SWOT-ting Yourself ' and Your Competition

“You've got to be very careful if you don't know where you're going, because you might not get there.” ' Yogi Berra

Every business, online or not, has goals. Perhaps those goals are something as simple as selling more this year than last.

Other goals are more specific, such as increasing EBITDA, achieving a certain market share, or, ultimately for many e-commerce entrepreneurs, finding a buyer so that the owners and founders can cash out of the business.

Some firms state their goals to employees very clearly. For instance, the officers put the firms' goals on the company Web site, or even on signs in the office. (An online search for terms such as “mission statement” and “goals” will reveal many examples of such language in e-commerce companies.)

Still other enterprises may communicate goals to management. Principals, managers, and rank-and-file employees of any companies struggling to stay alive day-to-day may intuitively know the outfits' goals, but no one may ever go through the formal process of writing them down (assuming they even have time to do that), much less plan how to achieve them (such firms may best be described by the proverb: “Failing to plan is planning to fail.”)

But whatever goals a company's decision-maker(s) may have, how does that firm go about achieving them? Do key employees and managers share the goals of ownership, and make decisions based on the same target? For example, employees who cut prices aggressively to build sales and short-term market share may not realize that such tactics undercut a goal of building brand equity through growth by attributes that allow premium pricing, such as great customer service, or quality products not sensitive to price-cutting.

Taking a SWOT At Biz Analysis

One tool used by for-profit and non-profit firms alike to plan to achieve specific goals is SWOT analysis (see, http://en.wikipedia.org/wiki/Swot_analysis and http://bit.ly/17mKdl). SWOT is an acronym. It stands for strengths, weaknesses, opportunities and threats. At its most basic level, a firm identifies its strengths, weaknesses, opportunities and threats when decision-makers ' and others, if the process is planned that way ' thinking about how to achieve one goal, or more. More systematically, skilled advisers may plot these answers on a grid, recognizing that the same “strengths” and “weaknesses” can be perceived as an opportunity and a threat, under different circumstances, or in respect to different goals. A refinement distinguishes internal and external aspects of each criterion.

Tools are available online to assist in the process, such as:

• www.businessballs.com/swotanalysisfreetemplate.htm;
• www.inghenia.com/gadgets/swot/swot_en.php;
• www.mindtools.com/pages/article/worksheets/SWOTAnalysisWorksheet.pdf; and
• www.rapidbi.com/created/swot-pestle-template.html#swotanalysistemplate.

However, although these tools (and, in fact, this article) may suggest that you can “do SWOT at home,” the greatest benefit will come through the guidance of an experienced business planner. Such an adviser can guide e-commerce entrepreneurs and practitioners to the different perspectives of looking at a firm's required underlying SWOT methodology to help get the most benefit from the process.

SWOT vs. Strategic Planning

Before discussing, generally, how an e-commerce firm might approach a SWOT analysis, let me distinguish it from another important planning tool. While the SWOT approach works well to resolve specific issues ' whether to enter a new product into a particular geographic market, for example ' broader planning for an organization's overall future and direction is usually called strategic planning (see, for instance, http://en.wikipedia.org/wiki/Strategic_planning). A SWOT analysis, in contrast, is much narrower and focused; a strategic plan may include a SWOT analysis of particular challenges confronting a firm, but typically also addresses other ways of charting an organization's future.

A well-done strategic plan should lead to SMART goals ' that is specific, measurable, achievable, realistic and time-bound targets for the business (see, http://en.wikipedia.org/wiki/SMART_criteria). For example, “increasing sales of widget model ABC by 1% by the end of the fiscal year” would qualify, while “becoming the biggest seller of the ABC widget online” would not generate specific action plans to reach that goal, much less provide any metric to know whether a firm has, or will have, reached it ' or not.

While a SWOT approach will necessarily be different for each firm ' not only do business challenges differ from firm to firm, but so do strengths and weaknesses ' I will discuss several factors that would likely be considered by typical e-commerce firms. I will assume that a mature e-commerce firm has already mastered the basics of viable e-commerce, with a well functioning Web site, the ability to accept electronic payments (including credit cards) and implementation of fulfillment mechanisms to ensure that customers are actually shipped what they bought online. If the firm has not met those basic requirements, then its owners and managers do not have the luxury of planning for the future, because they may not have one, unless they overcome more pressing needs that may block the company from remaining open for the next few months.

e-Comm Elements
And the SWOT Method

With that caveat expressed, let's list a few common e-commerce strengths, and then weaknesses ' and consider how the same characteristic can appear on both lists.

e-Commerce Strengths

A Well-Marketed Web Site

This is one that ranks highly in search-engine results, and is linked to complementary sites to drive sales to new customers. This may be an obvious strength for any e-commerce endeavor, but only if it is planned for and achieved.

