Small Business Thoughts

Doing SWOT analysis once each year provides a systematic look at the trends in each of the five components that affect your industry. It helps you anticipate and adjust your expectations and pressure points that may affect your company, i.e. new government policies might: encourage more regulation may cause barriers to innovation; raise taxes that may restrict available company resources to fund research and development; increase worker wages and provide more benefits for workers; might build artificial demand thru regulation for products such as electric cars which can increase costs for these vehicles and perhaps point the wrong direction by a government that has no experience in the market place of supply and demand.

Analyze your industry from ALL six box perspectives to evaluate: buyer power; rival responses to changing tactics; government edits; threat of substitutes; barriers to entry; supplier bargaining powers.

• Bargaining Power of Buyers:
  • They are concentrated or purchase large volumes relative to seller sales;
  • The products they purchase from the industry represent a significant fraction of buyer’s costs/purchases;
  • Products they purchase are standard or undifferentiated;
  • Few switching costs;
  • Pose a credible threat of backward integration;
  • Product is unimportant to the quality of the buyers’ products/services;
  • Buyer has full information.
• Intensity of rivalry among existing competitors:
  • Numerous or equally balanced competitors;
  • Slow industry growth;
  • High fixed or storage costs;
  • Lack of differentiation or switching costs;
  • Capacity augmented in large increments;
  • Diverse competitors;
  • High Strategic stakes;
  • High exit barriers.
• Government Edits (Federal; State; County; City; Local):
  • Laws;
  • Economic policy;
  • Bureaucrat rules;
  • Homeowners Associations.
• Pressure from Substitute Products:
  • Subject to trends improving their price/performance tradeoff with the industry’s product;
  • Produced by industries earning high profits.
• Barriers to entry (how to control them plays a key role to all parties…properties of entry barriers change as conditions change & are outside the company control):
  • Economies of scale;
  • Product differentiation;
  • Capital Requirements;
  • Switching costs;
  • Access to distribution channels;
  • Cost disadvantages;
  • Independent of scale;
  • Government policy;
  • Expected retaliation if you are entering;
  • Entry deterring price;
  • Experience & scale;
  • Skill & resources to overcome like distribution strength.
• Bargaining Power of Suppliers/Labor:
  • Dominated by a few companies & is more concentrated than to the industry it sells;
  • Not obliged to contend with other substitute products for sale to the industry Industry is not an important customer of the supplier;
  • Suppliers’ product is an important input to the buyers’ business;
  • Supplier group’s products are differentiated or it has built up switching costs;
  • Supplier group poses a credible threat to forward integrate.

If you are planning to start a business or are thinking about scaling an existing one, be sure to read the ebook “Customer Centric Business Planning: A Guide to Optimizing Your Business for Maximum Success”. It is an essential book for business owners, managers, and entrepreneurs looking to leverage real-time insight to start and improve their business operations. Learn how proper customer centric business planning can assess risk and opportunity, and create an actionable roadmap for success.

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Copyright ©John Trenary 2019