How to perform a SWOT strategic analysis - Strengths, Weaknesses, Opportunities, and Threats
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A SWOT analysis provides a good basis for embarking on a new business project. We can use it to objectively assess the company's situation and the market opportunities available, as well as the areas that need special attention. This allows us to develop strategies consistent with our business objectives.
How to perform a SWOT strategic analysis - Strengths, Weaknesses, Opportunities, and Threats
A SWOT analysis can be used in multiple scenarios, from helping a business evaluate the viability of a business idea to providing the necessary perspective to make sound decisions about the direction of the business. These decisions can be simple, such as adding a new product, or more complex, such as completely changing the business model. In any case, a SWOT analysis is a very useful tool for strategic planning.
What is a SWOT analysis?
A SWOT analysis is a comprehensive analysis of a business's current strengths and weaknesses, as well as the opportunities and risks that could arise in the future, given its operating model and current performance indicators. Conducting this type of analysis involves examining and evaluating both internal and external factors that could influence the business's success or effectiveness.
Strengths and weaknesses are internal factors that indicate the inherent advantages and disadvantages of the business. These are factors under the entrepreneur's control, so strengths can be directly capitalized on and weaknesses mitigated.
Opportunities and threats are external factors that indicate external forces or influences that can positively or negatively affect the business. While these factors are beyond our control, we can take advantage of opportunities and prevent or minimize threats.
Why is a SWOT analysis important?
By identifying weaknesses and threats early, necessary changes can be implemented before the company can be harmed.
This type of analysis also helps new entrepreneurs maximize their resources, ensuring they can adapt effectively to the circumstances and direct investments in the most profitable way possible.
Once the analysis is complete, you'll be able to see your company's strengths and weaknesses, identifying specific areas that need to be addressed. Using a SWOT analysis to evaluate a business idea can help you decide whether or not it's worth pursuing. You can also use it to present a project to investors, partners, banks, etc.
We could even use a SWOT analysis to assess our competition. If we can accurately identify your competitors' weaknesses, you'll know where you're likely to be able to overcome them. If you can identify their opportunities, you could predict their next moves.
When to perform a SWOT analysis
A SWOT analysis can be very useful in the early stages of your business's life, even from the very start. It can help us identify your strengths, as well as the unique attributes that distinguish you from the competition. We can also uncover weaknesses and common threats that arise when starting a business. It also allows us to compare this information with what is already included in the business plan.
Perhaps the most useful time to conduct a SWOT analysis is just before making a major decision, such as a change in the business model or a significant shift in direction. This process helps determine whether or not those decisions contribute to achieving your business objectives.
Key components of a SWOT analysis
As its name suggests, a SWOT analysis involves identifying and examining the specific strengths, weaknesses, opportunities, and threats a company faces during times of change or simply during key stages of its development.
Strengths
Strengths are everything your company already does well, the areas where you have advantages over the competition, or the assets that make it easier to do business and stand out from the crowd. If consumers can identify our company's strengths, they are likely to prefer us over other similar companies and convince them to remain loyal to your brand.
Weaknesses
Weaknesses are areas of your business that are underperforming, to the point that they put you at a significant disadvantage compared to your competitors. These weaknesses aren't permanent and can be addressed and improved over time. If you don't, you'll remain the competition.
Outdated or non-existent business processes that make it difficult to achieve expected results; insufficient financial capital for your current needs; or lack of experience in your industry may make the competition seem like a better option to consumers.
Opportunities
Opportunities are like a different kind of strength: external, not internal. Opportunities are new potential strengths that become apparent or emerge unexpectedly. If we manage to take advantage of them when they arise, your company can gain an advantage over its competitors. The more attentive and aware you are of market conditions, customer desires, and industry trends, the more easily and frequently you will be able to identify opportunities that arise.
For example: new market segments; existing customers giving you feedback on new products or services they'd like; and new skills, training, and technology your team can leverage.
Threats
Threats are potential destabilizing external events and realities that could cause difficulties for your business or hinder the achievement of your goals. You can't control when or what type of threat will appear, but you can remain alert and flexible to quickly detect and address problems that arise.
For example: regulations and laws that make business difficult; new trends or technologies that make your products or services obsolete; and social media rumors that can damage your reputation.
How to perform a SWOT analysis
Start by defining and clarifying your objective—what you want to achieve with the exercise—and then keep that in mind when defining your strengths, weaknesses, opportunities, and threats. Don't include too much information; use only information that affects the desired objective.
Step 1: List your (internal) strengths
The purpose of listing your strengths is to make you and your employees aware of what your company does well and what your greatest business assets are. Once you know them, you can take steps to maintain them and make them elements that facilitate and improve your work.
Factors to consider when listing strengths:
What sets your company apart?
What does your company excel at?
What do customers value about your product or company?
What internal resources (qualified personnel, new software) do you have that increase the chances of project success?
What tangible assets (intellectual property, capital, proprietary technology) facilitate the successful completion of the project?
Once you have answers to these questions, put your observations into practice by implementing the following points:
What makes these strengths a strength for our company? Are there procedures or practices we can replicate in other areas?
Do our strengths align with our original business plan? Are we comfortable evolving in this direction? Are changes necessary now or in the near future?
Are these strengths worth maintaining? Are they a good use of our resources?
How can we promote or position these strengths so that they become a selling point or a standout feature that our customers notice?
Step 2: Identify your (internal) weaknesses
When listing and analyzing your company's weaknesses, think about your internal processes and how you compare to the competition. Think long-term. For example, it's not a weakness if customers don't know about the product you want to manufacture. But it is a weakness if you don't have a good marketing team.
