08 Mar SWOT Analysis: Weighing Risk/Reward Trade-offs
Unfortunately, the SWOT (Strengths, Weaknesses, Opportunities & Threats) analysis is one of the more cliched components of any business plan. While the cliche exists, the exercise of running through the components of a thorough SWOT is helpful for any business, regardless of its “stage.” Furthermore, including a SWOT (or at least some form of one) in a business plan has become somewhat of an expectation among those who might fund your business.
The S.W. portion of your SWOT encompasses an internal analysis of the strength of the business including the plan itself, the ability of management to execute and the robustness of any intellectual property or tacit knowledge held by the company. It’s a visceral look at the businesses’ ability to succeed. For some individuals, it can be difficult to find personal and business strengths within yourself or your own organization. In the case of entrepreneurs, I’ve always found the opposite to be the case.
In many startup venture, it can be difficult to avoid what could be called “startup bias.” From the founders’ perspective, the bias generally leans toward the “we’ll never fail.” From the perspective of investors a bias will lean more on the side of “you’ll probably fail.”
Like strengths, weaknesses are always internal. Weaknesses can be as simple as understanding a gap in talent to finding highly-deleterious legal blockades to your product or service. Full-fledged analysis is helpful to understand the chinks in the proverbial armor, whether large or small.
An Industry View
The O.T. portion of your business plan comes from the 30,000 foot-level. It represents an industry view, an in-depth look at where the Blue Ocean of opportunity truly exists. In some instances, it a story told about how a product or service provides such an innovative leap that the company can easily capture low-hanging fruit and gain an advantage–some might call it first movers.
But where low-hanging fruit exists, competition is sure to follow. Since the term “first mover’s advantage” has been effectively written-off as a misnomer, threats must remain extremely credible to the livelihood of your organization. Understanding existing and potential threats can also paint a preemptive picture for planning on how to deal with them even before they may arise in the future–an extremely helpful exercise for the entrepreneur.
Not Just for Startups
SWOTs are developed for all types of business plans, not just startups. They are particularly helpful for the company looking to launch a new product or service or seeking of potential opportunities and problems inherent in entering new markets with an existing product. Plans may help to clarify the direction of an existing business or justify lofty future growth assumptions in the case of a merger or acquisition. In short, SWOT is universal in its business application, just be careful not to overuse or abuse it.
My personal suggestion: don’t spell out S, W, O, T in the plan itself, but include the meat and potatoes of a typical SWOT, complete with an in-depth dive into how the company will most-likely succeed and how it will possibly fail. Ultimately, the goal of your analysis is for both internal managers and potential external investors or buyers go gain a deep understanding into the potential risks and rewards inherent in the company.