A strengths, weaknesses, opportunities, and threats (SWOT) analysis can be used in multiple scenarios, from helping an aspiring business owner evaluate the feasibility of launching a new business idea to arming an existing business owner with the insight needed to make solid decisions around areas in which the business is doing well or not so well. These decisions could be simple endeavors, such as adding a new product to your business offerings, or more complex such as changing your entire business model. You may choose to do a SWOT analysis on your own; however, we recommend doing it with others to get additional perspectives.
SWOT Analysis: What, Why, and When
To obtain the maximum possible benefit from a SWOT analysis, you’ll need to understand exactly what it is (and isn’t), why you should perform one every now and then, and when the best times to perform them are.
What Is a SWOT Analysis?
A SWOT analysis is an in-depth examination of your business’ strengths and weaknesses in the present as well as opportunities and dangers that could appear in the future given the business’ current model and performance. Performing a SWOT analysis involves looking at both internal and external factors that could influence the success or effectiveness of the business.
- Strengths and weaknesses are internal factors; they indicate advantages and disadvantages that are inherent in the business. Generally speaking, you can directly capitalize on strengths and mitigate weaknesses. You have a high amount of control over both of these factors.
- Opportunities and threats are external factors; they indicate outside forces or influences that can positively or negatively affect your business. While you may not be able to control when or how these factors appear, you can still choose to seize opportunities and address or prevent threats.
Why a SWOT Analysis Is Important
Business operators can use a SWOT analysis to more fully craft or flesh out an existing strategy or approach. If a business’ strengths and opportunities align with its original business model, there’s no need to make significant changes at the moment. Or, if business owners identify weaknesses and threats early on, they can apply the necessary pivots before the business is harmed.
This kind of examination and analysis also helps new entrepreneurs maximize their limited resources by ensuring that they effectively “roll with the punches” and don’t invest in approaches that have a low return on investment.
Once you’ve completed the analysis, you’ll be able to see the pros and cons of your venture. You’ll identify specific areas you need to address. If you’re using SWOT to test a business idea, you can decide if the idea is worth pursuing. You can also use this to develop and prepare for arguments when presenting the project with investors, partners, or loan officers.
Finally, you can even use a SWOT analysis on competitor businesses rather than on your own. If you can accurately identify your competition’s weak points, you’ll know where you can likely outperform them. If you can identify their opportunities, you might be able to predict their next moves.
When to Conduct a SWOT Analysis
It can be helpful to perform a SWOT analysis very early in your business’ lifetime, as you are setting it up. This can help you pinpoint strengths and opportunities such as your unique offerings that make you stand out from competitors and discover weaknesses and threats commonly encountered when starting a business (such as established rivals and insufficient starting cash flow). Some of this information might overlap with what’s already in your business plan.
However, the most useful time to perform a SWOT analysis is just before making a major business decision, such as a change in the business model or a significant pivot. Apply the analysis to the decision or the change you plan to implement, and use the results to help you determine if the change will help your business move closer to its goals or not.
Later in this guide, we’ll cover exactly how to perform a SWOT analysis, plus provide an example of what this process might look like.
Key Components of a SWOT Analysis
As the name implies, a SWOT analysis involves identifying and examining the specific strengths, weaknesses, opportunities, and threats facing a business during times of change or simply during key stages in its development.
Let’s look at each component in turn.
Strengths
Strengths are anything that your business already does well, performance areas in which you have advantages over competitors, or assets that make it easier for you to do business and stand out from others. Your business strengths, if displayed to consumers, are likely to attract their attention, make them choose you over other similar businesses, and convince them to remain loyal to your brand.
Examples include: efficient business processes that let you produce and ship products faster than your competitors; experienced and motivated employees who can get things done quickly and efficiently; and customer service that earns a positive reputation among your buyers.
Weaknesses
Weaknesses are parts of your business that are not performing as well as they could be, to the point where you have a noticeable disadvantage over competitors. Weaknesses are not set in stone and can be addressed and improved upon over time. Unless you do so, rival businesses will continue to outshine you.
Examples include: outdated or nonexistent business processes that slow things down or make it difficult to achieve target results; insufficient financial capital for your current needs, or a lack of experience in your industry that makes your competitors seem like a better option to consumers.
Opportunities
Think of opportunities as a different type of strength—one that is external rather than internal. Opportunities are potential new strengths that make themselves visible or come your way unexpectedly. If you grab them when they appear, your business can gain a competitive edge. The more aware you are of market conditions, customer desires, and industry trends, the more easily and frequently you will spot opportunities.
Examples include: new market segments; existing customers who give you feedback on new products or services they would like; and new skills, training, and technology that your team can harness.
