Lesson 1, Topic 1
In Progress

1.7 Assess the business’ strengths and weaknesses

ryanrori December 22, 2020

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To develop a successful, competitive business, entrepreneurs must research the business environmentfor opportunities and threats, as well as determine the strengths and weaknesses of their business. By examining the external environment, entrepreneurs can discover opportunities and threats, and by analysing their internal business environment, they can determine the strengths and weaknesses of their business.

The external environment

By investigating and analysing the total market environment entrepreneurs can identify opportunities and threats that can have an influence on the success of their business.

a) Opportunities

Opportunities are positive possibilities in the external environment that you can use to achieve your business objectives. When identifying opportunities the entrepreneur needs to consider new potential markets, and analyse if competitors are missing a niche (This is a small consumer group with specific needs)in the market.

b) Threats

Threats are negative possibilities in the external environment that may stop a business from achieving its objectives.

Threats can come in a variety of ways:

  • New competitors entering your market.
  • New regulations being brought in by Government that will affect your business.
  • An economic recession that causes customers to have less money to spend.
  • Rising interest or tax rates.
  • Technological developments or a new innovation from somebody else that causes your product to be outdated.

The internal environment

After examining the opportunities and threats in the external environment, analyse the internal environment to find the strengths and weaknesses of your own business.

This is necessary because you need to understand how your business is likely to perform in the business environment and against competitors. To develop a successful, competitive business you need to grow your strengths, and get rid of or reduce your weaknesses.

When analysing your business’ strengths and weaknesses look at all the key performance areas of the business such as personnel, finance, production, marketing, product development and organisation.

  1. Strengths

These are positive factors like:

  • Specific skills in your business
  • Special knowledge in the business
  • Special resources of the business

b) Threats

These are negative factors that prevent the business from achieving its business objectives. These can be:

  • A shortage of skills in the business
  • Lack of knowledge about the marketplace or the business
  • Lack of knowledge about customers
  • Lack of resources, for example, money or equipment

Identification of competitive advantage

Competitive advantage

In today’s competitive business world you need to offer consumers something different and better than your competitors. This ‘something’ is called your competitive advantage. Your competitive advantage, also known as your success factors, shows itself in different ways depending on your type of business. Some of these factors are under your control, for example the size of your factory, the number of people in your sales force, the amount you spend on advertising, the way you package your products. Factors under your control are called controllable variables.

Another group of success factors are called critical factors. These are factors that influence your business’ ability to compete in the market. They can be cost factors such as manufacturing cost per unit, distribution cost per unit or research and development cost per unit. Some factors like product quality, service offered, where products are positioned in stores, customer credit is not so easy to see or measure, but is just as important.

Your competitive advantage is influenced by the connection between controllable variables and critical factors.

Entrepreneurs need to use information collected to analyse their own business, their competitors and the industry so that they can identify reasons for competitive advantage. For example, a small manufacturer of cosmetics may find that shelf space in stores, effective advertising, good distribution methods and long production run are very important for business success. But a small retail store owner may find that having many different kinds of products, giving customers credit, personalising service, good store management and low distribution costs are important for his or her business success.

A successful restaurant business needs the following key success factors to keep a competitive advantage:

  • Very careful control over costs
  • Trained reliable in-store management
  • An absolute minimum wastage
  • A carefully considered, correct location
  • Excellent quality food in line with pricing
  • Keeping high standards in everything it does
  • Cleanliness
  • Friendly and effective service

To stay successful a business must be flexible with a greater focus on niche markets, and be able to adjust quickly to changes caused by customer trends and new technology. It is easier for smaller businesses to meet these requirements than it is for larger businesses.

Having the following qualities helps a business keep the competitive advantage:

  • Be focused

Decide what the business does best and continue to develop this strength. This also means that you need to keep up-to-date with ever-changing consumer needs and develop your business’ ability to meet these needs.

  • Be fast and up-to-date

Every day there are changes in the business environment. To remain competitive, businesses of all sizes need to continue introducing new and better ways of doing things as well as bring new products onto the market.

  • Be flexible

This means that businesses always need to look for new opportunities and to act on them as soon as possible.

  • Be friendly

This means that businesses need to develop good relationships with other businesses and organisations so that the business can expand its influence without needing to expand its size. It is linked to the idea that you can grow more quickly and efficiently by developing strategic working relationships with other businesses. These can include joint ventures, outside contracting, licensing, arrangements, long-term marketing agreements and selling out.

Competing in a tough, changing and challenging business environment is not easy. It is difficult to stay informed about new trends and new production methods. But businesses that succeed in staying focused, flexible and well informed can make changes quickly. This gives them a competitive advantage.


Your competitors are all the businesses that serve the same target market as you serve. When you measure the size and strength of your competitors you get a better understanding of the market and your potential market share.