Mapping your Business with SWOT
This video describes how farmer might conduct a SWOT analysis, to anticipate risks in his or her business and select appropriate mitigation strategies
Start-up farmers; farmers contemplating new enterprises
What a SWOT analysis is, how to conduct one, and potential responses to the weaknesses and threats revealed.
- [Winifred] Any time you start a new enterprise on your farm, you can't be 100% certain how things will go.
There's always an amount of risk present in the unknown.
One way to confront that risk is to conduct a SWOT analysis.
This is a tool that your farm team will use to evaluate the strengths, weaknesses, opportunities and threats involved in the new path you are considering.
This video will help you to learn how to conduct and benefit from projecting through SWOT.
This man wouldn't begin his hiking career by tackling the entire Appalachian Trail and in the same way you shouldn't start a new enterprise like community-supported agriculture, adding value or any other substantial agricultural practice without preparation.
Conducting a SWOT before you start down the road will allow you to use insights from your past to formulate possible solutions to existing or potential problems.
In this way, you'll take it step by step mentally before engaging your money, time and energy.
Let's start by examining all four parts of this important tool.
Strengths are mostly internal, the things that you and your family, employees and any other partners bring to the business.
These internal strengths will increase your ability to see the idea through to potential success.
Weaknesses are also internal factors you'll need to address such as lack of experience in the selected industry, your family not being 100% supportive, not being able to get qualified workers or having low beginning cash flow.
If you identify any of these weaknesses, don't worry.
Existing businesses are facing the same challenges.
Just knowing what you face makes you a step ahead towards changing or improving the situation.
Opportunities are considered mostly external.
Some common opportunities might be the existence of micro labs for beginning farmers or grants for feasibility studies.
You may already know that there is demand for your unique products and new competitors who are already selling what you offer.
If you're a starting farmer, take care when listing your opportunities.
Novices tend to be more optimistic than those with established businesses.
Threats are also external because they come from outside your business and will directly affect you while you, in contrast, may have very little control over them.
Unless you're fortunate enough to live in an area that is addressed right to farm, local regulations and zoning may pose a threat.
Unforeseen competition, dissolution of markets and adverse weather may also have negative effects on your new enterprise.
The best part about SWOT analysis is that one item can offset another.
For example, a strength associated with your being young and having energy may counterbalance the weakness of having to be a one-person operation to maintain cash flow or the opportunity of people wanting locally-grown food may be offset by the threat of a number of competitors all selling very similar products.
Let's move from talking about SWOT to discussing how to do it.
First and foremost, a SWOT is a group activity.
Doing SWOT independently may result in findings that are very biased toward your idea.
You want it to work.
This is what makes it important to gather others' thoughts.
When inviting participants, cast a wide net.
If you leave someone out, that individual might be the one having information about an opportunity or threat that's essential to your understanding, your position and determining your future.
Once you've collected everyone, start the discussion by providing enough information to let everyone know what you're thinking about doing.
Describe your idea in general terms and don't campaign for the idea too hard.
It will bias the discussion.
Make sure your group knows you want honest opinions about what you're considering doing, that your success or failure may hinge on everyone providing good information.
Allot enough time for everyone to get the aspects that they see out on the table.
This may take a couple of hours.
Make sure that everyone talks and that their opinions are given equal weight, even those ideas you might find a bit hard to hear.
If your group has difficulty naming the aspects of the venture, start by simply listing your basic characteristics, for instance a family-owned business connected to the neighborhood and then work from there.
Don't be too quick to categorize whether good or bad.
Some ideas may be both.
After everyone is talked out on the subject, then it's time to sort the contributions to determine whether each idea is internal, that is strengths or weaknesses, and external, opportunities or threats.
To make this sorting easy, let's go over each of the categories a bit.
Everyone loves strengths because they're the building blocks of successful businesses.
They're good characteristics within your control.
These internal factors have to do with your resources and experience.
Strengths include family, employees and volunteers available, your location, buildings and equipment, grants, loans and potential sources of income, and past experiences that will be building blocks for learning and success.
On the other hand, there are weaknesses, the things that are a little harder to hear but still important.
Spalding's quote, "No chain is stronger than its weakest link," really comes into play in a SWOT analysis.
You must be made aware of those areas where improvement or change will be needed if you want the venture to succeed.
