I’ve just finished my stint as a preliminary round judge for the Venture London Business Competition, reading six new business plans. Some of the plans featured great ideas, but were poorly written or did not do a great job of developing the business model. But the biggest error most of the would-be entrepreneurs made was misusing the SWOT analytical framework.
Anyone who has taken a business course in the last twenty years has heard of SWOT (Strengths, Weaknesses, Opportunities and Threats). But because most people don’t use it correctly, most business profs HATE the framework.
There are two basic problems with SWOT. The first is that most people mix up the Strengths & Weaknesses (S/W) with the Opportunities & Threats (O/T). The second is that most people develop a SWOT and then move on without out drawing any conclusions or actions that should happen as a result of the SWOT.
So let’s start with the first problem. Strengths and weaknesses are a result of the internal environment of the organization. In other words, they are an assessment of the organizations resources, capabilities and core competencies. Opportunities and threats reflect the potential impact of the external environment on the organization. They consider the general environment, political, economic, social and technological trends, as well as the changes within the industry of an organization. It’s important to rigourously observe the distinctions between these two categories, or the analysis gets so muddled, it’s useless.
Slapping a SWOT table down on paper without interpreting what this means for the business is a waste of time. So now, it’s important to ask “So what do this mean that I have to do in order to address these strengths, weaknesses, opportunities and threats?”
Typically we try to defend against threats and exploit opportunities. So list the specific actions that you will take to defend or exploit. Be specific. What are the competitive actions you plan to take to defend? How do you plan to deal with a change in technology, or anticipated regulatory changes?
Then we try to either offset weaknesses or maintain and/or build strengths. For example, if you have a weakness in technical skills, you might plan to hire or to identify potential business partners with those skills. If you lack the cash to launch your new product innovation (a weakness), then you need to find investors. If your strength is in new product development, you might want to consider how to maintain and build that strength. For example, if customer preferences are shifting, investing in marketing research might be a good way to build your product development skills.
Bottom line, any analytical framework it only useful if you can draw conclusions and proposed actions from your analysis. If my favourite answer is “It depends”, then my favourite question is “So what?”.