You’ve got a fantastic idea that you want to turn into a profit-making opportunity and you believe you’ve got the technical know-how as well. So, time to start a company and watch the money roll in, right?

Not so fast. You might have a good product in mind, but a good product won’t necessarily guarantee a good business. With startups, the tendency is to believe that what one is offering is necessarily original, novel and differentiated.

However, a more in-depth analysis might reveal something different, providing would-be startups with crucial information that can be used to further refine their business strategies and create a more differentiated product. Or at least market it as such. With this in mind, what can you use in your analysis that is simple yet effective?

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Photo: rawpixel via Unsplash

Enter the SWOT analysis, a 2×2 matrix that compares the Strengths and Weaknesses of a company, as well as the Opportunities and Threats presented to it. Strengths and Weaknesses are internal factors that are generally within a company’s control (or a result of a company’s decisions). Opportunities and Threats are the external factors that are out of the company’s control.

2×2 Matrix of a SWOT Analysis

Internal Factors

Strengths Weaknesses

External Factors

Opportunities Strengths
x Opportunities
Weaknesses
x Opportunities
Threats Strengths
x Threats
Weaknesses
x Threats

With any business idea, it’s incredibly important to be aware of your company’s internal factors in relation to external factors. This ensures that it will be able to meet the competitive demands of the market that it is going to enter.

A good product cannot exist in a bubble — it has to be marketed, sold and distributed to consumers in order for the company to thrive. This is all the more crucial with start-ups as ideological aspirations may sometimes cause key decision-makers to obsess over the product and forget about the other aspects of their business.

The SWOT analysis sounds fantastic but how exactly is it used? What are Strengths, Weaknesses, Opportunities and Threats?

Sample SWOT Analysis

Let’s imagine a sports apparel startup is trying to establish their presence in Venezuela. This startup might draw up a SWOT analysis that looks something like this:

Internal Factors

Strengths

As a startup, we can be more flexible with business strategies.

Weaknesses

As capital may depend heavily on investor opportunities, funding is variable. As a young enterprise, we may suffer from weak branding.

External Factors

Opportunities

Low presence of other sport apparel companies.

How to maximise company’s strengths to ride wave of opportunities

Constantly adapt business strategies to take advantage of absence of other sport apparel companies to expand aggressively and dominate market share for Venezuela’s sport apparel industry.

How to utilise opportunities to minimise problems created by company’s weaknesses

Weak branding might not be hindrance to company’s growth since there isn’t much competition in the first place.

Threats

Severe inflation, as well as political and civil unrest due to threats of looting and rioting.

How to utilise company’s strengths to mitigate external threats

If there is high risk of civil unrest and potential looting, the company can decide to do e-commerce, instead of having physical retail stores.

Decide if you want to abandon a targeted segment/strategy if the company’s weakness is a glaring issue that is unable to counter a threat

If investors view the economic climate unfavourably in Venezuela (as they should) then they might choose not to invest in the startup, making it even harder to keep the company afloat.

As seen from above, a SWOT analysis is not difficult to do and should be done at regular intervals across a startup’s lifespan.

A startup’s strengths and weaknesses, as well as the market it is in will develop over time and new SWOT analyses should be conducted periodically to reflect these changes accurately. This will allow startups to react to the changes accordingly.

As the old adage goes “if you fail to plan, you are planning to fail”; a good product is only one part of the formula to a successful startup’s journey.