Consider the following when listing your company's weaknesses:
What is your company missing that makes it difficult to achieve the goal?
What do your competitors do better than you?
What are your resource constraints?
Is this idea/project already being well executed by others?
What motivates your customers to leave your company or choose alternatives?
Once you have some answers to these questions, put your observations into practice by implementing the following points:
How did these weaknesses arise? What resources, plans, or actions were missing that led to their manifestation? When did this begin?
How can we address current weaknesses as efficiently and effectively as possible? In what order should we address these weaknesses? Which is the most urgent?
What can we learn from current weaknesses to prevent future ones?
Step 3: Identify your (external) opportunities
When considering opportunities, examine the market, competition, and external forces to get the most complete picture of what's possible.
When researching the competition to identify opportunities, consider these points:
What is your website like? Does it follow good design principles? What could be improved? Also review your social media posts. How are your users interacting? What are the positive and negative comments saying?
What are objective observers (such as third-party review sites) saying about your competitors? Note positive comments as well as areas for improvement. What do you want to emulate? What do you want to do differently?
What's been happening with your competition lately? Consider new products and services, personnel changes, mergers and acquisitions, changes in direction, and rebranding. Should you be concerned about these? What can you do to mitigate any potential damage? What steps can you take to stay ahead while your competition is busy?
Answer the following general questions when listing the opportunities for your project:
Is there a growing need in the market? How can you capitalize on it before your competitors?
Is there little competition? How can you position yourself or your offerings to minimize the advantages of future competitors?
Do you have a defined audience? If so, how can you capture their attention quickly and effectively? If not, is it possible to generate demand through strategic advertising and marketing?
Are there any external events or press coverage you could take advantage of? What are the first steps to take and who should you contact to do so?
Step 4: List your (external) threats
Like opportunities, threats lie outside your business and your influence. You may not be able to plan for them, but you must consider and prepare for them. Don't skip this section, as it could reveal the problem preventing you from investing money and effort into a project doomed to fail.
When listing threats to your project, consider the following:
Government Regulations: What Are They and When Will They Go into Effect?
Emerging Competitors: Who Are They and What Do They Offer?
Negative press about your business or idea: what does it say?
Customers' thoughts about your product or business are getting worse: How are they dissatisfied?
Once you have an idea of the potential threats your business faces, develop an action plan based on the following guiding questions:
How can we adapt, rebrand, or change strategies to avoid being affected by upcoming government regulations?
How can we learn more about upcoming competitors and their offerings as quickly as possible?
How can we position ourselves as the best option for customers?
How do we address negative press or comments? What changes can we make or concessions can we offer to regain goodwill?
Step 5: Refine your analysis
Once you have all your ideas, review them and evaluate each one. Does each point apply to the question, project, or objective? Is it in place or should it be examined differently?
After reviewing, reorder the points by importance. This process will help you evaluate the impact of each section.
You may find that some elements apply to more than one section. For example, a weakness could be considered an opportunity. However, for a SWOT analysis, separate them into internal (something you can control) and external (something you can't control).
On the other hand, a problem could be a threat to one type of project and an opportunity for another. For example, the recent social distancing regulations
would have been considered a threat if you expanded your restaurant's dining area, but an opportunity if you added a drive-through.
Step 6: Get feedback on your analysis
Once you've completed your analysis, it's time to gather feedback. First, ask everyone involved in creating it to review it for accuracy. Then, ask others to review it so they can offer an outside perspective, challenge your reasoning, or suggest additional considerations.
Share it with your colleagues involved in the project and share it with friends and family. If you have a business mentor, bring it to your advisor. If you don't have one, consider contacting your local Small Business Development Center (SBDC) or SCORE office; they offer free advisors to help you evaluate your analysis.
Step 7: Update your SWOT as needed
A SWOT is a dynamic document that evolves with the project. Therefore, consider keeping it handy to update as events change, weaknesses are addressed, or new strengths emerge.
This strategy can help you stay on track and identify new opportunities or needs as they arise. Alternatively, schedule a quarterly or annual review of your SWOT to assess your progress.
How to use the findings of a SWOT analysis
The first goal of a SWOT analysis for your small business is to decide whether a goal is worth pursuing. So, if after the SWOT analysis you decide not to continue with the project, congratulate yourself! Your work has saved you a lot of time and money, and you may have uncovered a different perspective or project you can tackle.
If you're moving forward with a project, use your SWOT analysis to convince others, strategize, or generate ideas. It can also help you organize the overall project.
Turning your SWOT into actions and goals
To turn your SWOT analysis into objectives, you need to compare your strengths and weaknesses with your opportunities and threats. For example, your software development team excels at quickly implementing new features. If an opportunity is the growing need for a specific tool, a viable course of action would be to develop that feature.
You can also create goals by addressing weaknesses. These can be long-term strategies.
Incorporating SWOT Analysis into Your Business Plan
A SWOT analysis can be an essential part of your business plan. It provides a strategic component to the plan and guides its execution. It helps your colleagues understand the reasoning behind your goals and policies. It also reassures potential investors that you have thoroughly analyzed their project or business.
While a SWOT analysis should inform your business plan, it isn't required to include it in your business plan or the presentation you provide to investors. With investors, you should talk about what you will do as a result of the SWOT analysis, not the analysis itself.
Summary
A SWOT analysis provides a good basis for embarking on a new business project. We can use it to objectively assess the company's situation and the market opportunities available, as well as the areas that need special attention. This allows us to develop strategies consistent with our business objectives.