hen starting your own business, you need to ensure that you understand the environment you are working in and how your business can thrive, not just survive, in that environment.
The best way to achieve that is to sit down and do a SWOT analysis. Look at your strengths, weaknesses, opportunities and threats. Randall Lewis, lecturer at the University of Stellenbosch Business School’s Small Business Academy, says many small business owners have mistaken beliefs and a misunderstanding when it comes to their areas of expertise.
“Small business owners are usually completely focused on doing business and sometimes ignore the impact of factors like competition and changes in their market. It is also concerning that they often do not understand their own business model and how the components of their business relate to and influence each other,” says Lewis, who adds that once the business owner is shown how to analyse his or her business, he or she is able to do it successfully. “They certainly have the knowledge. I believe the problem is the lack of understanding on how to employ this information, and the effects of using it.”
Mark Corke, CEO of SuiteGum, which specialises in preparing businesses for sale, says in his experience the biggest weakness for most businesses is they have no plan B – they only focus on their existing business structure.
“The business tends to rely on a few big customers, has only one supplier of a particular product or has only one person able to run a key activity,” says Corke, who explains this leaves the business vulnerable should they lose a large customer, their supplier goes under or a key employee falls ill.
“A business needs to find a redundancy – this means finding working alternatives to the primary source of income, supply or activity. A lack of redundancy is the usual unspoken weakness in otherwise successful businesses,” says Corke.
After doing a SWOT analysis, Faldeelah Frantz, owner of Skeleton Glass and Mirror and a participant in the academy, found he had focused too much on his existing client base without considering how to grow it.
Frantz had been focusing on the immediate needs of customers, such as replacing a broken window, for example, but realised he could also create a market with other products within the glass and mirror range. “I started focusing on developing that market and already have three new clients on board,” says Frantz.
For Tercia Goliath of Body DeVine Spa, also a participant in the academy, a SWOT analysis revealed her biggest strength was the ability to deliver a high-quality service and she needed to focus on building a quality brand for discerning customers. “I am currently working on establishing my brand, including branded Tshirts for myself and my assistant. I have also identified my target market and ways to steer that market towards my business.”
In terms of weaknesses, academy participant Phumlani Dlongwana of Waste to Food discovered in his SWOT analysis that his business did not have a realistic pricing model. “I now know how to work out pricing, but in the past I didn’t know how my partners came about setting prices for the products we sell.”
UNDERSTAND YOUR BUSINESS
Any business analysis requires brutal honesty, without which an analysis is not at all possible. You need to do a comprehensive audit of the business. This includes your partners’ or management team’s efficiency and strategy. Are they optimal in the roles they play and the skills they bring?
One of you may be better at handling the administration, while the other is good at sales. Partners’ or a management team’s strengths and weaknesses need to complement each other.
You also need to analyse your staff, suppliers and investors to understand the strengths and possible weaknesses they all bring. A supplier, for example, may be too erratic in its delivery of goods to you, which in turn affects your ability to deliver to your clients, affecting your reputation. A poor supplier also limits your ability to grow the business.
Lewis says that once you have identified what has worked well and what needs some attention, focus on what you are good at and build on that – it could be a great sales team, excellent reputation or credible brand in your market.
Lewis says often a weakness is simply a failure to master a specific skill in the business. For example, many small business owners may be great at sales, but not good at the admin side of the business. If you are struggling to find the time to chase up on unpaid invoices or get quotes out, you may need to consider bringing in that skill and focusing on what you are good at, such as client engagement or getting the actual job done.
Lewis says when it comes to opportunities or threats, these are usually due to the environment outside the business. A classic example of a threat would be load shedding and the need to look for alternative energy sources for the business.
It could, however, also be an excellent opportunity if, for example, you are in an energy business, such as an electrician. You could focus on providing homes with batteries that feed into their electrical boards.
A poor supplier could be turned from a weakness into an opportunity. If you are struggling to find a supplier of certain goods or services, so will your competitors. This creates an opportunity for you to enter the supply side of the industry.
In the current environment, any small business needs to take into consideration the effect on their activities of possible interest rate hikes, shortages of electricity and a volatile rand, which would effect importers and exporters.