Threats
Threats are potential weaknesses, or external destabilizing events and realities, that might cause problems for your business or make it more difficult to achieve your goals. You cannot control what kind of threats appear or when they turn up, but you can stay alert and flexible to detect and address problems immediately.
Examples include: regulations and laws that make it more difficult to do business; new trends or technologies that make your products or services redundant; and social media rumors (true or otherwise) that damage your reputation.
How to Conduct a SWOT Analysis for Your Small Business
When performing a SWOT analysis, begin by defining and clarifying your objective: What do you want to accomplish with the exercise? As you start to list your strengths, weaknesses, opportunities, and threats, refer back to this objective. Only list information that will affect your objective.
Step 1: List Your Strengths (Internal)
The purpose of listing your strengths is to make yourself and your employees aware of what your business is doing well and what its best assets are. Once you are aware of these, you can take steps to maintain those strengths so that they become things that make your work easier and better as well as things your customers love about you.
Consider the following when listing your business’s strengths:
- What makes your company stand out?
- What does your company excel at?
- What do customers love about your product or company?
- What internal resources (skilled staff, new software) do you have that make the project more likely to succeed?
- What tangible assets (intellectual property, capital, proprietary technology) make it easier to complete the project successfully?
Once you have some answers to these questions, put your observations into action by implementing the following points:
- What makes these things strengths for our business? Are there any procedures or practices we can replicate in other areas?
- Do the strengths align with our original business plan? Are we comfortable developing in this direction? Are pivots needed now or in the near future?
- Are these strengths worth maintaining? Are they a good use of our resources?
- How can we advertise or position these strengths so that they become a selling point or standout feature that our customers notice?
Step 2: List Your Weaknesses (Internal)
When listing and analyzing your business’ weaknesses, think about your internal processes as well as how you compare to your competitors. Also, think longer-term. For example, it’s not a weakness that customers don’t know about the product you want to make. But it is a weakness if the marketing team is laid off.
Consider the following when listing your business’s weaknesses:
- What does your company lack that makes it hard to achieve the goal?
- What do your competitors do better than you?
- What are your resource limitations?
- Is this idea/project already being done well by others?
- What causes your customers to leave or choose alternatives?
Once you have some answers to these questions, put your observations into action by implementing the following points:
- How did these weaknesses come about? What resources, plans, or actions were lacking that caused these weaknesses to manifest? 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 one is the most pressing?
- What can we learn from current weaknesses to prevent future weaknesses?
Step 3: List Your Opportunities (External)
When considering opportunities, examine the market, competition, and outside forces to get the most complete picture of what is possible.
When conducting competitor research to identify opportunities, consider these points:
- What does their website look like? Does it follow good design principles? What could be improved? Look at social media posts as well. How is their user engagement? What do both the positive and negative user comments say?
- What do objective observers (such as third-party review sites) say about your competitor? Note the good feedback as well as the points to improve. What do you want to imitate? What do you want to do differently?
- What’s been happening with your competitor lately? Note any new products and services, staffing changes, mergers and acquisitions, pivots, and rebranding. Do you need to be concerned about these? What can you do to mitigate any potential damage? What steps can you take to get ahead while your competitor is occupied?
Answer the following general questions when listing your own project’s opportunities:
- Is there a rising need in the market? How can you capitalize on this before your competitors do?
- Is there little competition? How can you position yourself or your offerings to minimize the advantages of any future competitors?
- Do you have a ready-made audience? If so, how can you capture their attention quickly and effectively? If not, is it possible to create demand through strategic advertising and marketing?
- Is there an outside event or press coverage that you can piggyback on? What are the first steps to take, and who are the parties to contact, so that you can do this?
Step 4: List Your Threats (External)
Like opportunities, threats lie outside your business and influence. You may not be able to plan for threats, but you need to consider and prepare for them. Don’t skimp on this section, as it could uncover the issue that saves you from putting money and effort into a project doomed to fail.
Consider the following when listing your project’s threats:
- Government regulations—what are they, and when will they come into effect?
- Emerging competitors—who are they, and what are they offering?
- Negative press about your business or idea—what does it say?
- Customer attitudes changing for the worse about your product or business—in what ways are they dissatisfied?
Once you have an idea of some possible threats facing your business, make a plan of action based on the following guide questions:
- How can we pivot, 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 superior option for customers?
- How do we address negative press or feedback? What changes can we make, or what concessions can we offer, to get back the goodwill?
Step 5: Clean Up Your Analysis
Once you have all your ideas down, go back through them and evaluate each. Does each listed point apply to the question, project, or goal? Is it in its proper place, or should it be examined differently?
After your review, rearrange the points in order of importance. This process will help you evaluate the impact of each section.
