SWOT analysis is a framework for assessing the strengths, weaknesses, opportunities and threats that any business faces.
In this blog post, Mind Map Pro’s CEO, Rich Hill, explains why you need to use SWOT analysis for your business strategy.
“There are a lot of blog posts that explain how to do SWOT analysis, but in this one, I wanted to concentrate on why…” Rich Hill
Why do SWOT?
Why should you do SWOT analysis? The answer is simple: because it’s a great tool for understanding how your business or organization is doing. You will learn what your business can do better, what it is already good or bad at, and what it should be doing in the future.
For the purpose of this post, I’ll talk mainly about businesses, as that’s what I know best. However, SWOT analysis is equally important for charities, individuals or other projects.
When a company is in start-up mode, it is standard practice to create a business plan. Hopefully, this plan is based on some research and analysis. It would be naive to decide: “We’re going to sell these widgets!” based on a hunch.
Research and analysis
Start-ups should focus on research first, use SWOT analysis and create a business plan next, and only then, start building an offering.
Before coding, we took a step back. We researched the market, found out what users needed and planned how we would differentiate our product. Analysis gave us the confidence to build a solid business plan around our vision.
Writing a business plan
It’s worth pointing out that every business plan is based on assumptions. Assumptions are, at best, educated guesses. At worst, they can be overly-optimistic exaggerations.
It’s easy to create a spreadsheet that says the user acquisition cost is $1, the life-time value is $100, and the virality will be through the roof. In reality, nothing is that simple. It is best to be realistic.
To avoid ridiculous assumptions, both good or bad, start with SWOT analysis; it may not answer all your questions, but it will help identify which questions you should be asking.
SWOT isn’t just for start-ups, though. For any company, many factors will change on a yearly basis.
A business plan needs to be revised regularly. You should return to your assumptions as soon as real data is available and update your spreadsheets with real numbers.
Industry-related changes can be subtle or extreme.
Consider web technology. Thirty years ago, there were no websites at all. Take a moment to think about what that means. There was no email, no E-commerce, no WordPress. There were no smartphones and there was no social media. There was no chat, no video conferencing, no Mind Map Pro. How did we cope?
Think back to all of the opportunities that technology has given us. This won’t stop. Even websites are completely different from the early days.
For a start, without smartphones, websites didn’t need to be responsive. Similarly, browsers have evolved so much that Mind Map Pro relies on tech that didn’t exist 10 years ago, let alone 30.
Legislation is another great example. As I write, Brexit looms. Politics and personal preferences aside, if it really does happen, the consequences for the UK, Europe and the wider economy are significant.
Last year saw the introduction of GDPR, which changed the rules for how websites can interact with visitors and store their data. There will be more legislation in the future that impacts every one of us.
Competitors rise and fall
Competitors also rise and fall. You might have a great business now, but what if Google, Facebook or Amazon acquires one of your competitors and waives the subscription charges?
Strengths and weaknesses
Strengths and weaknesses can also move. Initially, a start-up will have no revenue. If things go well, this will increase. The marketing budget might move from being a weakness to a strength.
What should be done with the extra cash? The obvious answer is to reinvest, but with so many potential routes for marketing or advertising, which is the best move?
SWOT analysis will help you to answer. Understand your business and the world it sits in.
Plan for change
The reality is that we live in an ever-changing environment. These changes affect us.
It’s not enough to continue doing whatever we are currently doing, in the hope that we get the same result. We need to understand what has changed, what might change, and plan accordingly.
Personally, I recommend that you carry out SWOT analysis annually, using the results to update your business plan.