“SW”OT Analysis

Why an article on SWOT Analysis?

Almost everyone in the field of any business has done a SWOT analysis either for their organization or for themselves at least once, and most probably, many times. So why an article on such a well-known and frequently practiced subject?

You may have noticed the “ “ around SW in the title. This article looks at the Strengths and Weaknesses aspect of the SWOT analysis from a different perspective.

So shall we read on?

SW from whose angle?

Every business need to know their strengths and weaknesses but from whose point of view? Mostly this is done from the perspective of the business or what can be called the “inside out” view. The moot question is whether the target customers also view them similarly.

What if the aspects perceived as strength by the business, is not perceived as strength by the market it serves? Or worse, what is not recognized as weakness by you is perceived as a very big weakness by the customers? This is a real possibility in the “inside out” approach.

Let us take an example. Let us assume a business considers its brand as its strength. Let us also assume, there are three equally well-known brands in that product or industry. From the market point of view, unless there is a significant positive differentiation for one brand compared to the other two, the brand by itself is not a strength at all. The customers could be viewing all three brands as good enough for their requirements and therefore will be looking for something more to make his “buy” decision. So the strength of the brand name by itself is no longer a strength.

The “outside in” approach

While the traditional SWOT analysis exercise is “inside out”, this article highlights the benefits of the opposite approach or “outside in”.

The “outside in” approach looks at your business model and its strengths and weaknesses through the eyes of the market and customers.

However, it is easier said than done. To make such an exercise honest and truthful, it is important to know the customer’s business needs with a high level of accuracy. Without such an understanding of the customer’s value chain, one can never look at his or her own strengths and weaknesses objectively.

So how do we carry out this exercise?

One of the obvious method is to interact with the customers themselves to understand what are their priorities and needs and based on that understanding identify your own strengths and weaknesses. This is possible in the B2B business. If the business is B2C, then it will possibly need an extensive market survey.

Benefits

Listening to the customers or potential customers always bring in enormous benefits. When you listen seriously and re-orient your own strategy, your own business model becomes robust and more relevant to the needs of the customers.

Let us see another example to substantiate this approach.

Suppose, timely delivery of products is very crucial to your customers in a particular geography with difficult terrain, say mountainous region, where landslides are frequent. Once this requirement is understood, a business may decide to have their warehouse in that region and carry an inventory to deliver on time.

Instantly, this becomes the biggest strength for your business and the measurable benefits will be far more than the cost of operating such a warehouse and increased inventory carrying costs.

Ongoing process

We live in a dynamic world and the external environment keeps changing. So what is strength now may not remain a strength forever or even in the near term. This needs to be recognized and an ongoing effort is made to revisit your strengths and weaknesses constantly.

In the example given before, let us assume your competitors, seeing your success, also establish their local supply chain solutions to deliver on time. Your strength no longer is unique and the competitive advantage is lost as the competitors match your moves or even improve on it.

Conclusion

Consider this new approach to SWOT analysis. This will convert this often used technique in board rooms from a power point slide to a real strategic move that will strengthen your business model.

Watch, Optimise and Conserve Cash

Take a guess.

What could completely derail a business and bring it to the state of bankruptcy, irrespective of its size, profitability and longevity?

Running out of cash.

Highly successful companies have faced bankruptcies and one of the major causes has been poor cash management.

In 2007, in US, 400 construction contractors went bankrupt. Nearly half of such bankruptcies were due to poor cash flow management (Source: 2007 Construction Industry Annual Financial Survey,” conducted by the Construction Financial Management Association (CFMA), Princeton, N.J.).

Why is sustained positive cash flow so important to every business?

Simple. The bills never stop arriving and need to be paid on time, be it payroll, rent, utilities or taxes. If the business does not generate enough cash to pay them as well as create a surplus for a rainy day in future, a time will arrive soon when the business will fold up for want of cash, even if it has good products, customer base, market share and profits.

Non-accounting, non-financial people may wonder how can a profitable business run out of cash.

Profits are on paper. If the receivable are of a much longer duration than the payable, if the inventory levels are high blocking cash, if the capital structure of the company is not aligned with the needs of the business model, then running out of cash is pretty easy. Of course if the business is not profitable then the cash out will happen much faster.

Watching cash flow like a hawk is a mental attitude. It has nothing to do with advanced processes and IT systems as they are just tools. If such systems by itself are enough, many large businesses, which had all the advanced tools, would not have gone belly up.

What is the mental attitude that we are talking about which puts cash ahead of all other performance parameters? It is asking the following questions and many more of similar nature.

a. Does my business generate enough profits to cover my costs, generate a surplus, pay the dividend to my shareholders and generate additional resources for a rainy day in future?

b. Is my capital structure (i.e. the combination of debt and equity, short term and long term sources of funding etc) aligned with my business model?

c. How can I negotiate longer payment terms with my suppliers so that the supplier credit will cover as much as possible my inventory and receivable?

d. How do I negotiate shorter payment terms with my customers so that I get my money as fast as possible and also minimise risk of bad debts?

e. How do I select my customers so that I deal with good paymasters only, even if that means sacrificing a portion of my profit margin?

f. How do I use technology and services  available for better cash management? For eg. why not opt for credit cards (which gives say 50 days of free credit) for my employees for their travel needs instead of paying them cash in advance? Or, at the end of each day, how do I bring all my cash into a single bank account for consolidation and better utilisation?

g. From where do I source my inputs so that they reach me fastest so that cash is not blocked for long transit times?

h. How fast the investment I am making now will pay me back?

The opportunities to optimise are endless.

In the technology space we hear the term “cash burn”, where companies plan to “burn” cash through discounts, promotions etc., to acquire more customers.

Is this sustainable?

Definitely not in the long run. This is true especially for those businesses where the stickiness (i.e. loyalty) of the customers so acquired, cannot be guaranteed.

If such a cash burn strategy is based on sound business principles and will ensure customer loyalty in the long term, then it may still make sense for a short period of time. Otherwise, such an approach can only lead to improving the vanity indicators like market share, sales growth etc., but cannot be part of a sustainable and profitable business model.

Many Indian family businesses are extremely successful for generations. One of the main reasons was their internal MIS system, which focused on cash flow. Every day, by the end of the day, they knew how much cash they generated for the day. This was done at a time when computers did not even exist!

Even if such companies failed in the long run, very rarely it was due to cash flow issues.

So watch cash with a hawk’s eye and build a successful, sustainable business.

Attract & Retain Talents in Startups

People are the best competitive advantage and this holds equally true to startups. The challenge for startups is the same as large corporates viz. how to attract and retain good people?

In case of startups the challenge is even more difficult as they are at the early stage of evolution with no guarantee for ongoing success. The resources are limited. These factors make attraction and retention even more challenging.

Once the founder or co-founders build up their core team, they have to ensure the stability of this core team for their venture to be a success. They also have to mentally accept that a major portion of their time and effort should go towards engaging with their people. This may come as a shock to many founders as they would like to passionately focus on what they know best, for example, technology. However, this investment of time and efforts with people will pay for itself multiple times.

Most people join startups as they believe that the business model addresses their passion. Thus, at the recruiting stage itself the founders have to ensure that they are inducting only such people who passionately believes in the business model.

Also remember that people joining startups are shunning the “corporate” ways of day to day business, which means complex structures and processes. Thus, the work environment and culture of start-ups need to be different. While strong processes are important to success of any business including start-ups, they should be restricted to only critical areas of business.

A genuine interest in the well being of the employees, mutual respect, an opportunity for them to contribute positively to the success of the business, an open mind to their ideas – all these will go a long way in attraction and retention.