Web Site Functions Are Easy to Use

This is desirable so that potential customers who reach the site can find what they want and complete a purchase, rather than being discouraged by technical difficulties, confusing navigation or other factors that may drive them to a competitor.

Big Inventory

If a firm sells goods from inventory, then the selection should be broad ' the competitor's product may be easy to find and just a few clicks away. e-Commerce firms are not “protected” by the bricks-and-mortar inconvenience of shoppers having to accept what happens to be on the shelf instead of the consumer adding to the shopping “experience” by driving to another mall and going into a store that may or may not have something better in stock.

Efficient Back Office

A back office that fulfills orders in a timely manner, without charging exorbitant shipping fees, is a big buyer draw, and many customers instinctively choose sites to reduce shipping costs. In the 2010 holiday season, one study reported that half of all online sales occurred with free shipping (see, “Cyber Monday Explodes,” e-Commerce Law & Strategy, January 2011, http://bit.ly/i14A3M).

In fact, over 1,700 firms have banded together for several years to actively promote a “free shipping” day near the end of the holiday shopping season that produced a tremendous late-season sales boost (see, www.freeshippingday.com, and “Cyber Monday,” supra). Conversely, processing of returns should not be so difficult as to discourage the novice online shopper from seeking the “safety” of real-world return lines.

'Tying' Virtual, Physical Together

For firms with an online and a real-world retail presence, a tie-in that gives the customer the best of both worlds ' such as the “Site to Store'” option at Walmart.com, or the ability to check retail inventory online for customers who can't wait for delivery or who want to take advantage of “in-store only” specials.

Using the Law Defensively

More abstractly, legal protection for any intellectual-property advantages, whether patents on technological advances at the site or on an innovative business model, trademark protection for key marketing terms and domain names, and confidentiality and non-competition agreements with key employees and business relationships. For example, Amazon.com founder Jeff Bezos is named as an inventor on 54 U.S. patents at the U.S. Patent & Trademark Office (see, http://bit.ly/gwJk57) (as well as on many patent applications ' such as listed at http://bit.ly/hcC6QJ).

However, each of the e-commerce strengths listed above could just as easily be characteristics that are weaknesses, under different circumstances. The SWOT analysis forces management to self-scrutinize, to determine into which column its defining attributes will fall ' and how the same factor could be both a strength and a weakness, or an opportunity and a threat, depending on the particular goal to which the analysis is applied.

e-Commerce Weaknesses

A Well-Done Web Site (Costs)

The cost of a well-made Web site may create so much overhead that pricing cannot compete with other sites in a more basic format that are selling the same goods. A razzle-dazzle Web site that ran well in the lab with the latest processors and video cards may not do so well on the upstairs bedroom computer still running Windows XP (as my firm uses).

Big Inventory (Carrying Costs)

A broad inventory selection may mean that the firm must incur significant carrying costs to purchase and hold inventory, and the company may also run the risk that the inventory being bought and held simply may not sell. A fulfillment contract that shifts carrying costs to firms that stock and ship inventory on behalf of multiple sites means that a site will not offer goods that only it carries, and so it must compete on other attributes discussed here, particularly price.

Efficient Back Office (Operating Costs)

A strong back office, like a good Web site, can be expensive to operate, especially because it often requires more personnel and all the costs they create (benefits, payroll taxes, and the need for a human resources department).

Tying Virtual, Physical Together
(Mixed Messages?)

Retail tie-ins that create pricing differentials between a merchant's bricks-and-mortar stores and its Web site may lead to customer confusion or resentment when the price in the store is much more than what the customer saw online.

Using the Law Defensively
(And Paying)

Strong legal protection for a firm's legal and technological advances also can raise costs, and make hiring and firing employees more difficult. In some industries, the culture discourages the best employees from signing any type of non-competition agreement. Firms that have strong legal protection in place may not want to create a “sue first, ask questions later” reputation that could discourage potential employees or business partners from joining or aligning themselves with those companies. On the other hand, insufficient investment in legal protection may make it harder to retain key employees, or to act when a competitor threatens to take a key producer away, or uses an improper form of competition.

How SWOT Can Help

As can be seen from these paired examples, one firm's strength may also be a weakness, depending on the goal the firm wants to achieve. The SWOT approach helps identify those competing perspectives, and whether they can be converted into an opportunity (or just remain a threat).

