A SWOT analysis can be used to determine risks and rewards when considering a new business or product.
SWOT stands for strengths, weaknesses, opportunities and threats. It is an analytical framework which your business can use to defeat its challenges and discover a promising new market. While you are busy with your business plan research and preparation, it is crucial to conduct a SWOT analysis.
The ideal result of a SWOT is precise information. This can be used to develop an action plan for dealing with weaknesses and threats and enabling you to use your strengths and opportunities to your advantage. The analysis will result in business awareness and is the foundation of any successful strategic plan.
It isn’t possible to map out a business’s future accurately without evaluating it from every angle first. This involves a comprehensive look at both internal and external resources and threats. A SWOT analysis achieves this in four easy steps.
A small business owner can use a SWOT analysis to guide their business by leveraging strengths along with outsourcing and partnering up with others where you are weak and focusing on opportunities and being aware of threats.
Why Use a SWOT analysis
A SWOT analysis enables businesses to recognise both internal and external influences. The primary objective of a SWOT analysis is to show to businesses all the factors which are affecting their planning and decision making. This analysis can be applied to products, places, people and any types of industries.
For those starting a new business, walking through a SWOT analysis will help you to identify strengths and weaknesses related to the elements of your business that are integral – those factors within your control (such as niche, service or delivery, features and brand positioning).
A SWOT analysis will also help you to quickly identify threats and opportunities – these are extraneous factors that are outside of your control that may have a big impact on your business. Examples may include legislation, industry growth or shrinkage, emergence or decline of competitors.
SWOT is mainly used as an assessment technique and has become an instrumental tool in project management. A good SWOT analysis can be used as a dashboard to your products. Done correctly this analysis can assist you in navigating and implementing a thorough strategy. This can be used for your business no matter the size of your business or industry.
Businesses and management suggest that you continuously revisit your SWOT analysis yearly in order to keep up to date in the constantly shifting market trends. Business owners agree that it is a clear and concise way of communicating the businesses most important characteristics.
Related: How To Perform a SWOT Analysis
When Should You Use SWOT?
SWOT is designed to be used in the proposal stage of strategic planning. It should be used before any kind of business action, it can be used for the following four scenarios:
- Exploring possibilities for new initiatives
- Deciding on an implementation strategy for a new policy
- Recognising likely areas which need to be changed in a program
- Refining and redirecting energy after the commencing of a project.
SWOT analysis can be used for organisational purposes such as for finding solutions, finding obstacles and highlighting opportunities. Using a SWOT analysis improves business operations as well as decision making abilities.
It also allows management to recognise high performing key areas along with areas which need improvement. However, small business owners tend to view this type of analyses as casual. As a small business owner if you were to do a formalised SWOT analysis you would be able to improve on:
- Capitalising on their businesses strengths
- Improve on and eliminate the businesses weaknesses.
Both the business owner and other members of the team should be involved in the SWOT analysis process. By doing this you can combine the collective knowledge of the team.
It also removes blind spots which, if left unchecked, could be damaging to your business or your relationship with customers. By including your whole team it will also give your team a better understanding of your business and a feeling of increased involvement in your business.
Make sure not to use the SWOT analysis as an all-in-one fix. It is a self-analysis tool which can be used incorrectly when ego or insecurities are allowed to manipulate the information. In order to use this analysis properly you must be honest with yourself as well as be willing to give feedback that reflects your capabilities, accomplishments and skills truthfully.
Related: How to Write a Funding Proposal
The 4 Parts of the SWOT Analysis
These four categories ensure a business recognises what is influencing their strategies, actions or initiatives. With the knowledge of these positive and negative elements it can help businesses be more effective with their communication of which parts of their strategy needs to be highlighted.
In the drafting process of a SWOT analysis, people generally create a table with four columns in order to compare each category. Strengths and weaknesses don’t normally match items in the opportunities and threats columns. The four categories should correlate with each other as they are tied together.
