Why Your Small Business Needs a SWOT Analysis and How to Use It
- June 24, 2020
- Running Your Business
- 14 min read
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Strategic planning helps your business build a roadmap that takes it from your starting point to achieving your vision. Your business vision should be about you, your business and what you want to achieve within a set timeframe.
Once you’ve crafted a vision that represents your goals, it’s time to start strategizing. A SWOT analysis helps you to formulate your strategy by looking at realities both inside your business and in your external business environment. Read on to find out what a SWOT analysis is, why your small business needs a SWOT analysis and how to use it.
What Is SWOT Analysis?
SWOT stands for:
When conducting a SWOT analysis, you evaluate the business in terms of those four factors. These four SWOT quadrants can be divided into internal factors and external factors, both of which will inform your business strategy. You could be spot-on in identifying external factors, for example, but if your company is a wreck internally, then it’ll likely not be successful for long.
Below is an outline of the four quadrants of a traditional SWOT analysis grid:
|Ask yourself and write out key advantages relative to competition and target markets (internal company factors)||Ask yourself and write out key disadvantages relative to competition and target markets (internal company factors)|
|Ask yourself and write out what marketplace conditions your proposed business, service or product addresses (factors external to the company)||Ask yourself and write out what possible impediments to achieving business, service or product objectives exist (factors external to the company)|
By conducting a SWOT analysis, you get an accurate picture of where your business currently stands and how it can improve. A SWOT analysis can be done at any time, but they are especially useful when you’re uncertain of your current strategy or when you’re encountering a significant roadblock.
How to Do a SWOT Analysis
Ideally, you should do a SWOT analysis at your small business as a joint effort between different levels of employment. The most involved people should be founders and leaders, but gathering input from everyone provides multiple perspectives of your company. Each person involved should assess your business in terms of the four SWOT analysis quadrants: strengths, weaknesses, opportunities and threats. Read on to learn more about each individual SWOT analysis quadrant.
Ask yourself and record your answers to the following questions. If you are working with your team, it may be interesting to note the differences in your responses.
- What are your advantages in your market?
- Can you do something better than any other business in your field?
- Do you have a resource advantage that your competitors can’t match?
- What do your clients like about your business?
- Why do clients choose you over other businesses?
- What is your Unique Selling Proposition (USP)?
If you are working with your team, it may be interesting to write out answers individually and compare the differences in your responses afterward.
Remember to compare yourself to your competitors, too. You shouldn’t be assessing your business’s strengths in a vacuum. If all or most of your company’s employees list the same strength then you’re looking at a necessary factor for success rather than a strength. You’re looking for factors that will make your business stand out from the crowd rather than what makes it part of the crowd.s
Perhaps not surprisingly, assessing weaknesses is often more difficult than assessing strengths in SWOT analysis. You need to be absolutely honest with yourself about your business weaknesses at this point. Your employees and anyone involved also need to be honest and not hold back in order to get an accurate, unbiased evaluation of your company.
- What needs to be improved?
- Are there situations that you need to avoid?
- What do your clients say about your business if they were to criticize it?
- Why do other companies sometimes beat you to the competition?
Remember that weaknesses are internal. When thinking about what competitors are doing, you shouldn’t think about their external impact on your business. Instead, you should think about what they’re possibly doing internally that makes what you do at your company appear as a weakness by comparison.
Assessing opportunities is part of the external evaluation in a SWOT analysis. You may need to do some preparation before you begin this portion of your SWOT analysis. You don’t have any control over your external business environment, but it is here that your opportunities and threats lie. Ask yourself:
- Are there recent technological and market changes that could present you with a great opportunity?
- Will changes in government policy create a new demand for your products or services?
- Are there lifestyle, population or social changes that could benefit your business?
- What events may be influencing potential clients in your favor?
- Where are your competitors vulnerable?
- What strategic partnerships or alliances are out there for your business?
When investigating opportunities, examine your strengths and weaknesses to see whether your strengths will enable you to take advantage of opportunities and which of your weaknesses need to be eliminated for you to take advantage of the opportunity.