For example, consider the recent report about Amazon.com's patent-pending plan to allow gift recipients to “return” items before they have been shipped, “even before they receive them” (see, http://bit.ly/epY4Dg). Instead of treating the expense and inconvenience of shipping back an unwanted gift ordered online as a threat that increases cost and drives shoppers back to familiar bricks-and-mortar stores ' the “multimillion dollar headache” created by the “Island of Misfit Toys,” in the words of Michael Rosenwald, the Washington Post reporter who first identified this patent (see, http://bit.ly/gGCzPC) ' Amazon.com may soon turn this into an opportunity to reduce its expenses. While “Miss Manners” did not approve of an “idea (that) totally misses the spirit of gift giving,” shoppers uncertain about whether a recipient may like a particular item that would be hard to return may be more willing to order it if they know the recipient can exchange it even more easily than by standing in line at the mall on Dec. 26. For another example of turning a weakness into an opportunity, consider Facebook's recent move to remedy the lack of e-commerce on its site (and revenue) by using its strong network of friends to influence shopping behavior (see, http://bit.ly/gjdigK).

While this example of how two vendors may be able to convert a threat or weakness into an opportunity clearly shows the link between the two, other opportunities and threats in e-commerce may not be so obviously related, absent specific application by a firm to its own circumstances.

Possible Opportunities Presented
By Strengths and Weaknesses

Tackling Marketing Challenges

A firm faced with marketing challenges, whether due to prohibitive costs or inadequate technology, could instead focus on increasing sales to existing customers.

Build Just-in-Time or the Brand

A firm challenged by the costs of expanding inventory could instead build a just-in-time supply chain, or expand its brand, to gain new customers and revenue to offset the costs of a well-functioning back office (and to exploit the value of a strong trademark and market presence).

To again use Amazon.com as an example, consider all the categories of items it sells (http://amzn.to/1a4LsE) to leverage the costs it has incurred (and brand equity) to create a smooth fulfillment operation and great customer-service experience.

Fill Your Niche

In turn, smaller firms concerned about their ability to compete when Amazon.com or Walmart.com has chosen to expand into their niche markets could seize the opportunity to focus on items the relatively small volume of which would not interest the larger sellers, or to find new ways to market to niche buyers through social media sites such as Facebook.com. Similarly, they could investigate the complementary sales relationships developing online, to allow sales through Web sites such as Amazon.com's Marketplace (see, “When the Virtual Storefront Is the Home Front,” e-Commerce Law & Strategy, November 2010, at http://bit.ly/gjMKxW).

Ensure Shoppers' Data Security

Consumers' increasing fears about privacy risks, in general, and, specifically, identity theft, present an opportunity to market a firm as one that has invested in the technology to deter such crime.

From personal experience, I was thrilled to receive a call from Walmart.com's security department notifying me that it had identified several potentially fraudulent transactions, within a day of when the attempted purchases occurred.

Don't Rest on Laurels

Although many of the factors I have discussed require substantial capital investment to implement, e-commerce still has very low barriers to entry, and the field presents, for the leaders of a firm with a better idea or product, an ever-present opportunity.

Conversely, the ease of starting a new business online can also be a threat to sellers that are already there.

Therefore, firms that are doing well online should not take solace in that success, or rest on their proverbial laurels ' ask any of the recently terminated staffers from one-time social-media pioneer MySpace.

Offer More Buyer Perks

As mentioned above, the challenge of shipping costs has become the focal point of a now-annual national marketing campaign, “Free Shipping Day,” targeted at last-minute shoppers (as well as to clear remaining inventory). If properly planned for, and it seems feasible, try it, and promote it.

Be Prepared!

The high costs of legal inadequacies, whether in failing to protect intellectual property against internal or external threats, or as a reflection of counsel not thinking about restrictions on competition in industry contracts, can become the incentive to take care of these matters ahead of the competition.

In fact, perhaps the greatest purely legal addition to this discussion is the observation (as I have often stated) that the only constant in e-commerce is change. Advances in technology and marketing will force adaptation on even the most successful competitor. The firm without the legal and business skill to seize the opportunity to anticipate that change will find it difficult to compete in the world of modern e-commerce.

SWOT: Not for All Firms

The points I have listed are, naturally, just general examples that may be instructive for many online firms, but will not apply to all. Each firm's own management and ownership must apply these criteria to each firm's own situation, and managers and owners must think critically about what they see, and then draw conclusions for action to be taken. The online templates noted at the start of this article (and many others that can be found online) provide many additional specific questions that one may ask, particularly the checklists at www.inghenia.com/gadgets/swot/swot_en.php.

