The basics of developing a business strategy is to figure out what you are good at that people will pay you money for. Sounds easy, right? Well, it actually takes a fair amount of work: the ability to truly analyze all environments, both internal and external; objectivity–while passion is important in business, you cannot let it blind you to the facts on the ground; and finally, knowing how to put everything together in such a way that your grand plan can actually be executed.
One of the tools I highly recommend is a SWOT analysis–looking at your internal strengths and weaknesses and your external opportunities and threats. This simple tool can take you a long way toward establishing a successful strategy to win in the marketplace. Unfortunately, many use it improperly, making decisions before you are even finished with the analysis.
Most people have no difficulty in understanding the internal environment. Strengths are what you and your company are particularly good at, while weaknesses are those areas that need improvement. These are the skills, capabilities, and resources under your control. This is an area where you really need that objectivity, both in deciding what your core strengths really are, and in acknowledging weaknesses.
But the trouble generally really comes in when discussing the external environment. There are actually several external environments; the most commonly discussed are those forces and trends taking place in the economy, in culture and society, in the political and legal arenas, with competition, and in technology. You need to be able to understand what is already taking place, and what could happen in the future. A lot of this can be handled through reading through published industry and market reports, as well as keeping up with credible sources of current news.
Threats are generally handled correctly–these are negative things going on externally that could come back to bite you. New technologies could completely destroy your market, as Amazon has pretty much done to the book store industry. A change in regulations could make your product or your plant obsolete. And so on.
No, the main problem in developing an analysis based on SWOT comes into play when you start thinking about opportunities. And that happens because of the way we normally use the word opportunity in everyday conversation–we have an opportunity to open a new market, or we have an opportunity to disintermediate a distributor by going directly to customers.
But these are not true opportunities in the context of a SWOT analysis. Remember, in SWOT opportunities, like threats, are forces or trends in the external environment; we don’t have any control over them, but we can certainly take advantage of them. So, for instance, Jeff Bezos saw the opportunity that internet technology presented, and he decided that this, combined with our always-busy lives, would allow him to be successful in launching an online market to sell books. His opportunities were in the technology and socio-cultural environments.
When you are listing out your opportunities, take a look at each one of them and determine if it is a decision you can make, or if it is something completely out of your control. If it is a decision you can make, such as entering a new product market, then figure out what it is that is leading you to that decision. Chances are you will come up with the trend associated with that kind of decision.
But don’t just say, o.k., I’m going to enter this new product market, so if I list this trend, I’ll have done a good SWOT analysis. Wrong! Use those items listed in each quadrant to objectively make your decisions. Match up a few of your strengths to the opportunities you face to see how you can grow your business. Take a look at weaknesses you listed combined with threats heading your way, and determine how best to not get obliterated by that locomotive blasting toward you. And so on.
Then, and only then, should you start listing out possible strategies that you might pursue. There’s still more work to be done after that, of course: You have to understand how you might finance each, which of those listed could generate the most growth and the most profits, etc. But at least you will now approach strategic planning with facts, rather than opinion.