While it might sound like a military exercise, a SWOT analysis is an assessment of all things good and bad in your business, both in and out of your control, and you can use that data to craft your business plan.
We’ve broken down what is a SWOT analysis, how to conduct your own SWOT and its importance for your business’s growth.
What Is a SWOT Analysis?
SWOT stands for strengths, weaknesses, opportunities and threats. Each component of the SWOT analysis methodology enables businesses to better understand their positioning in the market compared to their competitors. Why do a SWOT analysis? Through a SWOT analysis for a business, operators can strategically plan how they’ll approach specific areas of their organization (both internal and external), how they’ll communicate with customers and how they should handle their entire product line.
Let’s break down what each piece of the SWOT analysis examines.
Internal Factors
Strengths
The strengths of your business are any elements that contribute to your overall success. These qualities are elements within your control, including the quality of your product, your customer care philosophy and the reach of your distribution chain.
Weaknesses
These are components currently existing in your organization that could minimize the value of your business. Don’t shy away from listing these disadvantages in your SWOT analysis — every company has them. The goal here is to review how each blemish leaves your business vulnerable and how you can learn from them to mitigate or eliminate them.
External Factors
Opportunities
Circumstances that could provide your business with a chance to take advantage of events happening in the market are considered opportunities. While these moments are more than likely not within your control, how you respond to these opportunities could result in a favorable outcome for your business. For example, if a competitor goes out of business, this is certainly an opportunity for your business to capitalize on to provide an outlet for displaced customers.
Threats
Just as external factors beyond your control can lead to positive results, it’s just as possible that the market will move in a direction that poses a threat to your business. These threats can come in the form of new competitors, shifts in consumer demands and global factors well beyond your control. For example, if you owned a local grocery chain and your primary suppliers were facing a severe drought, their threat would become yours, as well.
How to Create a SWOT Analysis Business Plan
To properly conduct a SWOT analysis of a business, planning ahead is important. For starters, you must have a goal in mind. Without a goal, you won’t truly achieve anything of substance from this exercise.
Once you have your goal, you’ll need to gather a team of employees you trust from across the business. Having a diverse group of perspectives and opinions will not only make the analysis more successful, but it’ll also provide direct lines of communication across the company that may lead to discoveries that save the company money.
With your goal and team assembled, you’ll need to map out the appropriate table ubiquitous with a SWOT analysis. You’ll often see examples of this table of a SWOT analysis for a business broken into 4 quadrants with the internal factors on the top row and the external factors on the bottom.
As your team’s discussions develop, record each piece into its corresponding box. When considering what are the strengths and weaknesses — as well as the opportunities and threats — of a company, consider these lists of questions you can ask as you conduct a SWOT analysis of a business.
Strengths
- Which processes are most successful?
- What are your most valuable assets? (team, skills, proprietary knowledge, network, brand reputation, etc.)
- What physical assets do you have? (customers, cash, equipment, patents, technology, etc.)
- What advantages do you have over your competition?
Weaknesses
- Where are you less than competitive?
- What needs improvement (products, services, policies, procedures, promotional strategies, etc.)?
- Which physical assets need to be addressed (cash, equipment, facilities, decor, vehicles, etc.)
- Are there open positions in essential roles on your team?
- Is your location best suited for your needs?
Opportunities
- Do customers like working with you?
- In which areas is your market growing?
- How can you take advantage of business trends?
- Which events will allow you to build awareness of the business?
- Are there upcoming changes to regulations that might be of your benefit?
Threats
- How are larger consumer trends impacting the way people interact with your industry as a whole?
- Are there market trends that could threaten you?
- Are customers leaving for another competitor?
- Will suppliers be able to maintain their quality at the same prices?
- Are you able to keep up with shifts and demands in technology?
SWOT Analysis Template
You can craft your own SWOT analysis for your business plan based on the above examples; however, some people might prefer working off a template.
A web search yields several free results for SWOT analysis templates, including downloadable templates from Smartsheet, MindTools and Creately. Formats range from spreadsheets to graphic-heavy templates that can be exported to Microsoft Excel, PowerPoint or other platforms.
The Importance of a SWOT Analysis Business Plan
The importance of conducting a SWOT analysis grows as your business matures, given that you gain more value and have more at stake as time goes on. While review and analysis can cause anxiety for some business owners, there are 5 primary benefits to performing a SWOT analysis that allow you to improve your overall approach to your business plan.
5 Examples of SWOT Analysis Opportunities
1. More Efficient Resource Usage
Whether it’s the pool of hours you receive from your employees, the raw materials you have on hand or the capital you have at the ready, businesses have a limited amount of resources.
By conducting a SWOT analysis, you can identify where your strengths and weaknesses are in each area, allowing you to determine the best way for these resources to be allocated. Once the SWOT analysis has been completed, your management team is charged with examining where you can compete most effectively in a way that can maximize your revenue potential.
2. Improving Business Operations
The goal of any SWOT analysis is to identify how your business can improve. Shining a light on the weaknesses found through your business allows you to ponder ways in which you can either eliminate them or reduce their overall impact.
3. Uncovering New Avenues for Success
As you’re evaluating many of the promising opportunities in front of your business, you’re looking for clues that will lead you to the paths that could be the most lucrative, both from a brand and bottom-line perspective. Choosing the right opportunities, whether it’s targeting new customers or launching a new product line, allows your business to plan and execute at the most optimal times to maximize resources across the board.
4. Preparing to Handle Risks
Just as weaknesses can become strengths when enough time and attention is given to them, threats can just as soon evolve into opportunities with the right approach. Finding ways to tackle the threats posed to your business is one of the most critical outcomes of your SWOT analysis. While it may not seem like an immediate opportunity compared to developing a broader marketing strategy, if you’re able to identify external issues in your supply chain, for example, you’ll have avoided a relative disaster down the line.
5. Competitive Positioning and Strategy
Being aware of your competitor’s strategies allows you to keep tabs on their tactics in an effort to find ways to exploit the gaps in their approach. The most obvious plan of attack is to focus on how your strengths can be used against the areas they’ve overlooked.
SWOT Analysis: An Essential Exercise
SWOT analysis of a business is an essential exercise for every owner and manager. Keeping an eye on the operations in and out of your business helps you identify ways to continuously improve your business and, ultimately, drive profitability.
While you may feel inclined to focus on the strengths and opportunities of your organization, we recommend placing the majority of your analysis on the weaknesses and threats. Being cognizant of these elements forces you to confront these factors and do your best to turn them into strengths and opportunities.