As external aspects, both opportunities and threats may cover a wide area, but no person, enterprise or business is immune to outside events and forces.
When you list opportunities, you may be surprised how connected your farm is to the community and world.
Opportunities will most often relate to future trends in your field, the economy, potential funding sources, changes in your customer bases, age, race, gender or culture, community growth, market accessibility, state and federal regulations, and local, national or international events.
Threats are the flip side of opportunities in that they are external and have a potential to impact your farm equally.
By identifying the threats to your success early in the game, you may have fewer surprises.
Even though you may have little control of your farm, if you capitalize on your strengths and reduce your weaknesses, those internal aspects that are within your control, you'll be better able to weather the storm if a threat moves from vision to reality.
Analyzing SWOT will provide a much better understanding of your proposed enterprise and what it might bring to your life and business.
This understanding will help as you identify the issues or problems that will need to change, set your goals and create an action plan.
Don't rest on your laurels just because you did this analysis.
Remember that this a snapshot of today's reality if it's done well.
A lack of competition in the present, which is an opportunity, can change to a threat tomorrow when many others decide to do what you've been doing successfully.
Let's look at a couple of concrete actions that could be taken based on what you learned with your SWOT analysis.
Suppose that you found a weakness related to maintaining your barns and other structures on the farm.
You may respond by hiring part-time employees who are great at carpentry, maintenance or renovation.
Or you could learn how to do the building repairs yourself, but can you spare time away from farming?
Looking toward the farm office, you've always kept the farm financial records yourself.
When your business diversifies and grows, it may be time to hire a bookkeeper to free up your time to focus on production.
Just remember to hire someone you can trust to do skilled tasks for you or do an extensive background check especially if the person hired will have check signing capabilities or the latitude to purchase items on your behalf.
Having that person bonded will also create a level of security.
After you've identified changes that are within your control, consider purchasing insurance as a way to eliminate possible weaknesses, threats or risks.
Threats from liability, fire, automobile accidents and crop failures can all be reduced with proper insurance.
Let's just spend a minute addressing each of these types of coverage.
Liability insurance covers anyone who is injured on your farm or by a farm product.
A basic level of this coverage is included on your farm owner's policy, but it's limited to the dollar amount listed on that policy.
Any judgements in a lawsuit above your liability limit will be your responsibility so in many occasions, such as when you invite people on your farm for a pick-your-own, corn maze or harvest festival or when you start selling a value-added food product, you'll need to consider additional coverage.
Fire insurance is also included on your farm owner's policy.
The level at which you'll be reimbursed in the event of fire-related damage is written in your policy.
There are several methods of coverage from which you can choose.
Actual cash value, giving you the original amount of money the item was worth minus accumulated wear and tear.
Replacement value, giving you enough money to replace your item with the same type of item.
Or functional replacement value, allowing you to acquire another item or property that will perform the same function as the one lost with equal efficiency even if it's not identical to the property being replaced.
Your vehicle insurance is separate from the farm owner's insurance.
Any licensed off-the-road vehicle you own is required to be insured.
Check with your state's Department of Transportation and your insurance agent to determine the appropriate level of coverage for the vehicles that you and your employees will be driving.
The threats of flood, drought and other climate issues are ones to be taken seriously.
There are also concerns related to revenues that cover your expenses.
For these issues, crop insurance should be strongly considered.
You should investigate insuring field crops with several types of policies such as price loss coverage, agricultural risk coverage and supplemental coverage option.
If you do diversified farming, you may consider procuring a risk management safety net for all commodities under one policy through Whole Farm Revenue Protection, WFRP.
To learn more about WFRP, visit our short online video that addresses this type of crop insurance.
You can also get much information about Whole Farm Revenue Protection by visiting the USDA Risk Management Agency's website listed here.
Much of the information on SWOT analysis that you've just viewed is from this publication which also provides a case study illustrating the use of SWOT on a farm and a worksheet necessary to get you started toward your own evaluation of your business idea.
To receive a copy, go to this website or simply search the internet using the full title SWOT Analysis, A tool for making better business decisions.
Combining risk management strategies like SWOT analysis with appropriate insurance coverage is one way to take the question what if seriously.
We thank USDA for funding that has helped to support development of this program, addressing proactive farm risk management strategies.