Of course, just as there rarely is only one correct solution to a business or
legal problem, some business strategists have criticized the SWOT approach ' a “significant waste of time,” in the words of J. Scott Armstrong, a professor of marketing at the University of Pennsylvania's Wharton School. In a 2004 article, he noted that despite the apparent widespread use of this technique, he could not find any rigorous empirical evidence of its success. Contrasting the SWOT approach to the more rigorous and formal strategic planning discussed above, and citing another study that “concluded that the (SWOT) process was so flawed that it was time for a 'product recall,'” he concluded that the SWOT process is “not justified
under any circumstances.” He explained the reasons for his critique:

Because it mixes idea generation with evaluation, it is likely to reduce the range of strategies that are considered. In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating (return on investment) for alternate strategies. (http://bit.ly/2St8Ao.)

Instead, Professor Armstrong cited his own research showing the superior performance of formal written planning, with a five-step process (even when poorly implemented) of setting objectives, generating and evaluating alternative strategies, monitoring results and winning “commitment among the stakeholders during each step of this process.” While that “comprehensive” approach may lead to better results, both it and SWOT require the will and commitment of a firm to follow through with steps, in good faith, and with a detached, self-critical perspective. Perhaps the moral of either case ' much like the proverb about “failing to plan” ' is that some planning, under whatever rubric, is better than making decisions by simply reacting to each day's events.

In other words, even if SWOT is not the way to think about how to succeed online, it offers insights that the online entrepreneur can ignore only at his or her peril, whether done in isolation, or as part of a broader strategic business plan.

As a practical observation, who should participate in the SWOT analysis?

While typically such planning has been reserved for the board and senior management, line personnel may have a much better perspective of what is happening “on the ground” (or on the Web site) to develop the detailed lists critical to a SWOT analysis. And while employees may not be appropriate for all aspects of a SWOT analysis, the results will likely be less helpful without their perspective. Some SWOT and strategic-planning materials even recommend expanding to include “stakeholders,” i.e., third parties, but at that point caution is warranted.

Also, because an internal critique is at the heart of such analysis, lenders, investors, customers and vendors are probably not always the ideal audience to hear the critique. As an alternative, consider hiring a neutral third party that can interview such persons (probably best done anonymously) to get feedback for use in the anticipated planning, without inviting outsiders to view the e-commerce company's dirty laundry.

Serious Business ' Not a Game

Whatever planning process one chooses, it should not be treated as just a game of “filling in the boxes,” completed when the grids are filled and then filed away until the next drop in sales or other business crisis forces ownership and management to think about business planning.

Instead, even in a business based on something as ephemeral as e-commerce, planning may be even more important than in the bricks-and-mortar world, to help a company be ready to meet the constant onslaught of challenges its owners, managers or counsel (even though they all may be quite savvy) could not anticipate but that will inevitably come, and as other entrepreneurs find better and different ways to compete.

If a company's principals and concerned parties take planning seriously, and the participants focus on the reason for such analysis ' to see one's business from different perspectives, to anticipate threats and opportunities, and to build on strengths and repair weaknesses ' then it will better position itself to handle those challenges as they arise (at least better than competitors that have not planned).

A Personal SWOT Experience

Let me close with a personal experience with SWOT analysis, from a human-services non-profit on whose board I sit (and that included employees from every level). After meeting regularly to develop a strategic plan, through weekly work sessions that broke down each of its many programs using the SWOT methodology, it quickly became clear to the board that the long-standing process of creating programs ad hoc to solve apparent needs as they developed had led to the diversion of a significant amount of financial and management resources to tasks that other groups may have been better positioned to accomplish, and, in doing so, to meet community needs. Although our agency has a primary mission in one area, it had branched into multiple complementary missions that were well-handled, with some community praise ' but at the expense of doing a great job in its core mission. In particular, attention had been deferred for many years from the organization's most pressing need, a new facility to replace the aging building in which the organization had been founded.

With a renewed clarity of purpose, and a sad but necessary pruning of non-core programs, we were able to focus fundraising and planning on the long-term objective, and are working diligently toward meeting our space needs. I do not think that vision would have been possible without both the results of the SWOT analyses of each aspect of the non-profit's operations (and the broader strategic plan of which that analysis was a part), and the commitment of time and energy by the board and staff to the hard work of thinking critically about alternative uses of our limited resources, done under each step of the SWOT rubric.

In Closing
Go Ahead: SWOT Yourself

Although it is hard to top the pithy wisdom of the incomparable Yogi Berra, quoted at the start of this article, two business strategists have offered guidance to explain why the short-term pain of being “SWOT-ted” will be worth the long-term gain to the firm.

Stephen Covey admonishes that a business “begin with the end in mind,” and Zig Ziglar warns that “you can't hit a target you cannot see, and you cannot see a target you do not have.”

“SWOT-ting” oneself ' before a firm can “swat” its competition ' will most likely help a firm to envision that end, and create that target.

