Learn from Your Strengths, Weaknesses
Originally published: 10.01.18 by Mike Moore
Conducting a proper SWOT analysis for your business is easier than you might think.
To position your business in your particular market, you need to know who your competition is, and what they’re doing. A great way to gain insight is to run a SWOT analysis on the major competitors in your market. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
If you’ve already done that, some of the insights you gained will be useful in analyzing your own business. If you haven’t, don’t worry. You’ll have a chance to gather usful data about your competitors while analyzing your own company.
Assessing the strengths and weaknesses of your own business can be easier — you have access to all of the information you need. It can also be harder — it’s tough to be objective about your company.
SWOT analyses are a vital tool for business and marketing. They help you to organize important information about your company and your market, before launching a new action plan. Anyone can make decisions based on hunches and what seems obvious, but similar to a general in wartime, you need the best information you can gather, to create a winning strategy.
By the way, you can enlist others. If you have a management staff, or a business partner, or a few key employees you trust, you can recruit your team to help you build your SWOT lists.
It’s fairly common for business owners and managers to avoid sharing financial details with their service (and sometimes sales) departments. Knowing where the business stands, however — what’s going great for it and what elements are acting against it — can help your staff to understand the importance of their roles to the business’s health. When people feel included and valued, they are more likely to work hard to make the whole enterprise more successful.
If you don’t have a vision for your business, there’s not much point in analyzing whether your current situation and strategies will get you there. If, for instance, you’re aiming to be the premier HVACR company in your area, offering stellar customer service and high-end products, that gives you more details to work with than wanting to make money.
You run a SWOT analysis to help your business become more profitable, but that’s not the same as having a vision for what you want the company to be.
You can also start with a question. For instance, “Do I need to grow my service department?” could be an area you use a SWOT analysis to explore. “Should we start offering an additional service?” is another example of a question that a SWOT analysis can help you determine the answer to. The process of conducting the analysis doesn’t change, whether it’s a single facet of your strategy, or an entire operational plan that you’re building.
These are internal factors. Make a list of your business’s strengths. These could include employee dynamics, such as having a strong and close-knit team, financial details, having a good location for your business, competitive advantages, and perhaps pricing. The list doesn’t have to be perfectly complete. You can add to it later.
These are also internal, and may be less comfortable to evaluate. What factors could put your business at a disadvantage in your market? These will be things inherent to your business, not threats from outside. We’ll get to those in a bit.
Examples of internal weaknesses could be things such as low employee morale, not having enough new customers to support business growth, having trouble stocking enough equipment, parts and supplies, billing issues, low profit margins, and so on. If your list seems long, don’t despair. The results of your analysis can help you to improve your business. If you do this again in a year (and you should), the weaknesses you find now may be gone, or significantly reduced.
These are external factors. Consider your market, and what’s going on in the industry. For instance, digital tools that allow you to train new hires without sending them away to a school or class, or that make it easier for your sales team to present information on new products or services to your customers, could present opportunities.
Perhaps there’s been a recent influx of younger homeowners in your market. That could be an opportunity to gain new customers. Partnerships with other businesses or suppliers of products, training or tools may also help you to gain a competitive advantage.
Some factors may be an opportunity for one area of your business, but register as a threat for another. For instance, if you’re thinking of expanding your services to include a service that a competitor has the corner on, that’s an opportunity to increase profit.
But, it could also make your competition seem extra threatening. However you look at it, don’t list the same things in both the Opportunities and Threats categories.
This final category is also for external influences. The industry-wide shortage of HVACR installers and technicians could be a threat. Increasing competition in your market, rising costs of equipment and supplies, or unfavorable weather could all be external threats, not under your control.
Now that you’ve listed Strengths, Weaknesses, Opportunities and Threats, what do you do with that information? As far as organization goes, it’s a decent idea to put your categories side-by-side, such as in a spreadsheet format, so you can look at them all at once.
At this point, the items on your sheet may seem overwhelming. It’s okay. You are not going to be able to tackle everything at once, no matter how awesome you are. That’s why the next step is to prioritize.
For each of your four lists, reorder and number the entries so that you have the most critical item at the top, the second most urgent item next, and so on. No cheating. You can’t have two or three (or four!) number one items. Each entry in your list gets one number, in descending order of priority.
This is where we get to the good part. You’ve got your prioritized lists, so now you can use that information to develop a strategy that will make your business more profitable. Ask yourself these questions, while reviewing the factors you’ve listed.
- How can our strengths help us seize the opportunities we’ve found?
- In what ways can these strengths help us nullify the threats?
- Weaknesses can keep us from seizing the opportunities. What actions are needed to surmount our weaknesses, so we can make use of the opportunities?
- What do we need to do to overcome our weaknesses, so we can deal with the threats?
KPIs can help, too. In addition to the answers you come up with for the above questions, these operational Key Performance Indicators can help to guide your strategy.
Whether your business is small, or one of the biggest fish in town, everything you do needs to stem from a culture based on ethics, excellence and integrity.
Model these traits for your employees, insist on them when serving customers, and reinforce them with training.
In a Residential Add On Replacement sector, everyone in the business needs to know and understand the maintenance agreement business model. Maintenance agreements aren’t just for filling in hours during slow months.
They can be a sophisticated marketing platform to help maintain and grow your customer base. It’s more profitable to cultivate a long-lasting service relationship with each customer, than to have to constantly add new customers because you’ve lost touch with those you had.
All managers and employees need to understand the financial numbers and KPIs. How can they help to boost business performance, if they don’t know what’s needed and expected?
For a residential service, maintenance and replacement company, the gross margin should be about 42 percent.
Margins and overhead change by business segment, so a plumbing company wouldn’t use exactly the same figures as a residential HVACR company, or a company working more in the commercial sector.
If you’re primarily in the residential service, maintenance and replacement business, overhead should be 28 percent or less. This is one of the places where your pricing comes into play.
All system replacement jobs should be completed in one day. These are relatively easy jobs that should not entail any complex troubleshooting or diagnosis.
Use these “gravy” jobs to maximize your gross profit dollars per day.
Running a SWOT analysis does not give you the strategy to make your business grow and increase profit.
What it does is show you the areas where you’re doing well, things you can improve on and external factors that you can proactively address to build a plan for the next year.
Next time, you may be quite impressed with how you’ve managed to strengthen your business, using a plan based on the results of your SWOT analysis.