While it sounds like a division of the military, a SWOT analysis of a company is a simple assessment of all things good and bad in your business, both in and out of your control.
To give you a better idea of how to use this evaluation for your benefit, we’ve broken down everything you need to know about the basics of SWOT analysis of a business, including the definition of SWOT analysis, how to conduct your own SWOT and why it’s important.
What Is a SWOT Analysis?
A SWOT analysis 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. Through SWOT analysis, 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.
To further understand how each of these elements pushes businesses to take a critical view of their organization, let’s break down what each piece of the analysis examines.
Naturally, the strengths of your business are any elements that contribute to your overall success. These qualities are elements within your control; things like the quality of your product, your customer care philosophy and the reach of your distribution chain.
Components currently existing in your organization that could minimize the value of your business are scored as weaknesses during a SWOT analysis. Don’t shy away from listing these failings in your business—every company has them. The goal here is to review how each blemish leaves your business vulnerable and how you can learn and plan to mitigate them.
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.
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 Conduct a SWOT Analysis
To properly conduct a SWOT analysis of a company, 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. Often times, you’ll see this table broken out into four quadrants with the internal factors on the top row and the external factors on the bottom.
As your team’s discussions begin to flesh out, record each piece into its corresponding box. To get an idea of what should be written in each section, here’s a list of questions you should ask and potential pieces you need to insert.
- 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?
- 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?
- Do customers like working with you?
- In which areas is your market growing?
- How can you take advantage of these trends surrounding your business?
- Which events will allow you to build awareness of the business?
- Are there upcoming changes to regulations that might be of your benefit?
- 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?
Why Conducting a SWOT Analysis Is Important
As we’ve learned, the purpose of a SWOT analysis is to evaluate the four quadrants and weigh each of them holistically in order to gain new, actionable insights into how you can improve your business. Without conducting a SWOT analysis, your business has the potential to operate with blinders on, working in the dark without taking all of the variables that successful companies take into account.
SWOT analysis can be conducted at any time for any project. 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 more advantages to conducting a SWOT than there are disadvantages. In fact, even the disadvantages can eventually become beneficial for your business.
In essence, there are five primary benefits that allow you to improve your overall approach.
5 SWOT Analysis Opportunities for Small Businesses
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. Your management team is charged with examining where you can compete most effectively in a way that maximizes your revenue potential. Once the SWOT has been completed, the idea is that you’ll have realized where the true strengths of your business lie, which may have never been fully or properly used in the past.
Improving Business Operations
The goal of any SWOT analysis is to identify how your business can improve. While uncovering and talking openly about your weaknesses may not be something you’re eager to do, it’s important to the long-term health and growth of the organization. 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.
There are plenty of examples of weaknesses developing into strengths for businesses of all sizes; while it may be uncomfortable, it’s essential to learn from past mistakes and constantly find new ways to improve your company.
Uncovering New Avenues for Success
Whether you’re discussing new target customers or a brand new product line, there’s perhaps nothing more exciting—aside from turning a profit—than potential. 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 ones that could be the most lucrative, both from a brand and bottom line perspective. Choosing the right opportunities allows your business to plan and execute at the most optimal times to maximize resources across the board.
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.
Focusing on the T in your SWOT will help you anticipate the potential negatives of any situation, especially those outside of your control. Remember, the majority of business is more about how you react to the things happening around you rather than vice versa.
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. Even beyond your initial SWOT analysis, being aware of your competitor’s ever-evolving approach to the market is crucial.
Knowing how your collective strengths and weaknesses stack up competitively enable you to both challenge rivals directly and effectively plan for the future.
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 great 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.