“You've got to be very careful if you don't know where you're going, because you might not get there.” ' Yogi Berra

Every business, online or not, has goals. Perhaps those goals are something as simple as selling more this year than last.

Other goals are more specific, such as increasing EBITDA, achieving a certain market share, or, ultimately for many e-commerce entrepreneurs, finding a buyer so that the owners and founders can cash out of the business.

Some firms state their goals to employees very clearly. For instance, the officers put the firms' goals on the company Web site, or even on signs in the office. (An online search for terms such as “mission statement” and “goals” will reveal many examples of such language in e-commerce companies.)

Still other enterprises may communicate goals to management. Principals, managers, and rank-and-file employees of any companies struggling to stay alive day-to-day may intuitively know the outfits' goals, but no one may ever go through the formal process of writing them down (assuming they even have time to do that), much less plan how to achieve them (such firms may best be described by the proverb: “Failing to plan is planning to fail.”)

But whatever goals a company's decision-maker(s) may have, how does that firm go about achieving them? Do key employees and managers share the goals of ownership, and make decisions based on the same target? For example, employees who cut prices aggressively to build sales and short-term market share may not realize that such tactics undercut a goal of building brand equity through growth by attributes that allow premium pricing, such as great customer service, or quality products not sensitive to price-cutting.

Taking a SWOT At Biz Analysis

One tool used by for-profit and non-profit firms alike to plan to achieve specific goals is SWOT analysis (see, http://en.wikipedia.org/wiki/Swot_analysis and http://bit.ly/17mKdl). SWOT is an acronym. It stands for strengths, weaknesses, opportunities and threats. At its most basic level, a firm identifies its strengths, weaknesses, opportunities and threats when decision-makers ' and others, if the process is planned that way ' thinking about how to achieve one goal, or more. More systematically, skilled advisers may plot these answers on a grid, recognizing that the same “strengths” and “weaknesses” can be perceived as an opportunity and a threat, under different circumstances, or in respect to different goals. A refinement distinguishes internal and external aspects of each criterion.

Tools are available online to assist in the process, such as:

• www.businessballs.com/swotanalysisfreetemplate.htm;
• www.inghenia.com/gadgets/swot/swot_en.php;
• www.mindtools.com/pages/article/worksheets/SWOTAnalysisWorksheet.pdf; and
• www.rapidbi.com/created/swot-pestle-template.html#swotanalysistemplate.

However, although these tools (and, in fact, this article) may suggest that you can “do SWOT at home,” the greatest benefit will come through the guidance of an experienced business planner. Such an adviser can guide e-commerce entrepreneurs and practitioners to the different perspectives of looking at a firm's required underlying SWOT methodology to help get the most benefit from the process.

SWOT vs. Strategic Planning

Before discussing, generally, how an e-commerce firm might approach a SWOT analysis, let me distinguish it from another important planning tool. While the SWOT approach works well to resolve specific issues ' whether to enter a new product into a particular geographic market, for example ' broader planning for an organization's overall future and direction is usually called strategic planning (see, for instance, http://en.wikipedia.org/wiki/Strategic_planning). A SWOT analysis, in contrast, is much narrower and focused; a strategic plan may include a SWOT analysis of particular challenges confronting a firm, but typically also addresses other ways of charting an organization's future.

A well-done strategic plan should lead to SMART goals ' that is specific, measurable, achievable, realistic and time-bound targets for the business (see, http://en.wikipedia.org/wiki/SMART_criteria). For example, “increasing sales of widget model ABC by 1% by the end of the fiscal year” would qualify, while “becoming the biggest seller of the ABC widget online” would not generate specific action plans to reach that goal, much less provide any metric to know whether a firm has, or will have, reached it ' or not.

While a SWOT approach will necessarily be different for each firm ' not only do business challenges differ from firm to firm, but so do strengths and weaknesses ' I will discuss several factors that would likely be considered by typical e-commerce firms. I will assume that a mature e-commerce firm has already mastered the basics of viable e-commerce, with a well functioning Web site, the ability to accept electronic payments (including credit cards) and implementation of fulfillment mechanisms to ensure that customers are actually shipped what they bought online. If the firm has not met those basic requirements, then its owners and managers do not have the luxury of planning for the future, because they may not have one, unless they overcome more pressing needs that may block the company from remaining open for the next few months.

e-Comm Elements
And the SWOT Method

With that caveat expressed, let's list a few common e-commerce strengths, and then weaknesses ' and consider how the same characteristic can appear on both lists.

e-Commerce Strengths

A Well-Marketed Web Site

This is one that ranks highly in search-engine results, and is linked to complementary sites to drive sales to new customers. This may be an obvious strength for any e-commerce endeavor, but only if it is planned for and achieved.

