What is a SWOT analysis?
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. In simple terms, it’s a self-guided process that examines the internal factors – strengths and weaknesses – and external factors – opportunities and threats – that can affect your business.
Internally, examples of strengths could be your excellent customer service, intellectual property you own, or an innovative product line ready for launch. Weaknesses could include regular working capital shortages or a lack of standard operating procedures.
Externally, opportunities could be an untouched market for your products or services or a new joint venture opportunity. Threats could be a new competitor eyeing your customers or a new technology that makes your offering obsolete. Threats could include also political and economic factors that can negatively affect your results.
How do you begin a SWOT analysis?
Begin by deciding on the area you want to focus on. If it’s a new business, you won’t have as much information so it could be a broad analysis of the internal and external factors that you think will affect the business. Often, a business plan for a new enterprise will include a broad SWOT analysis. For an established business, your SWOT analysis can be more focused. For example, you could conduct a SWOT analysis of your sales and marketing activities. In addition to uncovering what you’re doing right, you will find out what needs to be improved to overcome weaknesses and minimise threats.
Do the research to understand your business, market and industry
Since your analysis covers both internal and external factors, you need to conduct thorough research. Depending on your focus, you will want to start inside your business to uncover strengths and weaknesses. Let’s say the scope of your SWOT analysis is sales and marketing. In this case, you will want to speak with your company’s sales and marketing staff, analyse the processes involved and research external factors connected to sales and marketing.
Outline your strengths and weaknesses
Once you’ve completed your internal research, write down the relevant strengths. In our sales and marketing example, your strengths might include your professional sales staff and good product reputation. Your weaknesses could include your outdated customer relationship management system (CRM) and lack of data analytics.
Depending on the scope of your analysis, you will probably have several points for both strengths and weaknesses.
List the opportunities and threats facing your business
Opportunities are outside factors that can potentially have a positive impact on your business. In the sales and marketing example, this could be an opportunity to get high-profile publicity in the media or get access to a database of highly motivated prospects to increase sales. On the other side, threats are potential negative influences on your business. In the sales and marketing example, a threat could include a new competitor that comes in with a comparable product at a lower price. A threat also could be a shortage of raw materials that would decrease the availability of some of your products and negatively impact your sales numbers.
Create a SWOT matrix
Once you have outlined your strengths, weaknesses, opportunities and threats, write them down in a SWOT matrix. Here’s one from our sales and marketing example:
Based on your research, you will likely have many more items in each category.
Set action steps as part of your business strategy planning process
When all the points are in your matrix, determine which are the most important. Your criteria will be based on the feasibility of implementing each one and how much impact they will have. For example, since your sales staff is an important strength, you will want to ensure retain the best staff. This could be taking steps to avoid staff turnover, including offering flexible work arrangements, bonuses for meeting targets, and creating a comfortable work environment.
Since the outdated CRM is a big weakness, you could look at options for updating it. If the cost is prohibitive, consider alternatives such as online versions available as a service with a monthly payment. Looking at the big picture, the updated CRM will also have the potential to boost the satisfaction of your sales staff by giving them the best tools.
Conduct a SWOT analysis for key parts of your business
In our example, we have only examined the sales and marketing aspects of a business., Other areas could include finance and accounting, human resources, production and distribution.
For a small or new business, the SWOT analysis can be very simple because you might not have the experience or scope to include many items, especially the internal strengths and weaknesses. For a sole trader, strengths and weaknesses could include the business owner’s skills. In this situation, a strength could be excellent skills in service delivery while a weakness could be a lack of bookkeeping and accounting skills. A step to overcoming this weakness could be getting a cloud accounting program and using the services of a bookkeeper to keep it up to date.
One common weakness for many small businesses is a lack of finance that’s needed to grow. Find out more about unsecured business loans from Moula.