As a small business owner, it’s imperative that you review your industry’s health and market's future with a SWOT analysis. Industries and markets rise and fall all the time, but it’s those businesses that are proactive and resourceful that are ultimately able to weather the storm. In some cases, it involves an aggressive expansion, while in other cases it involves a plan to pursue complementary industries, or even requires a complete change in direction. Whatever the situation, taking the time to review your market’s overall health with a SWOT analysis will allow your small business to make the right decision with respect to your company’s future.
An Example of a Market in Decline
One only needs to look at the current situation within the Optical Media Industry to see how quickly an industry can collapse. First, there were the vinyl records that sustained the industry for decades. Then CD’s took hold during the 1980’s. With the adoption of the DVD by consumers in the 1990’s, it seemed like the industry still had years to grow. However, consumers today are downloading like never before and with options like Netflix, DVD rentals are becoming a thing of the past.
With Blu-ray yet to be fully adopted by consumers, the industry is on a steady decline and once great stalwarts like Blockbuster are facing an uncertain future. This change has been somewhat sudden for some companies, but expected by others. Those who anticipated this decline were proactive and moved in new directions. The video below explains how the SWOT analysis can be used as a brainstorming tool to assess a given business function. The video also explains the TOWS analysis and its application in strategic planning.
To read about how a SWOT analysis can improve your supply chain, go here. To read about how the TOWS analysis can improve your supply chain, go here.
The SWOT Analysis and Your Market
SWOT refers to Strengths, Weaknesses, Opportunities and Threats. We’ll review the SWOT analysis from the mindset of a small business reviewing their market feasibility and the overall health of their industry. At the end of this post is a link to another article about using the SWOT analysis to review a company’s core competencies and its competition within its market. The table below outlines some of the types of questions that must be answered within the analysis.
Strengths
What are the inherent strengths of the market itself? Is your market on a steady decline or is there still strong demand for product from existing customers? Focus on your industry’s technological strengths and its ability to evolve. Will this technology last and if so, for how long? Expand your analysis and horizons. Take a 5, 10 and even 15 year approach to reviewing your market’s strengths. In most cases, when companies decide to move towards a new industry, the capital expenditure to make it work can be quite substantial. In addition, it takes time to develop a reputation in a new market. In some cases your decision to change course will only pay dividends years down the road.
Weaknesses
When looking at weaknesses, think of the overall financial health of the market. Are customers talking expansion, or are they concerned about their future? Has your company experienced a high number of customer bankruptcies and what if anything does this say about the industry’s future? Are financial lending institutions like banks afraid to become involved in the industry and unwilling to extend credit? Include all aspects that you see as inhibiting the growth of your market. This is a pivotal aspect of your market feasibility review.
Opportunities
Are there any opportunities for growth in your market? This could be growth opportunities within your local market and within the larger market outside your borders – other countries, etc. Are there any synergies with your market and your company’s capabilities that might allow you to expand your product or service offering? Has there been a recent development that will allow your market to experience expansion into complementary industries by providing ancillary parts and services? The opportunities portion should be focused both on your local market and any markets outside your immediate vicinity. Think outside the box and be sure to identify those opportunities that will remain years into the future.
Threats
In this portion, think of the competing threats to your industry. In the case of the Optical Media Industry example, the threat to physical media was the ability for consumers to download music & movies in a fraction of the time. Is there a similar threat to your industry? If so, are you aware of it and how long it will take to become a going concern? Are your customers starting to focus their efforts in a new direction? Your industry’s threats aren’t hard to identify. However, not taking the time to identify them will pose problems later. Again, expand your horizons and take a long-term view of the threats posed to your industry.
When using the SWOT analysis to review your market feasibility, be sure to leave no stone unturned. The purpose is to protect your company by clearly identifying opportunities and being aware of threats. Ultimately, you want to focus your attention on securing your company’s future. Just how important is the SWOT analysis? Well, many consider a market feasibility analysis to be far more important than a business plan.
While the business plan is meant to explain the intentions and pursuits of the new business venture, a feasibility study analyzes the overall health of the market and opportunities for growth. Here’s the link to the other article: Market & Competitor SWOT Analysis for Small & Medium Sized Businesses
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