A reader asked me what a SWOT analysis is, as he had read that it is very important both when drawing up a business plan and when seeking funding from investors.
Well, SWOT analysis is nothing new; in fact, we have already explained it over the course of our articles, since it practically covers the business plan, the strategic plan and the market study. SWOT (DAFO in Spanish) stands for:
- Strengths
- Weaknesses
- Opportunities
- Threats
With that said, to carry it out properly we need to ask ourselves a lot of questions. For example: What does my business do perfectly well? In other words, what am I an expert in, and in what ways would I stand out from my competitors? What are my strengths? What are my weaknesses? In what areas do I feel I couldn’t compete with other companies? Is my company in a short-term, opportunistic sector, or is it in a long-term one? Where do I see my company in 3 years’ time? And countless other questions, although, to be honest, we summed them up much better in our article 15 questions to evaluate a business idea.
The market study
Which customers is my product or service aimed at? Is it a large market? Which other companies offer the same product or service as my business? Can I compete on price? Can I compete on quality? Why would people buy from me instead of from another company? What is my target market? What other markets could I enter? Would I have the resources, means and know-how to bring my product into new markets?
Analysis of the environment
Does the crisis affect my business, or does my business offer a product that is in demand because of the crisis? What new business trends could pose a threat to my company in the future? Is my idea easy to copy? Is my potential market made up of regular or occasional customers? Looking at my potential market, could my business still be profitable if I fall 30% short of my targets or goals?
Strategic plan
What are my goals for the next 12 months? What are my goals for 2 years? And for 5 years? How will I reach the goals I have set? Do I have the right professionals to achieve them? Can my product or service easily form strategic alliances with other businesses? In the future, will I grow and enter new markets with my own distribution network or through a franchise system?
That, basically, is a SWOT analysis. Let’s compare starting a business with marriage: before taking the leap into entrepreneurship, we should ask ourselves as many questions as we would before getting married. Marriage is neither good nor bad; what can be good or bad is how compatible you are with the person you marry. In the same way, one important factor is the business you choose to start, which you must choose carefully and be confident will work.
Remember what we have discussed on other occasions: a very high percentage of businesses were doomed to fail even before they opened, because they had no defined strategic plan and no viable business model.
Further reading
- Advice for entrepreneurs from Guy Kawasaki
- Why do 50% of businesses fail?
- How to sell more in 3 simple steps
- Copying an idea and adapting it to your market can be a very profitable business
Featured image: Hans Põldoja, CC BY 2.0, via Flickr.
