Preface: For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish –Luke 14:28-30
SWOT Analysis for the Aspiring Entrepreneur
Credit: Jacob M. Dietz, CPA
Should I start a business? If you are considering becoming an entrepreneur, first spend significant amounts of time researching and thinking about your options. This article does not delve into all the considerations, but it recommends that the aspiring entrepreneur conduct a SWOT analysis to examine Strengths, Weaknesses, Opportunities, and Threats.
First, strengths are your characteristics and traits that can help. Some strengths that you might possess include a good work ethic, discipline, integrity, experience, and good hand-eye coordination. If you start and run your own business, expect to work hard. You might work harder than you have ever worked before. If you already possess a good work ethic, that is a strength to you. Your life experience can be a strength. If you worked in a similar business for your father for years, then that experience will be a strength to you as you start your own business.
Write down the strengths that you possess that could help you. Be honest. Do not overrate your strengths, but also do not underrate those strengths. They are blessings given to you. Appropriately considering your strengths may influence your decision about starting a business.
Why write out your strengths? Seeing your strengths may bring clarity to you as to what your strengths are. You might be able to think of some strengths off-hand, but as you look at them written down you may grasp a fuller picture. Furthermore, if you seek counsel as you consider your business opportunity, and I recommend that you do seek counsel, then having written strengths allows your advisors to picture your strengths.
What would give you a competitive advantage? What internal strengths would help you run this business successfully? Consider this question, ask your advisors for input, and write down the answers.
Along with your strengths, remember your weaknesses. Weaknesses include your characteristics that may harm you. It may be painful to recognize your own weaknesses, but it also can be extremely beneficial. If you know your weaknesses, then you may be able to avoid long-term harm by avoiding certain situations, or by minimizing your weaknesses in certain situations.
For example, assume that you are terrified of heights and cannot work long hours in the heat without suffering from heat exhaustion. Perhaps you should not start a roofing business. On the other hand, sometimes a weakness can be mitigated. Maybe you are weak at analyzing financial data. If that is the case, then you may want to team up with a talented CPA who can assist you with the financial analytics.
Knowing your own weaknesses can be hard since there can be a tendency to overlook our own weaknesses. Consider asking family members and work associates about your weaknesses. Ask someone who has managed you what your weaknesses are. Ask someone whom you have managed what your weaknesses are.
Again, write down your weaknesses. If you do not write them down, it might be easy to forget them. Also, your business counsellors may have better insights if the weaknesses are written.
The purpose of writing your weaknesses is not to make yourself feel bad. Considering your weaknesses may help you avoid bad situations or take steps to minimize the danger of those situations. Do not neglect this step.
In addition to analyzing your internal strengths and weakness, also consider external opportunities and threats. What are the opportunities in the industry? For example, suppose you want to become a residential homebuilder. An opportunity could be that your township revised its zoning laws to allow more houses to be built. Another opportunity could be a growing population of a certain demographic group that wants your product or service. For example, if you want to start a home healthcare business, then a growing population of senior citizens could be an opportunity.
Opportunities are external to you, so they may require some outside research. Reading can be a great way to gather some of this information. Business publications, trade publications, and even your local newspaper might provide helpful information. Consider talking with your librarian. Your library may have access to business databases, publications, and references that will help you research. You also may want to talk with experienced people in the industry in which you are considering starting out as an entrepreneur. Do they know of any good opportunities to seize?
Some people who know the opportunities the best may not wish to share them with you as a competitor. Nevertheless, you might find some entrepreneurs who may be willing to share their knowledge, even if they know that you might compete with them. If you are having trouble finding someone, consider trying to find someone who might be less concerned about competition. For example, if you aspire to start a roofing company, perhaps a building supplies entrepreneur might have some information on your industry. In that situation, you would not be seen as a competitor but as a potential customer. You might also be able to talk to someone who lives geographically far enough away to avoid some of the competition to share with you. Just remember that there could be geographic differences in opportunity. Consider reaching out to an older man who knows the industry, but who loves to pass on knowledge to those getting started. Consider seeking out advisors and professionals who have knowledge in your industry.
A threat is an external item that could harm your potential venture. Threats may include legal, economic, and other hazards. For example, if you wanted to start a residential construction company right after a housing bubble popped then you may face a major threat.
Some of the same research that you do to learn about opportunities may help you learn about threats as well. Consider researching publications, talking with your librarian, and seeking out those with experience in the industry.
When researching threats and writing them down, try to portray them accurately. If you and your business counsellors accurately understand the threats, then you might be able to chart a good course.
Just because you find grave threats does not automatically mean that you should abandon the idea for a business, although in certain situations that could be prudent. Firefighters understand that fire poses a grave threat to their health and lives. When the fire alarm goes off, however, the firefighters do not stay in the safety of their living rooms sipping cold water to avoid the grave danger. Firefighters rush toward the action and the danger. Firefighters, however, invest much time and action into safety to protect them from the danger. They train for safety. They don personal protective equipment to guard them from the danger.
If firefighters did not understand the danger of fires, then fires could hurt more of them. Likewise, entrepreneurs increase the likelihood of problems if they do not understand the threats to their enterprise.
The factors going into a decision about entrepreneurship are many. Remember to include a SWOT analysis in the decision process. It might steer you away from a disastrous decision. Alternatively, you may still make the decision to enter that field but be better prepared to use your strengths to seize certain opportunities and to take measures to minimize the risks from weaknesses and threats. Feel free to contact your accountant if you would like to talk about becoming an entrepreneur.
This article is general in nature, and it does not contain legal advice. Contact your advisors to discuss your specific situation.