SWOT doesn't tell you everything

SWOT analysis is essentially a preliminary study of the environment in which a business will operate. It involves identifying a company’s strengths and weaknesses, while also examining the opportunities and threats present in the marketplace.

A SWOT analysis should not be treated as a one-time exercise. Instead, it should function as a living document that is regularly updated and improved whenever new information about the market, company, or product becomes available.

When I conducted the SWOT analysis for my malting company, I did not revise it consistently enough. At the time, we examined several important factors, including the number of breweries in New York State, which was approximately 300, and the number of distilleries, which was around 50.

Many of these businesses wanted the ability to sell their products at farmers markets without obtaining expensive liquor licenses for each event. This created what appeared to be a strong market opportunity.

However, once we began developing the company, we discovered that eight other groups were also attempting to start malting firms with the same idea. What initially seemed like an easy opportunity quickly became much more competitive.

Out of inexperience, we also failed to consider whether malting grains from the Midwest could easily compete with grains produced in upstate New York. In addition, we did not study the law closely enough to realize there was little enforcement requiring brewers to regularly purchase New York-grown grains.

Another major issue was cost. Smaller farms in New York State, combined with higher property taxes, increased our production costs to nearly one-third higher than similar products from the Midwest. These problems did not become fully apparent until we entered actual production.

To address the grain issue, New York State provided a grant to the Cornell Cooperative Extension to research and test different grain varieties. After about a year and a half of experimentation, researchers discovered that grain varieties commonly grown in northern Germany adapted well to New York’s climate.

We also found that we could compete more effectively on price when our malt was used for beer sold on tap, although it was less competitive for canned beer production.

The most significant problem, however, was that breweries and distilleries were not required to prove that their beverages actually contained New York State ingredients. As a result, many companies chose the least expensive grain sources available, which limited our customer base to businesses that genuinely valued using New York-grown products.

Overall, SWOT analysis is an extremely valuable business tool, but it must be treated as a living document that is reviewed and updated regularly, ideally every six months. Next week, I will discuss marketing strategies.

If you need business advice, contact me at bobchuckpatterson@yahoo.com.

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