How to create a SWOT analysis for your small business

Every business has its own unique set of priorities. Though they may shift over the course of the year, these priorities function as a kind of North Star, helping to guide your decisions, large and small. To stay on course, however, you may find the need to formalize your priorities and give them more structure. 

That’s the purpose of the SWOT analysis. It can help you map out your plans for the future of your business, making it easier to identify opportunities so you can be ready to capitalize on them more quickly. A SWOT analysis is a valuable exercise to support your startup activities. Later, as your business grows, it’s something you can revisit as you pivot to meet your evolving goals.

What is a SWOT analysis?

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Invented in the 1960s by a management consultant named Albert Humphrey at the Stanford Research Institute, it’s widely considered a powerful tool for strategic planning. A SWOT analysis provides a framework you can use to help determine how best to gain an advantage over your competitors. It can help you understand factors inside and outside of your company that may be holding you back, as well as the positive things you should nurture and promote. 

Most important, a SWOT analysis also helps keep your business grounded in the facts by tying your decisions to actual data instead of to your own biases and preconceptions. This simple idea can be applied to planning almost anything. 

Components of a SWOT analysis

No two businesses are the same so the insights revealed by a SWOT analysis will be different for every company, but every SWOT will include the following four categories: 

Strengths

These are what a company does exceptionally well and what gives it an advantage over its competitors. Such advantages might include things like a skilled management team, outstanding customer service or even a more efficient supply chain. If a company ships its products out one day sooner than its competitors, that’s a definite strength. 

Weaknesses

These are things that prevent a company from achieving top performance — areas where improvement is necessary to compete effectively. Weaknesses might include an inadequate customer database, limited marketing resources, high levels of debt or simply being overly resistant to change. 

Opportunities

These are external factors that could give a company an advantage in the marketplace. Examples are investing in a new technology, providing training for staff members, and automating time-consuming processes. 

Threats

These are external factors that could harm your business, such as supply chain disruptions, a sudden price increase in raw materials, a new competitor and changing government regulations. Other examples are labor shortages, decreasing demand for products and even weather events.

Why is a SWOT analysis important?

There are several benefits to performing a SWOT analysis. 

• Complex business challenges can seem overwhelming. Breaking a problem down into an organized, bulleted framework can reduce complex issues into smaller, more manageable parts. 

• Because consideration of external factors is an integral part of the exercise, A SWOT analysis prevents a business from seeing a problem through a lens of internal factors only. This provides a more realistic picture by anticipating things outside the organization’s control. 

• A SWOT analysis can be applied to a wide range of business problems. It can be used to help predict the outcome of a new product launch, guide a complex business expansion or simply weigh the advantages of hiring a new marketing team.  

• By drawing on data from several different sources — inside and outside the company — you avoid the internal biases that can distort the picture. This does require the discipline to gather information about outside market forces, competitors and economic trends. 

• Extensive knowledge or training is not required; it can be generated by your own staff with very little expense. Once you’ve prepared your first analysis, you’ll have the skills to apply the technique to other problems your business faces.

When should you perform a SWOT analysis?

If you’re just starting your business, performing a SWOT analysis right at the beginning can help you position your company against any known competitors and guide you throughout the startup phase. If your business is already established, you should do a SWOT analysis before undertaking any significant change in your business. This includes changes to your products or services, marketing plan, customer service strategy — anything that might result in unforeseen consequences. And don’t reserve the SWOT analysis for major changes only. Sometimes it’s a good idea to apply it to improving day-to-day business processes to find out where your operation is performing well and where it may be falling short. 

Don’t try to do it all yourself. Trying to exercise too much personal control over the process can lead to a distorted view. Instead, delegate portions of your SWOT analysis to members of your team and celebrate each person’s contributions to ensure that a wide range of perspectives are considered. 

While it’s true that some business owners rely on their gut instinct alone to guide them, instinct is no substitute for hard data. Performing a SWOT analysis gives you a much more fact-based, comprehensive understanding of where your business stands at any point in time. By helping to identify your weaknesses and your strengths, it can enable you to seize opportunities and, hopefully, avoid threats.

How to do a SWOT Analysis

A SWOT analysis includes the following steps. 

1. Pull together the resources you need

In addition to your own internal data (for example, information about your target market, pricing strategy, and other details from your business plan), you’ll need access to external data such as market research and consumer trends, as well as information about your industry (a small business specialist can provide insights here) and competitors, if available. Assign each task to the staff member best suited to handle it.

2. Identify your key objective

While they can be used for almost any business problem, the most effective SWOT analyses are focused on a narrow objective, such as a major branding exercise or a new product launch. A well-defined objective helps keep the goal in view.

3. Start asking questions

We’ve added some sample questions to ask yourself about your business within each category of the SWOT analysis:

Strengths

• What competitive advantages do we have? 

• What unique resources do we have? 

• What are our strongest products? 

Weaknesses

• Where are we falling short? 

• Do our marketing efforts need improvement? 

• Where do we lack expertise? 

Opportunities

• Can we adopt any new technologies? 

• Should we open up new markets? 

• What new products can we sell? 

Threats

• Could a health crisis or natural disaster hurt our operations? 

• Do we foresee any supply chain issues? 

• Will new competitors arrive on the scene? 

It’s important to keep this phase informal to help promote creative thinking. Encourage your staff to share any thoughts that come into their minds. No idea is too offbeat or impractical. But don’t just capture dozens of random comments. Instead, make sure that each idea serves as a prompt for additional discussions that will lead to an actionable plan. 

4. Find the gold

Now it’s time to clean up your raw list of ideas and separate the gold nuggets from the gravel. Focus on choosing the ideas that are practical and pose little risk but be careful not to throw away any good ones. 

5. Build a strategy around your findings

Using your list of strengths, weaknesses, opportunities and threats, have your team create a strategic plan, being careful not to lose sight of the key objective. 

For example, a small business is considering increasing its staff by 10% in anticipation of higher sales volume over the holidays. However, it currently lacks access to the capital necessary for the expansion. The opportunity is there for higher sales volume, but the cost of training new staff and added stress around higher payroll might outweigh the opportunity for increased sales. The team develops a strategy to approach three lenders with a comprehensive plan to win approval for a $40,000 credit line.

Consider a TOWS approach

A SWOT analysis is a useful guide, but there’s a second exercise that can help you create actionable strategies to improve your business. Known as a TOWS analysis, this exercise helps you visualize the connections between the quadrants of your SWOT analysis. Start by combining information from two quadrants to get a different view of your strategic options that considers internal versus external factors. 

Conclusion

A SWOT analysis provides a powerful foundation for a brainstorming session aimed at developing a business strategy. By defining a company’s strengths, weaknesses, opportunities and threats, it helps reveal hidden factors. Plus, when the exercise involves several key members of your staff, they may learn to think more strategically in general.