WHY bother with external factors?

Begin building your small-scale strategy toolbox following this 4 week Christmas Challenge. Now is the perfect time to start following, as this is the first post .

When preparing a business plan for meetings in the bank, or a strategy for presentation, some small companies look only at the inside of the company, considering things like financial strength/weakness, geographical location, or industry experience.

But even though you will “only” be developing a small-scale strategy, looking at the external factors of any business is of significant importance.

Not only can external environment factors directly and indirectly effect business operations and revenue, but they can also provide great opportunities to improve operations, increase sales or improve margins.

Your first tool

You might be bored already as I tell you that the SWOT analysis is our first tool. But please bear with me... Different people have explained to me, that they have done so many SWOT analyses in their lives and never really felt like they were utilized for anything!

But I promise you this; in your small-scale strategy toolbox you WILL be using and building on the SWOT analysis, in ways I will reveal for you in the next chapter of Strategy for Christmas...”

So, please stick with me and have faith that your work is not wasted this time.

Here comes the model. Santa Claus has been really busy creating a SWOT analysis for the Christmas business and he has given permission for us to use it as an example:

You are welcome to download the PowerPoint file with this model, and use it in your own business with your own internal and external factors. Get it here:

Strategy for Christmas toolbox_vol 1
Download PPTX • 2.69MB

the reason we need swot

The primary objective of a SWOT analysis is to help you with the overview of all the factors involved in deciding which strategic direction to take. It forces you to look at your business and the marketplace methodically and objectively.

This method was created in the 1960s by Albert Humphrey of the Stanford Research Institute, during a study conducted to identify why corporate planning consistently failed. Since its creation, SWOT has become one of the most useful tools for business owners to start and grow their companies.

But as I wrote earlier, too many companies fail to actually utilize this overview. And I am sorry to say, it provides very little value standing there by itself. It needs to be partnered up with a tool that helps you discover ways to improve or eliminate your company's weaknesses and capitalize on its strengths.

I will add this tool to your toolbox in the next chapter of Strategy for Christmas. However; please be very accurate and think carefully about all aspects of your external (and later, internal) factors! As with every other framework, the quality of this model depends on the quality of the input you give it.

your own angle on things

“Write down whatever comes to mind...

I don’t know for what purpose you are doing this strategy. In my intro I challenged you to "help your local sports club, secondhand store, or your sisters small company develop an effective, meaningful strategy for the purpose of making more money or growing the business". But only you know what you decided to do...

That is why you need to incorporate your own angle on the SWOT analysis. This week we are focusing on the external side of the SWOT. But it might be helpful for you, to instantly write down whatever comes to mind, even though some of the points belong on the internal side of the matrix.

Example no. 1: If you are planning to grow your small business or somebody else’s small business, you need to be focusing on external opportunities to do that. Not necessarily opportunities that you can pursue right now, but maybe there is a possibility to chase them IF some internal factors of your company were different or changed. Or maybe you need to mitigate some external threats to get there. Put them in and consider this later, but remember to write down the considerations connected with them in e.g. internal weaknesses or external threats.

Example no. 2: If you are planning to make more money, be extra focused on whatever it would take to do that. Opportunities like outsourcing some of the administrative work which a business owner is currently wasting time to do and instead create some business value at a higher pay rate, is a typical point. Or writing down that opportunity of gaining new customers within that high margin segment is another opportunity. Yes, it might come with some internal challenges that need to be solved; put those down in the internal weaknesses.

Get Inspired

To help you develop your SWOT analysis, here comes some classical factors and hints of which points to put under which headlines.

Internal factors (Strengths and Weaknesses) refer to resources and experience already available to you in your company:

  • Financial resources

  • Physical resources

  • Human resources

  • Current processes

External factors are things outside your company, which you typically do not control, or which would be in reach if you manage your internal factors differently:

  • Market trends

  • Economic trends

  • Demographics

  • Political, environmental and economic regulations

  • Competitive opportunities or threats

Be a geek!

In the context of developing strategy, an obsession with detail, and boundless curiosity about the relevant topics, are very helpful qualities and not something you should ever hold back.

Here comes two extra requests to study your external environment.

Important background information

If you are looking out on the external factors of a new market or a market new to you, please consider the importance of understanding almost every corner of your market before you fill out the external factors of the SWOT analysis. Smaller pockets of niche markets or generally new markets or new trends in a market, are not immediately visible to outsiders, but reveal themselves when you research thoroughly on the market and speak with customers, suppliers and business partners in general. It is also very helpful to estimate and/or document the full market potential and afterwards splitting it up in segments/categories/areas in order to get an overview of how much market you could gain if you could achieve a 100% market share. Then, after doing that, you can estimate how much of the market is realistically achievable for you in year 1, year 2…etc. Don’t worry if you are not able to do this 100% accurately, almost nobody are. The important thing here is to forecast as precisely as you can, for the budget to be build on sales, cost and income.

Important competitive information