A SWOT analysis is an effective decision-making tool that businesses should conduct periodically. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Heinz Weihrich at the University of San Francisco used the SWOT analysis format to create an action matrix. The information gathered is the same, but he changed the acronym to TOWS. A SWOT analysis typically starts with an internal analysis and the TOWS matrix starts with an external analysis of the threats and opportunities followed by the strengths and weaknesses. The real power of the tool is to create actionable items.
Both forms of analysis can help identify the internal and external factors affecting your business. These tools can help you assess the current position and future viability of your business, help identify new opportunities and strategies, and identify potential future threats early.
Get input from advisors
Begin your analysis with input from all of your business partners and trusted advisors to get an outside opinion of your business.
Threats – external to your business
Identify threats to your business that can potentially have a negative impact or even keep you from operating. Some examples might include local and national regulations, a local housing development or decreasing processing capacity in your area.
Opportunities – external to your business
What positive trends can open new opportunities for your business? Is there an opportunity to capitalize on the increased interest in local foods and how food is produced? Is your processor positioned to expand export opportunities or pay premiums based on new products? Opportunities arise from outside of your farm, such as industry changes or important changes in competitors’ environment.
Weaknesses – internal to your business
What do your competitors do better than you? Do they have a lower cost of production? Are you lacking the land base to produce your own forage? How does your debt level compare to your competitors?
Strengths – internal to your business
These are your strengths compared to other farmers. What is your human or natural resource competitive advantage? Are you skilled at producing high pounds of solids per cow? Are you more labor-efficient than your competitors? What is it that you do particularly well that others don’t? Strengths represent areas of a clear advantage for your farm.
Use the matrix
After finishing your list, create a matrix that can be used to leverage the strengths and opportunities to improve your business in the future.
Strengths/Opportunities: Can you use any of your internal strengths to capitalize on external opportunities? Is there an opportunity to start a value-added enterprise to take advantage of your location and show off your excellent herd?
Strength/Threats: Continually monitor any external threats. Determine if it is possible for the internal strengths to minimize the risk of these threats. Your farm’s high-quality milk and excellent cow care could provide the products consumers are demanding. You could showcase your farm to regulators and others, showing off your excellent animal and environmental compliance.
Weaknesses/Opportunities: Determine if weaknesses can be improved or minimized by taking advantage of external opportunities. Use your good reputation with neighbors to foster long-term land or building leases. Building leases could leverage the limited capital to expand the cow herd. You could explore higher margin, lower capital enterprises such as tourism to take advantage of your location.
Weaknesses/Threats: Consider all weaknesses and threats to determine if they can be eliminated or managed. You might focus on building capital reserves that will allow you to adapt the business to potential threats.
Using proven business tools can help your farm develop strategies to improve the long-term sustainability of your business.
Example analysis of a dairy farm
Strengths
- High solids per cow.
- High Pregnancy rate.
- Low somatic cell count.
- High level of cow care.
- Skilled children who want to farm.
- Good debt structure.
Weaknesses
- Facilities are not labor efficient.
- Limited land base for forages.
- Limited capital for rapid expansion.
Opportunities
- Processor has a competitive pay price.
- Your county is dairy friendly.
- Good reputation as neighbor and employer.
- Close to a major metro area for value-added opportunities.
Threats
- Industry is rapidly consolidating.
- Upper Midwest processing capacity may keep pressure on prices.
- Potential processor base to limit expansion.
- Environmental regulations may change.
Action matrix
Strengths/Opportunities strategy:
- Children develop value-added businesses.
- Slowly expand the business.
Weaknesses/Opportunities strategy:
- Work with neighbors to develop longer-term land leases to expand your land base.
- Use limited capital to develop higher-margin enterprises.
Strength/Threats strategy:
- Grow as capital allows.
- Develop tours to highlight environmental practices and cow care to key people.
- Produce high-quality milk and meet welfare standards to meet consumer demand.
Weaknesses/Threats strategy:
- Focus on building capital reserves to adapt to potential threats.