Starting up a company is never easy. Many factors can affect the survival of a company – be it those within an entrepreneur’s control or outside of it.
Fortunately, there are plenty of analytical tools that can be used, which help to make informed decisions. Here we present the top five business tools that help you to obtain thorough analysis and make actionable decisions.
Knowing the company’s strengths and, even more importantly, weaknesses is the key to creating greater value while mitigating possible losses.
The SWOT analysis is useful in analysing the company as well as your competitors. With the understanding of internal competencies and weaknesses, you can carve a sustainable niche in their market, uncover opportunities to exploit and eliminate threats.
To gain further insights, entrepreneurs can analyse the strategic choices of the company by using the TOWS Matrix.
Strengths and opportunities – How can you leverage the opportunities using your strengths?
Strengths and threats – How can you manage your threats using your strengths?
Weaknesses and opportunities – How can you circumvent your weaknesses by using the opportunities?
Weaknesses and threats: How can you minimise the impacts of your weaknesses and defend against threats?
PESTLED is an acronym that stands for Political, Economic, Social, Technological, Legal, Environmental and Demographic factors. It is an analytical tool to analyse the environment that the company works in or wants to enter.
By monitoring the macro-environmental factors, you will be able to see if how these factors will impact your company’s performance.
PESTLED is often used in collaboration with SWOT analysis and Porter’s Five Forces (as shown below) to provide a clear and thorough understanding of the related internal and external environmental factors.
To use this tool, you will have to create a list of existing environmental conditions in each of the seven factors that will impact the environment. The list can be classified into opportunities and threats using SWOT framework
Ansoff’s Product Matrix is a tool that provides you with four different strategies that help your company grow. At the same time, you will be able to analyse the risks that are associated with each strategy.
The safest strategy out of the four would be Market Penetration (lower left quadrant), which targets the existing markets using the existing products and services.
The risk increases diagonally to the riskiest strategy of Diversification that uses a new product and service in a new market.
Porter’s Five Forces
Porter’s Five Forces is a framework often used to analyse the attractiveness of a particular industry.
This model identifies and analyses the five main competitive forces that shape every industry, helping you to determine the strengths and weaknesses of an industry.
By making use of this framework, you will be able to understand an industry’s structure clearly. As a result, determine the optimal corporate strategy that ensures high profitability.
Porter’s Five Forces allows you to identify threats and determine the level of bargaining power your company have.
The threats of substitute products and new entrants will affect your company’s market shares while the bargaining power of buyers and suppliers helps you to determine the price that you can set for your product.
The Boston Consulting Group (BCG) Model can help you make long-term strategic decisions regarding your product portfolio. It allows entrepreneurs to decide if to further invest in, eliminate or further develop a particular product in a portfolio.
BCG categorises products based on the market share and the potential market growth. The following is how one can interpret the quadrants:
Dogs: Although Dogs hold low market share and have limited market growth, they may be profitable in the long-term or provide synergies to other brands within the company. However, in general, they are not worth investing and usually will be eliminated from the portfolio
Cash Cows: Cash generated from Cash Cows should be invested in Stars for overall growth. Usually, Cash Cows will not be invested to promote further growth, but mainly to maintain their current market shares
Stars : Stars should be the primary units in which the company invests in as they operate in high growth industries and are likely the cash generators. Typically, Stars will become Cash Cows unless they have been outcompeted by new technological advancements, which turn them into a Dog
As with all startups, speed is the key factor to determine the success of a company.
With the five business tools, you will be able to obtain a holistic view of your company and take decisive actions that allow your business to stay ahead of your competition.