Web Site Functions Are Easy to Use

This is desirable so that potential customers who reach the site can find what they want and complete a purchase, rather than being discouraged by technical difficulties, confusing navigation or other factors that may drive them to a competitor.

Big Inventory

If a firm sells goods from inventory, then the selection should be broad ' the competitor's product may be easy to find and just a few clicks away. e-Commerce firms are not “protected” by the bricks-and-mortar inconvenience of shoppers having to accept what happens to be on the shelf instead of the consumer adding to the shopping “experience” by driving to another mall and going into a store that may or may not have something better in stock.

Efficient Back Office

A back office that fulfills orders in a timely manner, without charging exorbitant shipping fees, is a big buyer draw, and many customers instinctively choose sites to reduce shipping costs. In the 2010 holiday season, one study reported that half of all online sales occurred with free shipping (see, “Cyber Monday Explodes,” e-Commerce Law & Strategy, January 2011, http://bit.ly/i14A3M).

In fact, over 1,700 firms have banded together for several years to actively promote a “free shipping” day near the end of the holiday shopping season that produced a tremendous late-season sales boost (see, www.freeshippingday.com, and “Cyber Monday,” supra). Conversely, processing of returns should not be so difficult as to discourage the novice online shopper from seeking the “safety” of real-world return lines.

'Tying' Virtual, Physical Together

For firms with an online and a real-world retail presence, a tie-in that gives the customer the best of both worlds ' such as the “Site to Store'” option at Walmart.com, or the ability to check retail inventory online for customers who can't wait for delivery or who want to take advantage of “in-store only” specials.

Using the Law Defensively

More abstractly, legal protection for any intellectual-property advantages, whether patents on technological advances at the site or on an innovative business model, trademark protection for key marketing terms and domain names, and confidentiality and non-competition agreements with key employees and business relationships. For example, Amazon.com founder Jeff Bezos is named as an inventor on 54 U.S. patents at the U.S. Patent & Trademark Office (see, http://bit.ly/gwJk57) (as well as on many patent applications ' such as listed at http://bit.ly/hcC6QJ).

However, each of the e-commerce strengths listed above could just as easily be characteristics that are weaknesses, under different circumstances. The SWOT analysis forces management to self-scrutinize, to determine into which column its defining attributes will fall ' and how the same factor could be both a strength and a weakness, or an opportunity and a threat, depending on the particular goal to which the analysis is applied.

e-Commerce Weaknesses

A Well-Done Web Site (Costs)

The cost of a well-made Web site may create so much overhead that pricing cannot compete with other sites in a more basic format that are selling the same goods. A razzle-dazzle Web site that ran well in the lab with the latest processors and video cards may not do so well on the upstairs bedroom computer still running Windows XP (as my firm uses).

Big Inventory (Carrying Costs)

A broad inventory selection may mean that the firm must incur significant carrying costs to purchase and hold inventory, and the company may also run the risk that the inventory being bought and held simply may not sell. A fulfillment contract that shifts carrying costs to firms that stock and ship inventory on behalf of multiple sites means that a site will not offer goods that only it carries, and so it must compete on other attributes discussed here, particularly price.

Efficient Back Office (Operating Costs)

A strong back office, like a good Web site, can be expensive to operate, especially because it often requires more personnel and all the costs they create (benefits, payroll taxes, and the need for a human resources department).

Tying Virtual, Physical Together
(Mixed Messages?)

Retail tie-ins that create pricing differentials between a merchant's bricks-and-mortar stores and its Web site may lead to customer confusion or resentment when the price in the store is much more than what the customer saw online.

Using the Law Defensively
(And Paying)

Strong legal protection for a firm's legal and technological advances also can raise costs, and make hiring and firing employees more difficult. In some industries, the culture discourages the best employees from signing any type of non-competition agreement. Firms that have strong legal protection in place may not want to create a “sue first, ask questions later” reputation that could discourage potential employees or business partners from joining or aligning themselves with those companies. On the other hand, insufficient investment in legal protection may make it harder to retain key employees, or to act when a competitor threatens to take a key producer away, or uses an improper form of competition.

How SWOT Can Help

As can be seen from these paired examples, one firm's strength may also be a weakness, depending on the goal the firm wants to achieve. The SWOT approach helps identify those competing perspectives, and whether they can be converted into an opportunity (or just remain a threat).

