Why SWOT Analyses Are Important for Small Businesses

Why SWOT Analyses Are Important for Small Businesses

Understanding your company’s position within your market or industry and knowing how and where you can grow is critical for any business owner. This knowledge allows you to strategically develop your company rather than wasting your efforts trying to expand into a market that doesn’t align with your business or being steamrolled by a surprise competitor.

What is a SWOT analysis?

SWOT, which stands for strengths, weaknesses, opportunities, and threats, is a type of analysis that helps you develop your business strategy by comparing internal factors (strengths and weaknesses) against external factors (opportunities and threats). Examples of internal factors include things that you have control over and can change, like your staff or your intellectual property. External factors are things that you cannot control, like consumer trends or competitors.

A traditional SWOT analysis takes your strengths, weaknesses, opportunities, and threats and organizes them into a list that is presented in a two-by-two grid.

A SWOT analysis has four quadrants:

 

The analysis provides you with an accurate picture of what your business is currently doing well and how it can improve. “[A SWOT analysis] gives you a firm grasp of what is affecting your business internally and externally,” said Lynne Pratt, creative content director at Virtual Solutions Global. “By carefully evaluating the analysis, a business can find new ways of progressing and achieving growth.”

Why should you do a SWOT analysis?

A SWOT analysis gives you a detailed, unbiased overview of your business as a whole or a specific product or campaign. It can also help train your brain to consider every factor that can possibly affect your project or business. When you’re facing a tough issue or if you’re just unsure of your current strategy, a SWOT analysis illuminates details so you can formulate actionable plans based on each of the four quadrants.

For example, if you were considering opening a new location for your business, you could run a SWOT analysis to see if you are in a good position to do so. You could also use it to identify outside factors that you will need to plan for.

“A SWOT analysis is useful so that you don’t get caught entirely off-guard,” said David LaVine, marketing consultant and founder of RocLogic Marketing. “You [should] do a SWOT analysis for each application area you’re considering operating in.”

“We conduct [analyses] every six months as a rule in our business,” said Alistair Dodds, marketing director and co-founder of Ever Increasing Circles. “They act as a great check on how the competition has evolved in that time period.”

Who should conduct a SWOT analysis?

A SWOT analysis should be a collaborative effort between several levels of employment within your company. Founders and leaders should be the most closely involved, but to gain a true picture of your business, gather input from a group of people that can contribute several perspectives.

“It’s vital to go through your analysis with key stakeholders,” said Dodds. “When you identify weaknesses, it’s a great time to get other department heads and staff to suggest solutions – you’ll be amazed at the creativity and problem-solving inherent in your team if they are given the opportunity [for] input.”

If you’re a solo operation, ask close friends or related professionals (like your accountant, lawyer or advisor) for input. Having plenty of outside perspectives helps make your analysis as well rounded and objective as possible.

How to do a SWOT analysis

The first step of a SWOT analysis is to create your grid. Start with strengths in the upper left corner, then weaknesses in the upper right corner, opportunities in the bottom left and threats at the bottom right of the grid.

Next, fill in each quadrant. An easy way to do this is to ask yourself questions that apply to each box. Here are some suggestions.

Strengths

  • What do you do well?
  • What unique skills or services do you have?
  • What experiences do you have that can help you achieve your goal?
  • What do you do better than your competitors?
  • Where are you most profitable? Why?

Weaknesses

  • What aspect(s) of your business could hinder your progress?
  • What skills or resources are you lacking?
  • What is costing you money?
  • Is there anything you feel like you’re failing at?

Opportunities

  • What can you improve?
  • What external conditions can help you achieve your goal?
  • Are there new audiences you could potentially reach?
  • Is there technology you could use to enhance your business?
  • Can you do more for your existing customers?
  • Where or how could you expand your business?

Threats

  • What external conditions could damage your progress or performance?
  • What do your competitors do well?
  • What are your competitors doing that you are not?
  • What is going on in your industry?
  • What is happening (or could happen) in the economy that could harm your business?
  • Are there new competitors in your market?
  • Is your target audience shrinking?

Here are some additional points to consider as you fill in your quadrants:

Your quadrants do not have to be perfect – you can always create multiple drafts of your analysis, editing what you have filled in as you go. Host a brainstorming meeting to complete your first draft.

After you have filled in the quadrants, review each quadrant and evaluate your results.

How to evaluate your results

To evaluate your SWOT analysis effectively, start with your strengths, and don’t brush them off, said Pratt. “You might feel that because you’ve got these nailed down that you don’t need to do anything with them, but this is wrong,” she said. “There is always room for improvement, and working on your strengths, as well as [with] the [other quadrants], will help them remain your strengths.”

Next, look at your weaknesses and identify which aspects of your business each weakness is related to. For example, is poor customer retention due to staff? Location? Competitors? “Identify where the problem is coming from so you can begin to plan to address it,” said Pratt.

Then you can see which of your threats are related to your weaknesses and if any of them are caused by something you can change. Try to connect your strengths to ways you can combat threats.

Finally, consider whether there are time constraints that could impact your opportunities. Are any of them short-term or seasonal? If so, make it a priority to hit those opportunities first and create an action plan for taking advantage of them.

Nathan Thompson, organic acquisition lead at Pavilion Broadway, said his company splits their business opportunities into short, medium and long-term goals. They set deadlines for each goal to ensure it gets done. “SWOT results should be analyzed and evaluated in order of actionability,” he said. “Having deadlines set for each milestone ensures accountability for all parties.”

As you’re evaluating your results, remember that your SWOT analysis is only a starting point, not an actionable plan. “Don’t confuse SWOT for strategy,” said Greg Githens, executive and leadership coach at Catalyst and Cadre. You are still responsible for developing a strategy that will take you from where you are to where you want to be, and SWOT provides a roadmap for that strategy.

A sample of SWOT in action

To see how SWOT analysis works, consider this example:

Soft-Touch makes pads that attach by Velcro to the plastic face mask worn by sleep apnea sufferers to help them breathe while they sleep. The company founder herself has sleep apnea, and she developed the product to increase the comfort of wearing the mask and to eliminate the marks it left on her face the following morning.

The company has largely grown its sales through word-of-mouth. A major sleep apnea equipment maker wants Soft Touch to supply the pads for all of its masks. To satisfy the increased demand, Soft-Touch would have to outsource its manufacturing.

Here is a sample SWOT analysis for Soft Touch as they consider this opportunity: 

Notice that the SWOT analysis doesn’t provide an answer; rather, it provides a framework to help formulate an answer and allows you to see exactly what the opportunities are (an expanded market share and increased revenue), what weaknesses currently limit the company (lack of funding and marketing expertise, limited manufacturing capacity), its current strengths (unique proposition and trusted brand), and the threats it could face if it takes the opportunity (less control and need for financing).

“Taking time to think strategically will lead to ways you can streamline to get more done as well as take your business into new directions that can benefit (or even save) the company,” said Josh Ladick, president of GSA Focus.

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