Posted by After conducting a similar analysis, you will be able to make a final decision on your business project with peace of mind. This will not be an easy task. It will require you to be very objective and distance yourself from your own business idea.
First of all, you need to think about the characteristics of your venture – whether they are positive or negative compared to your competitors. He can use as a set of such qualities what he might have reflected on in some of the points of his business plan, viz:
- originality and usefulness of products,
- price level,
- distribution and sales channels,
- the type of planned promotion of the venture to potential customers, the capital for setting up the business,
- knowledge and skills of employees,
- in the case of a company of several people, the division of duties and tasks,
- the level of costs as the primary source of advantage over competitors.
To assess the opportunities and threats coming from the company’s environment, you can consider:
- the number and size of the company’s competitors,
- the possibility of the emergence of new, similar companies,
- characteristics of suppliers, such as their bargaining power, quality and cost of their products,
- characteristics of buyers, i.e. groups of key customers,
- the number and types of substitutes – products that are similar and of similar importance to customers,
- the impact of legal and tax solutions on Nowak’s business,
- public sentiment and cultural values,
- macroeconomic quantities, such as the interest rate, exchange rate, inflation rate or economic growth rate,
- international conditions.
The issues that are evaluated in a SWOT analysis can be many. Every year, Jack Welch, CEO of General Electric, answers 5 questions about the direction of the market and its dynamics, the actions of competitors in the last year and General Electric’s counteraction, and the threats that the company’s biggest competitors can create and how to prevent them.
In order to ensure that the SWOT analysis is not just a list of the company’s characteristics and thus a list of Jan Nowak’s hopes and anxieties that is difficult to make a final verdict on, it is worthwhile to make an additional scoring of the issues under consideration. It consists in assigning validity to each of the listed criteria for evaluating a company by means of a certain number. These numbers can be arbitrary, but for ease of calculation you should assign the importance of each characteristic so that the sum of them all gives the number 100.
For example, you can set the importance of the corresponding price level at 20, and, for example, the amount of capital for the establishment of the company is not so important according to him and has the number 10. The higher the number, the greater the importance of a given feature. These assessments are quite subjective, but in accordance with your knowledge and beliefs.
You should do the same with threats and opportunities coming from the environment. The sum of all the importance of the criteria for opportunities and threats must give the number 100. For example, the number of competitors will be the most important to you and will receive a validity of 30. Most important does not mean at all that in reality there are so many competitors. It’s just that from the point of view of opening this type of business it is of great importance.
Once you have determined the importance of all the criteria for evaluating both the strengths and weaknesses of the company, as well as the opportunities and threats, you need to establish an evaluation scale. It will be most convenient for you to choose a scale from 1 to 5. A rating of 1 is the minimum rating, and 5 is the maximum.
Next, you need to conduct a fair and realistic assessment of your planned company according to the previously established criteria by assigning ratings (from 1 to 5) to each of them. The next thing you need to do will be to multiply the points by the previously assigned importance of these criteria and add up the numbers so obtained within each of the four boxes of the SWOT analysis. An example of the evaluation is shown in Figure 1.
Figure 1. SWOT analysis
The SWOT analysis shows that the company’s strengths earned 315 points, and its weaknesses only 225 points, so we can conclude that its business idea is quite good. It has some disadvantages, but the preponderance of positive features is very high.