By comparing external threats and internal weaknesses you can highlight serious issues your business may face. Once these are identified you can decide what will be the most appropriate course of action towards eliminating the internal weakness. You could assign resources or lessen the external threat by cancelling the vulnerable area and perhaps come back to it once your business is sufficiently strengthened.
Strengths and Weaknesses
These are specifically internal factors. They apply to the resources and experiences available to you. Examples of areas which are considered internal factors include:
- Finance related resources – Funding, income and investment opportunities
- Resources related to physical factors – Your businesses location, facilities and equipment
- Human resources – Employees, volunteers as well as your target audience
- Natural resource access – Trademarks, patents and copyrights
- Processes – Employee programmes, department hierarchy as well as software systems.
Other categories which should be considered are areas such as:
- Your businesses culture and image
- Operational effectiveness and potential
- Roles of key members of staff.
To create a thorough SWOT analysis you need to identify both good and bad factors. You shouldn’t sugar-coat or glaze over critical strengths or weaknesses when listing them. Small business owners have found that by using the SWOT analysis they have re-considered taking on a project that their business couldn’t actually handle.
It is recommended that before trying to take advantage of or control your businesses external factors your need to fully analyse and objectively assess your internal factors.
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Opportunities and Threats
Every business, organisation and person is affected and influenced by external factors. These factors may not be directly or even indirectly linked to an opportunity or threat.
It is still important to identify and make a note of each one. External factors are generally factors out of your businesses control like:
- Trends in the market – New products, technologies or shifts in customer needs
- Trends in the economy – Local, national as well as international financial trends
- Funding – Donations, legislature as well as other sources
- Demographics – Customers age, race, gender and culture
- Relationships – Partners and suppliers
- Regulations – Political, environmental and economic.
Recognising external factors can have a profound impact on your business. It can ensure you stay competitive as well as retaining larger advertising and marketing customers.
A SWOT analysis can be used to identify an untouched business opportunity which could provide you with organic, manageable growth. It can also be used to properly analyse your pricing structure which could have been a potential threat to your business.
A SWOT Analysis Template
This is an example of a SWOT analysis with a few options filled in:
A SWOT analysis is a simple, yet thorough strategy. It enables you to identify the weaknesses and threats of a project as well as the strengths and opportunities that it will make possible. It is an excellent brainstorming tool. But also encourages businesses to scrutinise and implement their strategies in a way which is more balanced.
Use this SWOT analysis template to make the process easier and guide you through process of conducting your SWOT analysis.
Download this standard SWOT analysis template that will ensure you don’t leave anything out:
It isn’t the only factor businesses can use in developing an effective business strategy. The SWOT analysis is useful in identifying broad questions which you can use to develop your business plan.
It has been said by some business leaders that it doesn’t go far enough. It won’t identify the key value drivers of your business. It is unproductive and ill-advised to begin planning before knowing your goals and the milestones you will use to measure your progress towards reaching those goals.
It is just one tool you should be using in your strategy toolbox. When it’s used with various other analysis models it will create a framework for strategic thinking which is informative and should be used to guide your decision making.
You Need to Know This:
A SWOT analysis is important, but it’s not enough. You should also run a Market Analysis:
Applying the SWOT Analysis
A large part of the success of the SWOT analysis is how you launch your strategy based on the information you received. Listing down and identifying all the strengths weaknesses, opportunities and threats has no value if you can’t implement a strategy.
You have to use the strengths of your business as well as take full advantage of the opportunities that come your way. You need to minimise your businesses weaknesses.
You must develop ways to improve on your businesses weaknesses or eliminate them completely. Combining this with avoiding threats or combating threats will make sure your business will deliver successful results.
A SWOT analysis’s true value is to combine all of these categories together and combine all of the information. This analysis is used to help determine the most favourable circumstances as well as the most severe concerns.
Additional Help for Your SWOT
For further assistance with your SWOT we recommend that you download our SWOT analysis examples.