A Look into the SWOT Analysis

by Sarah Hoel (October 2007)

The SWOT analysis is a very useful business tool that is practical for any small business owner. It is a quick and simple tool for business owners to understand the overall picture of their business and it is the starting point of strategic planning.

Learning how to apply a SWOT analysis to your business is so important because it will help you to position yourself ahead of your competitors and identify strategies that will be advantageous for your business.

What is A SWOT Analysis? SWOT stands for: Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses help you to focus on looking internally at the company, products, people, and services. Many businesses find it easier to look inward but have a hard time looking outside of their company.

Threats and opportunities are external; which means that they focus on the conditions of the real-world, such as competition, market forces, customer preferences, and the economy. This is an important part of a SWOT analysis because it challenges you to analyze forces that affect your business that are beyond the control of your company to determine what opportunities are available and how to make the most of your strengths.

While most of your analysis will be subjective, the SWOT can provide multiple benefits to your small business. These benefits can include:

• Insight into where your business can focus to grow.
• Understanding the industry structure by using a SWOT in your business plan.
• Focusing your advertising and marketing on areas that give you a competitive advantage in the marketplace.
• Finding possible threats and reacting practically.

To develop your own SWOT analysis, consider each section with objectivism by determining your strengths and weaknesses as your customers would see them. Many people make the mistake of saying, “We are great at everything and have no competitors." Customers may remember characteristics or things that impress them but the things that disappoint them will make a longer lasting impact. Also, do not make the mistake of forgetting the complaints and suggestions that customers have made.  The following are examples of what comprises strengths, weaknesses, opportunities, and threats.

Strengths

Consider your strengths relative to your competitors and from your customers’ perspectives. Anything a customer wants that you provide and your competitor does not, can be a possible strength.

• Physical assets– plant, equipment, building, and land
• Financial assets– working capital and funds generating capacity (operating, borrowing, or equity)
• Human assets– employees and their skills, including Intellectual Capital
• Organizational assets– company culture and reputation
• Location
• Products or Services
• Creativity– ability to develop new products or services
• Competitive capabilities
• Quality processes and procedures

Weaknesses

It is far easier writing down your corporate strengths than weaknesses. Think of objections your customers raise and compare your business to your competition.

• Resources: financial, intellectual, location
• Limited human resources and staff
• High cost of production
• Competitive capability
• Lack of marketing knowledge
• Undistinguished products/services in relation to competition
• Poor quality of goods or services
• Damaged reputation

Opportunities

Your small business is influenced by the external environment, such as: legal, political, technological, economical, and cultural factors. Please note that threats can become opportunities or vice versa.

• Government regulation softening
• Development of new technology
• Growing trend and customer base
• Competition closing
• Developing market/industry
• Entrance into the international market

Threats

• Competitor has a new, innovative product or service
• New competitor entering your home market
• Price wars with competition
• Economic pressure
• Global and local market
• Competitor has better access to channels of distribution
• Change in market preferences/behaviors

The most important take-away from this article is to apply this knowledge to your small business. Take actions to reduce the threats to your company and position yourself to take advantage of the opportunities. Always propose a way to improve or counteract weaknesses and threats. Even if you do not solve every potential problem, the exercise will have you better prepared for the challenges that do arise.

In order to create strategies to enhance your business, ask yourself the following questions:

• How can you Use each Strength?
• How can you Stop each Weakness?
• How can you Exploit each Opportunity?
• How can you Defend against each Threat?

It is also helpful to do a SWOT Analysis on your competitors. You do not need to spend your time trying to fix their problems; just view the information from a customer’s perspective and you will see where there may be additional opportunities for your business to fill market needs.

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