help her with her business.
“No, it’s S-W-O-T,” she confirmed, laughing. As it turns out, she was describing a business analytical tool commonly used to evaluate the health of a company. It’s kind of an elaborate pros and cons list, and it’s also used to help chart a course for a business’ future. It stands for Strengths, Weaknesses, Opportunity and Threats.
A SWOT analysis is presented as a square divided into quadrants, each labeled with one of the four elements in the acronym and filled in with a list of attributes.
The strengths and weaknesses boxes hold company characteristics that give it an advantage (strengths) or disadvantage (weaknesses). These are internal factors within the firm’s control. Opportunities and threats are external elements that the company could take advantage of (opportunities) or jeopardizes the firm’s success (threats). It’s recommended to start by analyzing strengths and weaknesses first because external factors can’t be controlled.
This is an effective way to gather information in a visual format. The goal is to help you see where you can exploit your advantages (strengths and opportunities) and neutralize disadvantages (weaknesses and threats). Used properly, it can help you see how your firm is positioned in the market and whether you should take an offensive or defensive strategy to shape your company’s future.
Take my friend Phyllis, who owned a highly successful mail-order cookie business in the ’80s. After performing several exhaustive SWOTs, she came to the realization that it would be virtually impossible to grow her small business in the way she envisioned. She was facing aggressive competition in a very niched field during a recession, and these external threats would be difficult to overcome considering her firm’s weaknesses.
However, there was a silver lining. The SWOTs revealed a strength that served as the kernel of an idea for another business. Armed with this information, she sold her business at the height of its popularity, garnering an enormous profit. She then used that money to launch her second highly successful business, a personalized gift shopping service company, something unheard of at the time.
Now that’s one smart cookie!