Don't SWOT Alone & Other Pitfalls to Avoid
About the SWOT Analysis
The SWOT analysis is a commonly used tool in the strategic planning process to increase awareness of the factors that go into making business decisions or establishing business strategies. The framework looks at internal (strengths and weaknesses) and external (opportunities and threats) factors that can affect your business. It is arguably the most popular tool because of how intuitive and easy it is to complete.
When done diligently, the SWOT can help you to make better decisions. Done incorrectly, it can give you false security and steer you in the wrong direction. Let's talk about the 3 most common issues with SWOTs and how to avoid them.
#1 - Business owner completed the SWOT on their own.
I applaud any business owner who takes the time to engage in strategic planning activities, but doing a SWOT in isolation can be problematic. Everyone has inherent cognitive biases because of how our brains are wired which creates a weakness in our thinking. The overconfidence bias is common among business owners who tend to disregard risks and overestimate rewards. It appears as lists of strengths and opportunities that are much longer than the weaknesses and threats. This type of bias can lead to decisions that are fatally flawed and costly.
You may have a great relationship with your banker and you've always been able to access credit when you needed it, but is your access to capital really a strength when you don't currently have sufficient cash reserves or a line of credit to weather an economic downturn? Things change and what worked before isn't guaranteed to work again.
To counteract the overconfidence bias, business owners are encouraged to include others in creating their SWOTs. More perspectives will counterbalance any one person's point of view and will expose wishful thinking. Input from team members and trusted advisors who are comfortable challenging the overly optimistic assessment of the business owner, will result in a more realistic view of the business and its environment. As the business owner, you need to create a collaborative environment where others feel comfortable to share their perspectives, rather than just blindly supporting yours.
#2 - SWOT represents opinions, not facts.
In strategic planning, we do various analysis to counteract the weaknesses in human thinking described above. Filling your SWOT with unsubstantiated opinions is another issue that harms your ability to make effective strategic plans.
When adding an item to your SWOT, ask yourself what evidence do you have that it is accurate. You may have customer reviews that give your customer experience 5-stars, but if there are only 3 reviews, is that sufficient to assess your customer experience as a strength? Gather more information by seeking input from a bigger sample and understanding what elements of the customer experience do they value most. You may believe that an impeding recession will be shallow and short lived, but without considering the full range of outlooks from economists, your business could be in trouble. Hope for the best, but plan for the worst. Ask yourself what data you are missing and put a plan in place to gather it.
#3 - The SWOT is silent on factors that really matter.
The list of factors you could consider in each quadrant of the SWOT analysis is extensive. When you focus on some and not others, you can distort the assessment and make less than optimal decisions as a result.
Think about the factors that are most relevant for your specific business. If you are looking to sell your business, be sure to consider the factors attractive to potential buyers like stable and predictable cashflow, customer diversity, barriers to competitive entry, and the ability of the business to function independent of the owner. If you have a growth strategy, consider factors like ability to attract talent, delegation skills, sales and marketing effectiveness and the existing capacity of your facilities.
Ask yourself - "What am I missing?"
While there are many pitfalls to guard against when conducting a SWOT analysis, it's worth the effort.
The worst thing you can do is NOT do a SWOT, even an optimistic or opinion-based analysis is better than not doing one.
The exercise of strategic planning takes you out of the day-to-day running of your business and allows you to see your business in a different way. It helps you to tap into creativity that is harder to find when you're head's down in the operations.
Don't hesitate to ask for input from your team, your trusted advisors or your business community. It will make your SWOT analysis more effective at helping you determine the best path forward for your business. No one can predict the future, but by doing a thorough SWOT analysis, you will be able to mitigate the risks and capture opportunities that you can see coming.
Suggested Reading: You've Done a SWOT Analysis. Now What?
Interested in learning more about how to determine the best path forward for your business? We can help. Reach out and let’s discuss your specific needs and determine the best solutions for your business.