Leaving Your Business

Does Your Business Need to Conduct a SWOT Analysis?

Acronyms can be the bane of a business owner’s existence. From “PNL” to “A&P,” it seems every function has its own acronym and if you’re in the know, you use them all with aplomb. We’re about to throw another one at you: SWOT.

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. A SWOT Analysis is a common tool used by businesses of all sizes and types to really examine not only their current situation, but external factors as well.

Additionally, SWOT Analyses are valuable for businesses facing some type of decision, whether it’s a major or minor one. From deciding to partner with a new vendor to adding employees to closing an office location, SWOT can help businesses clearly outline the positives and negatives of such a choice.

What Is a SWOT Analysis?

SWOT Analyses are a listing of all of the different strengths, weaknesses, opportunities and threats that currently face your business whether internal or external. Primarily, strengths and weaknesses are measured by comparing your organization to whatever you’re evaluating, be it another company, an opportunity, etc. Opportunities and threats are measured against external factors for both your company and what you’re comparing it to.

When Should You Use It?

There are many different situations that call for a SWOT analysis, and it should be noted that they all don’t need to involve a multi-million dollar deal. Here are some of the most common situations in which SWOT might be the most helpful.

1. Determining Your Competitive Advantage

Throughout your business’ lifecycle, starting from day one, there will be many different outside factors that could challenge your position in the marketplace. A SWOT analysis is a great way to take your organization back to basics and determine what you do best and what others may do better.

For example: A well-established consultancy firm is hearing very positive buzz surrounding a newer firm entering your business’ market and industry. In this case, by examining your organization’s strengths and weaknesses against what you know of this new competitor, you can reaffirm or adjust your position in the marketplace as needed.

Your strengths and weaknesses should be brainstormed under the lens of this new competition, while your opportunities and threats will focus on the new company and what their presence may do to your market share.

Consider the alternative situation, where you are a new company looking to enter the marketplace and face some stiff competition from established businesses. Even when the role is reversed, you can still use a SWOT analysis at the start of the process to help you find answers for your concerns.

2. Analyzing a New Market

Your product development team comes up with a great opportunity that would reach a new segment of the market. This is a perfect time to use SWOT. It gives you a chance to assess the risks and opportunities before you take the leap and launch a new product line, which can save you money and time.

3. Changing Vendors or Negotiating New Contracts

A variety of circumstances can lead you to needing to change vendors or reevaluate your current contracts. In the case of changing vendors, a SWOT analysis can be helpful depending on how different the two vendors’ offerings are, or if one rate is noticeably higher than the other. You want to take all the factors into account to make a smart and informed decision.

4. Writing Your Business Plan

If you’re struggling to draft your business plan, conducting a SWOT analysis might help to focus your thoughts and get you on track. It’s typically required to include in most plans anyway. But even if it isn’t, it can help when writing sections regarding market overview and your initial marketing plan.

How Do I Conduct a SWOT Analysis?

There are a variety of online resources that clearly state methods for conducting a SWOT Analysis. Aside from worksheets, templates and outlines, here are some key points to follow:

  1. Try to keep each category to a manageable number. Copious lists of strengths, weaknesses, etc., can make the process interminable and in the end, won’t provide much clarity. Try and distill each list to the most important factors.
  2. All items must be as specific as possible. Try to avoid hyperbole and zero in on each statement’s key principle. For example, stating that you have a well-liked product is not a valuable strength. Stating you have a product that averages $50 million dollars in annual revenue, which is number three among your competitors, however, is much more valuable.
  3. Just the facts, ma’am. All of your items should be based in facts. Maybe it goes without saying, but “they’re mean to their customers” is not a good competitor weakness. However, “they’re poor customer service leads to a 66% attrition rate year-over-year” is.

Most SWOT analysis methods include placing all the results in a grid format so that strengths and weaknesses and opportunities and threats can easily be measured against each other.

Why Should I Conduct One?

In one word: perspective. Depending on whether you ask others in your organization to participate or you conduct the analysis by yourself, the insight and perspective you’ll gather of your own business—and the competition’s—can prove invaluable. A SWOT analysis forces you to ask questions, some of which may be uncomfortable, to get the answers you need.

It’s important to note that any analysis is only as good as the information that produces it. If the organization finds it difficult to be as honest about its weaknesses as it is with its strengths, SWOT may not be the right option. Also, members of your finance team may view SWOT as too “gray,” whereas the numbers they can provide are black and white.

That’s why asking them to participate is important, because including that kind of clear cut thinking can be helpful. But remember that profit and loss statements do not wholly encompass your organization, and they won’t do so in the process of conducting a SWOT analysis either.

If you’ve been in business for a while, a SWOT analysis gives you a reason to take a step back and reevaluate. Even if things are great, there could be opportunities close at hand that you might be missing due to your day-to-day responsibilities. Take a moment to gain perspective and see what happens.

As with most business tools, a SWOT analysis will offer different benefits for different organizations. You may find them immensely useful and find yourself conducting one every quarter. Others may find the information helpful, but possibly not the format. Regardless of how you choose to review the information, however, no one can deny that having a strong understanding of your strengths, weaknesses, opportunities and threats is important for any business’ ongoing success.

A SWOT analysis is just one way of learning about your business and the opportunities waiting for it. Check out our business planning section for more types of analysis that provide even more insight.

Chapter 4.
How to Plan an Exit Strategy for Your Small Business5 min