For example, consider the recent report about Amazon.com's patent-pending plan to allow gift recipients to “return” items before they have been shipped, “even before they receive them” (see, http://bit.ly/epY4Dg). Instead of treating the expense and inconvenience of shipping back an unwanted gift ordered online as a threat that increases cost and drives shoppers back to familiar bricks-and-mortar stores ' the “multimillion dollar headache” created by the “Island of Misfit Toys,” in the words of Michael Rosenwald, the Washington Post reporter who first identified this patent (see, http://bit.ly/gGCzPC) ' Amazon.com may soon turn this into an opportunity to reduce its expenses. While “Miss Manners” did not approve of an “idea (that) totally misses the spirit of gift giving,” shoppers uncertain about whether a recipient may like a particular item that would be hard to return may be more willing to order it if they know the recipient can exchange it even more easily than by standing in line at the mall on Dec. 26. For another example of turning a weakness into an opportunity, consider Facebook's recent move to remedy the lack of e-commerce on its site (and revenue) by using its strong network of friends to influence shopping behavior (see, http://bit.ly/gjdigK).

While this example of how two vendors may be able to convert a threat or weakness into an opportunity clearly shows the link between the two, other opportunities and threats in e-commerce may not be so obviously related, absent specific application by a firm to its own circumstances.

Possible Opportunities Presented
By Strengths and Weaknesses

Tackling Marketing Challenges

A firm faced with marketing challenges, whether due to prohibitive costs or inadequate technology, could instead focus on increasing sales to existing customers.

Build Just-in-Time or the Brand

A firm challenged by the costs of expanding inventory could instead build a just-in-time supply chain, or expand its brand, to gain new customers and revenue to offset the costs of a well-functioning back office (and to exploit the value of a strong trademark and market presence).

To again use Amazon.com as an example, consider all the categories of items it sells (http://amzn.to/1a4LsE) to leverage the costs it has incurred (and brand equity) to create a smooth fulfillment operation and great customer-service experience.

Fill Your Niche

In turn, smaller firms concerned about their ability to compete when Amazon.com or Walmart.com has chosen to expand into their niche markets could seize the opportunity to focus on items the relatively small volume of which would not interest the larger sellers, or to find new ways to market to niche buyers through social media sites such as Facebook.com. Similarly, they could investigate the complementary sales relationships developing online, to allow sales through Web sites such as Amazon.com's Marketplace (see, “When the Virtual Storefront Is the Home Front,” e-Commerce Law & Strategy, November 2010, at http://bit.ly/gjMKxW).

Ensure Shoppers' Data Security

Consumers' increasing fears about privacy risks, in general, and, specifically, identity theft, present an opportunity to market a firm as one that has invested in the technology to deter such crime.

From personal experience, I was thrilled to receive a call from Walmart.com's security department notifying me that it had identified several potentially fraudulent transactions, within a day of when the attempted purchases occurred.

Don't Rest on Laurels

Although many of the factors I have discussed require substantial capital investment to implement, e-commerce still has very low barriers to entry, and the field presents, for the leaders of a firm with a better idea or product, an ever-present opportunity.

Conversely, the ease of starting a new business online can also be a threat to sellers that are already there.

Therefore, firms that are doing well online should not take solace in that success, or rest on their proverbial laurels ' ask any of the recently terminated staffers from one-time social-media pioneer MySpace.

Offer More Buyer Perks

As mentioned above, the challenge of shipping costs has become the focal point of a now-annual national marketing campaign, “Free Shipping Day,” targeted at last-minute shoppers (as well as to clear remaining inventory). If properly planned for, and it seems feasible, try it, and promote it.

Be Prepared!

The high costs of legal inadequacies, whether in failing to protect intellectual property against internal or external threats, or as a reflection of counsel not thinking about restrictions on competition in industry contracts, can become the incentive to take care of these matters ahead of the competition.

In fact, perhaps the greatest purely legal addition to this discussion is the observation (as I have often stated) that the only constant in e-commerce is change. Advances in technology and marketing will force adaptation on even the most successful competitor. The firm without the legal and business skill to seize the opportunity to anticipate that change will find it difficult to compete in the world of modern e-commerce.

SWOT: Not for All Firms

The points I have listed are, naturally, just general examples that may be instructive for many online firms, but will not apply to all. Each firm's own management and ownership must apply these criteria to each firm's own situation, and managers and owners must think critically about what they see, and then draw conclusions for action to be taken. The online templates noted at the start of this article (and many others that can be found online) provide many additional specific questions that one may ask, particularly the checklists at www.inghenia.com/gadgets/swot/swot_en.php.