Threats are the other external factor in SWOT analysis. You really need to scan the horizon for all possible threats when conducting this part of a SWOT analysis. Competitors naturally play into this SWOT quadrant, but so do things like laws and regulations, general economic conditions and even environmental effects on your company.
- Will your competitors pose a threat to your business?
- Are there changes in your market that may necessitate adaptation?
- Do new technologies pose a threat to your business?
- Is your cash flow and access to finance sufficient to see you through?
- How do your weaknesses influence your chances of survival in your business environment?
- Is there an economic downturn on the horizon that could impact your business?
With all your company’s threats listed out, you’ll be finished the first step of a SWOT analysis. The second step, which is equally important, is understanding what the results say and how to apply them practically.
Developing a Strategy From Your SWOT Analysis
Your SWOT analysis should already have got you thinking strategically, but you still need to apply the information you’ve gathered. You should review the results of your SWOT analysis clockwise according to the grid, beginning with strengths.
Here’s how to evaluate the results and apply the lessons of your SWOT analysis:
Evaluate Your Strengths
Starting with strengths is important because you don’t want to brush them off. It’s too easy to get down in the dumps by starting with the negative quadrants like weaknesses and threats. By starting with strengths, you have positive momentum going into your SWOT analysis review.
- Can you build on your strengths and improve your competitive edge?
- How will you apply your strengths to build on opportunities?
- Will you need to build on your strengths in order to take advantage of market opportunities?
- Can your strengths help you to overcome threats? If not, what additional strengths should your business acquire?
Investigate Your Weaknesses
The most important thing besides identifying weaknesses in your company is actually doing something about them. You cannot explain away or personalize the weaknesses people identify in your SWOT analysis. Ask yourself and your team:
- How do your weaknesses impact your chances of business success?
- Are there ways in which you can reduce or eliminate weaknesses?
- Do your weaknesses affect your ability to take advantage of opportunities? How can this be overcome?
- Do your weaknesses make it difficult to overcome threats to your business? What should you do to change that?
Analyze Your Opportunities
If you’ve seen a lot of opportunities for your business, you may not be able to strategize around every one of them. Identify which opportunities you intend to pursue and how you will do so. Ask these questions:
- Which opportunities match your strengths?
- Will you need to improve on your weaknesses before taking advantage of your opportunities?
- What do you hope to achieve through these opportunities?
Manage Your Threats
You obviously can’t control what your competitors do. But you can figure out ways to anticipate and counter these threats. Ask yourself:
- What actions and their potential effects can you anticipate your competitors doing?
- What responses can you take that are in line with your business strategy?
- Which threats can be defined as imminent threats versus potential ones?
- Which threats play into your weaknesses and which could secretly play to a strength with some creative thinking
Track Your Progress and Be Flexible
You may find that you have to attain several objectives in order to achieve a single strategic goal. Divide and conquer by splitting your journey into subgoals. Which elements will you be able to achieve within the next quarter? What will you do next? List the steps that must be completed in order for your business to leverage business opportunities and set dates for the completion of every step — these are the first steps to building your roadmap.
Review your progress over a predetermined timeline. Will you check on progress monthly or quarterly? At the end of the year (fiscal or calendar), you should unpack your strategic plan in detail and review your SWOT analysis to determine whether you need to make any adjustments to your strategic planning for the following year.
For example, you may find that your business faces new threats or new opportunities. If a business is not responsive to changes in its internal and external environment, strategies can soon become outdated.
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The Bottom Line: Your SWOT Analysis Is the Key to Success
Although SWOT analysis doesn’t necessarily uncover anything you don’t already know about your business, it’s a great tool for getting all the information into an actionable format. If you want to win at chess, you need a strategy and the same is true if you want to succeed in business.
Your SWOT analysis will form the backbone of your strategic planning. It does take time, but it’s an exercise worth doing and repeating as you plan your path towards achieving your ultimate vision.
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