(1) SWOT analysis is for Strengths, Weaknesses, Opportunities and Threats, and is used for preliminary stages of decision making regarding business planning. SWOT analysis is simple. Draw a symmetrical grid with four boxes and label them Strengths, Weaknesses, Opportunities and Threats.
(2) PEST analysis helps better understand environmental factors that can affect a business at a macro level. PEST stands for political, economic, social and technological.
(3) Performing a PEST or SWOT Analysis for a cold start, especially if you are cold starting in an area that you are unfamiliar with. Can also be beneficial for buying an existing practice, as it can alert you to future extraneous opportunities or threats.
Visualization is an important process when trying to implement value on something in the world of business. A tool that is used almost universally in MBA programs is something called SWOT analysis. SWOT is an acronym standing for Strengths, Weaknesses, Opportunities and Threats, and is used for preliminary stages of decision making regarding business planning. I have personally used SWOT analysis for many facets of my private practice and other business ventures including my overall take on a practice before purchasing.
SWOT analysis is simple. Draw a symmetrical grid with four boxes and label them Strengths, Weaknesses, Opportunities and Threats. Then begin filling in the boxes.
Specifics on the Four Components of the SWOT Analysis:
(1) Strengths - internal characteristics that give advantages to a business and can lead to direct or indirect growth
(2) Weaknesses - internal characteristics that present disadvantages to a business and can lead to future problems or dissonance
(3) Opportunities - external elements and characteristics that can help a business grow and create future advantages
(4) Threats - external elements and characteristics that can hinder growth and create future trouble for a business
The important part of this exercise is to not hold back on anything and give the process time. Eliminate any preconceived notions or biases that might prevent you from adding to Weaknesses and Threats boxes. When you feel that the boxes have been filled to their fullest extent, then begin to process the data.
Example of SWOT Analysis
Below is an actual SWOT analysis example of a practice located in South San Jose, CA that I considered buying in 2019 (but ended up passing on):
-Established 1960, locally known
-Loyal patient base
-Area has mild growth
-Officer Compensation above average
-Excellent Buyout Price
-Net income can increase
-Virtually no online marketing/presence yet
-Young engineers moving into area
-Can increase patients/hr with addition of techs and better equipment
-Heavy MediCal (low reimbursement)
-Large Portuguese population - Need at least one employee needs to know language
-Income per pt below average
-Only one exam lane, no room for expansion
-Hard to run hands off
-Lease up for renewal next year
-High staff turnover, already understaffed
-Patients may leave with different practitioner
When should you use a SWOT Analysis?
We definitely recommend using a SWOT analysis if you are planning to purchase a practice or start a practice cold. Specifically, run the SWOT analysis by yourself, then ask family, friends and colleagues to run one with you. Often, this double SWOT analysis will help confirm that no stone is left unturned.
The SWOT analysis can also be very useful when applied to internal business processes or opportunities. Brining in a new line of frames or new piece of equipment? Run a SWOT analysis to get a better grasp of the implications it will have for your business.
Go ahead and try running a few SWOT analysis just to get a hang of the process. Once you feel you’ve mastered the process it is time to learn about SWOT’s sister - the PEST analysis.
While SWOT analysis takes a direct look at internal and external factors that can make or break a business; PEST analysis gives us a different outlook. Specifically, the PEST analysis helps better understand environmental factors that can affect a business at a macro level. PEST stands for political, economic, social and technological.
Specifics on the Four Components of the PEST Analysis:
(1) Political - relates to how the government is involved in the economy. Specifically, political factors have areas including tax policy, labour law, environmental law, and political stability in certain areas. Local governments have a high impact on the health, education, and infrastructure of its citizens, which in turn can affect your business.
(2) Economic - includes factors related to economic growth, inflation rate, and interest rates. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands.
(3) Social - these factors encompass cultural aspects that revolve around health consciousness, career choices, population growth rate, and age distribution across communities. Specific trends in social factors will drastically affect the demand for a business's services and products. This in turn influences how a business acts and markets itself.
(4) Technological - these components include R&D activity, automation, and the rate of change due to technology. This can create barriers to entry and can influence outsourcing decisions. Furthermore, technological shifts can play a factor in costs, quality, and may lead to further changes.
Two other components can be added to form a PESTLE analysis - legal and environmental. However, these can be otherwise omitted due to the nature of optometric business.
Much like the SWOT analysis, the PEST analysis can be created on a 2x2 grid. Keep in mind that the detailed macroscopic nature of a PEST analysis can be much more challenging that the SWOT analysis, and will often require a lot more research. However, the details obtained from a thorough PEST analysis can be vital to future financial prosperity, and many of these details will go overlooked by competitors.
When should you use a PEST Analysis?
So when should the PEST analysis come into play? We recommend performing one for a cold start, especially if you are cold starting in an area that you are unfamiliar with. A PEST analysis can also be beneficial for buying an existing practice, as it can alert you to future extraneous opportunities or threats. As with any due diligence or analysis, make sure to take your time and do not get overwhelmed. The process is designed to further open your mind and reach a higher potential in your business endeavors.