Strength and weakness analysis is an internal company exercise to gauge your ability to compete effectively.Opportunity and threat analysis is an external exercise centered on competitors and the external environment that affect a company's ability to compete effectively.Taken together,they are referred to as SWOT analysis.
Each distribution channel alternative and sales force option carries specific costs that can be estimated in most industries and categories.
Small businesses need to network with potential or current customers,industry associations,trade suppliers,and competitors to help answer these questions.Key questions are:
What are the barriers (difficulties) to entering this product category via each distribution channel?
How much do various distribution channels cost to successfully enter?Over what period of time is this money being spent?
Should we distribute our business products locally,regionally,nationally?And in what order,or through all channels at the same time?
Are some or all of the items we sell subject to varying product life cycles?How do our products compare to competitor product life cycles by channel?
What types of competitive spending,promotions,advertising,and field sales response will our business entry encounter by type of distribution channel?
Other considerations.In some categories of small business,other factors should be considered,such as:
ease and affordability of entering the product category
geographic locations of customers
existing competitors' market shares
product life cycle by channel (e.g.,vending products may reach saturation in a few months,or have only seasonal distribution)
absolute size of competitors and their financial resources
For an example of how SWOT analysis might be conducted for a small service company,see our case study.
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Case Study:Life Designs Architecture
Our independent architect who specializes in designing residential homes,Life Designs,has a strengths,weaknesses,opportunities,and threats (SWOT) list that includes:
Strengths:
ability to respond quickly to customer demands and changes
ability to make acceptable margins on small jobs,with low overhead
high-quality of work and experience
reputation for being affable,honest,and easy to work with
reputation for good value of services and prices
appeal to customers of working directly with the architect/principal
Weaknesses
very limited financial,personnel,and time resources
a limit of three to four projects at any given time
inability to sell and work on a project at the same time
not having a personal relationship with influential local business leaders
being known for a limited number of architectural design "styles"
Opportunities
a growing market for new homes and more upscale homeowners moving to the area,fostered by a growing local economy
a chance to contract with a local developer for an exclusive agreement
a chance to work with the university architectural design department as a visiting lecturer
a chance to relocate his office from his home to a co-op business office center,with shared secretaries,receptionist,conference rooms,and computers
the availability of hiring independent sales reps to work with residential owners,real estate firms,and contractors
Threats
a growing amount of advertising and business inroads by outside regional and national firms in the local area
new local zoning codes and state/federal legislation increasing the cost of new home and remodeling/addition work
increasing costs of building materials
a possible shortage of skilled building trade people in the area
a new competitor in the area specializing in residential home design,especially in his known "style" of design