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SWOT Analysis - A Peek Behind the Curtain

How entrepreneurs can use this simple tool to prevent costly mistakes

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The opportunity looked almost too good to be true. For sale: a stable company with a long-standing reputation and a competent and experienced senior staff. Despite the hefty price tag, my friend could barely contain his excitement as he outlined the deal to acquire seemingly everything he was looking for in a business.

As he recounted for me the multiple reasons why he should purchase the business, I played the role of devil’s advocate, interjecting questions and objections designed to force him to think hard about making such a major investment. He wasn’t blind to some of the company’s shortcomings, but believed his own management team and his hands-on approach would quickly take the company to the next level.

It became pretty clear that he was already caught up in the emotional rush of the prospective acquisition. In his mind’s eye, he could already see himself as the new owner, successful and happy. If he were considering buying a sportscar, he was at the point where he was imagining the wind whipping through his hair and he cruised along a lakeside highway — and the salesman was already counting his commission.

The problem with that adrenaline-based approach is that we stop thinking and start rationalizing. So, as with many of my consulting clients, I recommended that he and I perform a SWOT Analysis on the opportunity. The term was familiar to him — he recalled hearing it in some college business class or another — but he wasn’t clear exactly what it was or how it could help.

Do you remember in The Wizard of Oz, when Dorothy and her friends come face-to-face (they think) with the fearsome Wizard? They’re terrified . . . until Toto pulls the curtain aside to reveal that the Wizard is actually a harmless-looking little man manipulating a machine to create the illusion that he is larger and more powerful than he actually is.

I think that’s a good way to think of a SWOT analysis. A comprehensive strategic planning tool used to bring focus and clarity to an individual, team or organization before an important decision, it helps pull back the curtain to see what’s really there.

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. Broadly speaking, Strengths and Weaknesses often relate to internal factors dealing with core competences and resources that are under your control. Opportunities and Threats are often external factors outside of your immediate control.

I have used the SWOT technique as my benchmark in a variety of areas: making major decisions, recommending a strategy for a client, or even simply understanding a company’s operation. In a business context it can often offer valuable guidance and insight.

My friend sat fascinated as I diagramed a four quadrant box representing each of the SWOT areas. Our goal as we addressed each specific quadrant was to openly and honestly address each of the four areas:

Strengths (Internal):
• What does the company do well?
• What are its assets?
• What advantages does the company have over its competitors?

Weaknesses (Internal):
• Why is the company for sale?
• What is done badly?
• Why is it losing money?
• How might a change in ownership affect the staff?

Opportunities (External):
• What has the competition missed?
• What are the emerging needs of the customer?
• What should this company be doing better?

Threats (External):
• Are the company’s competitors getting stronger?
• Will a change in ownership be perceived negatively by vendors and customers?
• Does the company have cash to fund research and development?
• Will it be possible to retain key employees after the sale?

We spent several hours brainstorming and filling up all quadrants of the SWOT analysis sheet. When all was said and done, it became obvious that, in his excitement, my friend had overlooked several key areas in which the company was failing — and that would be very difficult to correct. No matter how we sliced it, the SWOT analysis led us back to the same conclusion every time: pass. And so he did.

Nearly any company or individual can benefit from utilizing a SWOT analysis. If nothing else, you will likely come away with some newfound insights and valuable data that should help in solidifying your next step. And in many cases, a look behind the curtain may fundamentally alter how you perceive the situation.

There’s no place like SWOT.

About the Author
Steve Harper is business strategist, professional speaker and the author of The Ripple Effect: Maximizing the Power of Relationships for Your Life and Business. Contact Steve at steve@therippleeffectbook.com or (512) 577-3700.

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