PRINCIPLE 12
What Is the Most Effective Tool to Solve a Problem or Deal with a Crisis? SWOT
The most effective way, I have found, to answer the question in this chapter title, is to do a SWOT analysis. (In a minute, you’ll see modifications I made to make it more effective.)
SWOT is an acronym. When you face a challenge or a new opportunity, ask yourself questions in the following four categories:
Strengths. What resources can I bring to the situation? How can I capitalize on the unique abilities that I (and my company) are good at to either turn the challenge around or minimize the problem?
Weaknesses. You think you have an idea that can give you an edge. What are the flaws in your thinking?
Opportunities. Is there something here that you can turn to your advantage, that you could capitalize on to give you a competitive edge? What can you do better and/or differently than your competition?
Threats. Where are you vulnerable? You’ve already identified the weaknesses in your position; now you want to know how those weaknesses could hurt you. How could the competition take advantage of them? How could they damage you long term?
There are numerous advantages of going through a SWOT analysis.
Specifically, it can:
1. Help you resolve the challenge(s) you face.
2. Help chart an efficient course of action.
3. Provide you with more data so you can make better decisions.
4. Keep you from making the same mistakes again. (You can see why I have put this chapter after the previous one).
A SWOT analysis can reduce the chances of something going wrong and increase your chances for success, which is always a good thing. One way to do that is to call on your advisory board and have them give you honest feedback in the form of a SWOT assessment. They will look at the same situation you’re examining and, hopefully, identify weaknesses and threats you haven’t noticed.
For example, you’ve come up with an absolutely brilliant (you’re convinced) new product and initial testing is through the roof. They might ask you, “How are you going to get the independent distributors to carry it?”
Questions like this may seem like they create a roadblock, but they really don’t. You’re going to have to deal with weaknesses and threats eventually—the marketplace is going to force you to—so you might as well address them before you launch your product or service. On a brighter note, your board and employees should be able to highlight additional strengths and opportunities. They should also provide you with new ideas and approaches. If you are not confident that your board and/or your employees can do a SWOT effectively, or you think they will only tell you what you want to hear, have an outsider do the SWOT analysis with them. But no matter what approach you take, make sure you do it.
SWOT is all about identifying strengths, weaknesses, opportunities, and threats. How many items in each category should you have?
My answer: At least five. There are a couple of reasons for this.
First, you need to take the exercise seriously. If you have fewer than five, you’re going to be tempted to dash off the first two or three thoughts that come to mind and say you’re done.
Second, you may only list the threats and weaknesses you have a terrific answer for. A longer list will keep you honest.
Sometimes, when I say you need at least five, people come back and say, “I can’t come up with that many.”
My answer is always the same: “Think harder.”
SWOT AND TIME
Most people use SWOT to create a snapshot in time. Here are the strengths, weaknesses, opportunities, and threats we face as of today. That’s fine, but if you only do what everyone else does, you’re never going to beat them; you’ll only tie. Remember that the reason we’re doing the SWOT analysis in the first place is to gain a competitive advantage.
This is why I suggest you also use SWOT to help you project where you and your company are going to be five years out. Which threats that are small now could become larger ones in a few years? Conversely, which potential opportunities could become huge?
The nice thing about doing this is that it forces you to balance short-term and long-term goals and bring real-world market forces into play. For example, your SWOT analysis might look one way if you know the goal is to grow the company. It might look completely different if you are looking to sell within five years.
You always have short-term and long-term threats and opportunities. That’s why you want to always use SWOT over both time frames.
In a funny way, doing a five-year SWOT analysis can substitute for the business plans I hate. A business plan can give you a false sense of security, because you’re doing the financial projections virtually in a vacuum and you can make the numbers do whatever you like. (“Hmmm, looks like sales will be a little low in year four. You know, if we assume that they’re going to be 2% higher—and how hard can it be to obtain that—we should be all right.”)
The SWOT analysis, if you are candid, will keep you honest.
CASE STUDY: BODY ARMOR
Imagine you wanted to start a company that manufactures a concealable, bulletproof vest. Your goals are to make a vest that is “the absolute best.”
EXERCISE 12: BODY ARMOR
1. How do you determine what the vest should look like and what characteristics it should have?
2. How would you fill in the four quadrants of the SWOT analysis? (Make sure you have at least five entries per quadrant, and document your answers in detail.)
3. How will examining competitors and different industries provide you with a competitive advantage?
4. What imaginative way would you advertise your product?
5. What is the key ingredient of the vest that will make it successful?
SWOT AS AN INVESTMENT TOOL
When he was asked for investment advice, Malcolm S. Forbes, the man who turned the magazine his father started into the well-respected business publication it is today, would always reply, “Bet on the jockey and not the horse.” His meaning was clear: It’s more important to invest in a good leader than a good idea. You can always tweak the idea; changing someone’s fundamental character is more difficult.
I agree. When deciding if I should hire someone or invest in a company I’m interested in, I try to get as much information as I can about the person or company beforehand so I can get a “feel” for them. Then, I always put their idea—or how they think—under the SWOT microscope, and it’s really interesting to see what’s revealed.
A FINAL THOUGHT ABOUT THIS
People don’t use SWOT analysis as often as I think they should. There are a couple of reasons why they don’t.
People don’t like to do it because it forces them to confront weaknesses and threats. They think, somehow, that if they work hard enough examining a market, they can eliminate everything that possibly could go wrong, or by admitting a potential problem it’ll make them look ineffective. Both these things are just silly. You should not be looking at this as an exercise designed to make you look bad. Rather, it’s intended to maximize your company’s performance.
Other people don’t take the exercise seriously enough. They think if they write the first three things they can think of in each category, they’re done. They’re just trying to check an item off the list, instead of using SWOT to find a true competitive advantage. You undertake a SWOT analysis because you want to have the greatest potential to make the most money. That isn’t going to happen unless you have identified all four quadrants in detail.
When I say you, I really mean everyone in the company. Everyone who works with you should be able to use this tool effectively.
FOUR TAKEAWAYS FROM THIS CHAPTER
1. SWOT is not as popular a tool as it should be. It will give you an advantage over your competitors if you use it.
2. Prioritize. While business plans are basically useless, a SWOT analysis, done correctly, crystallizes the real business issues that you face.
3. Work hard. Make sure you have at least five well-considered thoughts in each of the strengths, weaknesses, opportunities, and threats boxes.
4. Double check. Ask your advisory board and employees to double-check your work. Not only may they come up with weaknesses and threats that you may have overlooked, but they could identify strengths and opportunities that you might have missed.