You may find that items may apply to more than one section. For example, a weakness could be seen as an opportunity. However, for a SWOT analysis, separate them by internal (something you can control) versus external (something you cannot control).
Alternatively, an issue might be a threat to one kind of project while an opportunity for another. For example, the recent social distancing rules would have been considered a threat if expanding your restaurant’s dining area but an opportunity if adding a drive-thru.
Step 6: Get Feedback on Your SWOT Analysis
Once you have your analysis complete, it’s time to get feedback. First, have anyone involved with creating the analysis check it for accuracy. Then, get others to look it over who can give you an outside perspective, poke holes in your logic, or suggest additional considerations.
Run it past coworkers involved in the project, and share it with friends or family. Take it to your business mentor if you have one. If you don’t have one, consider contacting your local Small Business Development Center (SBDC) or SCORE office—they provide no-cost advisors to help you evaluate your analysis.
Step 7: Update Your SWOT As Needed
A SWOT can be a living document, evolving with a project. Therefore, consider keeping it nearby to update as events change, weaknesses are tackled, or new strengths arise.
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 gauge your progress.
How to Use the Findings of a SWOT Analysis
The first objective of a SWOT for your small business is to decide whether a goal is worth pursuing. Therefore, if after the SWOT you decide against the project, congratulate yourself! Your work just saved you a lot of time and money and may have uncovered a different angle or project to pursue.
If you are moving forward with a project, use your SWOT analysis for convincing others, mapping strategies, or generating ideas. It can also help you organize the overall project.
Turning Your SWOT Into Actions & Objectives
To turn your SWOT into objectives, you need to examine your strengths and weaknesses against your opportunities and threats. For example, your software development team excels in the quick turnaround of new features. If an opportunity is a rising need for a particular tool, an actionable item would be to develop that feature.
You can also create objectives by addressing weaknesses. These may be long-term strategies as opposed to action items.
Adding Your SWOT to 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 execution. It helps your coworkers understand the reasoning behind goals and policies. Further, it reassures potential investors that you have thoroughly thought through your project or business.
While a SWOT should inform your business plan, you don’t necessarily need to include it in the business plan or presentation you provide investors. With investors, you should be talking about what you will do as a result of your SWOT, not the analysis itself.
SWOT Analysis for Small Business Example
Here’s what a SWOT analysis might look like for a new small business. Let’s use the fictional case of Ingrid, an ambitious young entrepreneur wanting to set up a small fitness center within an urban business district.
This is Ingrid’s first business venture, and she wants to do it right. Before investing resources into the venture, she sits down with a few business-savvy friends and completes a SWOT analysis. Here are the points they came up with:
Strengths | Weaknesses |
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Opportunities | Threats |
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Based on the SWOT analysis and its findings, Ingrid decides that the venture is worth the risks; she will proceed with her business plans. She will draw up a comprehensive business plan with strategies she can use to stand out against the potential competitors in her area—themed group fitness classes and special discounts, for example. She will also leverage her network of friends and contacts in the area to help promote her business, correct her early-stage mistakes, and encourage her when she gets intimidated by the idea of advertising her services.
By capitalizing on strengths and opportunities, as well as taking steps to mitigate weaknesses and threats early on, Ingrid is confident that she can make her new business succeed.
Frequently Asked Questions (FAQs)
Click through the sections below to learn more about what a SWOT analysis is, its individual components, and what it looks like in practice.
This is an analysis of a business’ strengths, weaknesses, opportunities, and threats. This analysis is used when starting a business, or just before making a major decision or change. The purpose of the analysis is to assess whether the decision in question will ultimately be of benefit to the business’ goals or not.
Strengths are internal aspects of a business that give it an advantage over competitors. Examples include quick delivery and shipping, high starting capital, and great marketing skills.
Opportunities are external realities that can be a benefit to your business or confer an advantage if you capitalize on them. Examples include new market demand, changing customer preferences, and new business models with strong potential.
Weaknesses are internal lacks or deficiencies in your business that make it harder to succeed or make you weaker compared to your competitors. Weaknesses are not set in stone; you can take steps to minimize or eliminate them. Weaknesses can be things like inefficient processes, lack of flexibility or agility, and low starting capital.
Threats are external factors that might negatively affect your business in the near future unless you take steps to minimize the risk as early as possible. Examples include restrictive government regulations, emerging competitors, and negative press or consumer attitudes toward your brand.
Bottom Line
A SWOT analysis provides a good foundation for taking on a new business endeavor. Use it to objectively evaluate your objective. At the end of the analysis, don’t just throw it in a drawer, never to be seen again. Pull out strategies from the exercise and implement them to improve your business. If you’d like no-cost SWOT feedback or assistance, contact your local SBDC or SCORE office.