Of course, just as there rarely is only one correct solution to a business or
legal problem, some business strategists have criticized the SWOT approach ' a “significant waste of time,” in the words of J. Scott Armstrong, a professor of marketing at the University of Pennsylvania's Wharton School. In a 2004 article, he noted that despite the apparent widespread use of this technique, he could not find any rigorous empirical evidence of its success. Contrasting the SWOT approach to the more rigorous and formal strategic planning discussed above, and citing another study that “concluded that the (SWOT) process was so flawed that it was time for a 'product recall,'” he concluded that the SWOT process is “not justified
under any circumstances.” He explained the reasons for his critique:

Because it mixes idea generation with evaluation, it is likely to reduce the range of strategies that are considered. In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating (return on investment) for alternate strategies. (http://bit.ly/2St8Ao.)

Instead, Professor Armstrong cited his own research showing the superior performance of formal written planning, with a five-step process (even when poorly implemented) of setting objectives, generating and evaluating alternative strategies, monitoring results and winning “commitment among the stakeholders during each step of this process.” While that “comprehensive” approach may lead to better results, both it and SWOT require the will and commitment of a firm to follow through with steps, in good faith, and with a detached, self-critical perspective. Perhaps the moral of either case ' much like the proverb about “failing to plan” ' is that some planning, under whatever rubric, is better than making decisions by simply reacting to each day's events.

In other words, even if SWOT is not the way to think about how to succeed online, it offers insights that the online entrepreneur can ignore only at his or her peril, whether done in isolation, or as part of a broader strategic business plan.

As a practical observation, who should participate in the SWOT analysis?

While typically such planning has been reserved for the board and senior management, line personnel may have a much better perspective of what is happening “on the ground” (or on the Web site) to develop the detailed lists critical to a SWOT analysis. And while employees may not be appropriate for all aspects of a SWOT analysis, the results will likely be less helpful without their perspective. Some SWOT and strategic-planning materials even recommend expanding to include “stakeholders,” i.e., third parties, but at that point caution is warranted.

Also, because an internal critique is at the heart of such analysis, lenders, investors, customers and vendors are probably not always the ideal audience to hear the critique. As an alternative, consider hiring a neutral third party that can interview such persons (probably best done anonymously) to get feedback for use in the anticipated planning, without inviting outsiders to view the e-commerce company's dirty laundry.

Serious Business ' Not a Game

Whatever planning process one chooses, it should not be treated as just a game of “filling in the boxes,” completed when the grids are filled and then filed away until the next drop in sales or other business crisis forces ownership and management to think about business planning.

Instead, even in a business based on something as ephemeral as e-commerce, planning may be even more important than in the bricks-and-mortar world, to help a company be ready to meet the constant onslaught of challenges its owners, managers or counsel (even though they all may be quite savvy) could not anticipate but that will inevitably come, and as other entrepreneurs find better and different ways to compete.

If a company's principals and concerned parties take planning seriously, and the participants focus on the reason for such analysis ' to see one's business from different perspectives, to anticipate threats and opportunities, and to build on strengths and repair weaknesses ' then it will better position itself to handle those challenges as they arise (at least better than competitors that have not planned).

A Personal SWOT Experience

Let me close with a personal experience with SWOT analysis, from a human-services non-profit on whose board I sit (and that included employees from every level). After meeting regularly to develop a strategic plan, through weekly work sessions that broke down each of its many programs using the SWOT methodology, it quickly became clear to the board that the long-standing process of creating programs ad hoc to solve apparent needs as they developed had led to the diversion of a significant amount of financial and management resources to tasks that other groups may have been better positioned to accomplish, and, in doing so, to meet community needs. Although our agency has a primary mission in one area, it had branched into multiple complementary missions that were well-handled, with some community praise ' but at the expense of doing a great job in its core mission. In particular, attention had been deferred for many years from the organization's most pressing need, a new facility to replace the aging building in which the organization had been founded.

With a renewed clarity of purpose, and a sad but necessary pruning of non-core programs, we were able to focus fundraising and planning on the long-term objective, and are working diligently toward meeting our space needs. I do not think that vision would have been possible without both the results of the SWOT analyses of each aspect of the non-profit's operations (and the broader strategic plan of which that analysis was a part), and the commitment of time and energy by the board and staff to the hard work of thinking critically about alternative uses of our limited resources, done under each step of the SWOT rubric.

In Closing
Go Ahead: SWOT Yourself

Although it is hard to top the pithy wisdom of the incomparable Yogi Berra, quoted at the start of this article, two business strategists have offered guidance to explain why the short-term pain of being “SWOT-ted” will be worth the long-term gain to the firm.

Stephen Covey admonishes that a business “begin with the end in mind,” and Zig Ziglar warns that “you can't hit a target you cannot see, and you cannot see a target you do not have.”

“SWOT-ting” oneself ' before a firm can “swat” its competition ' will most likely help a firm to envision that end, and create that target.