Part 6 of 7 in the Smart Business Planning Series
What is a SWOT analysis? SWOT stands for Strengths, Weaknesses, Opportunities and Threats. A SWOT analysis is a useful tool for small business owners that want to succeed in building a company, move forward generally, or perhaps tackle a new project. Here, we’ll explain one of the easiest ways to do a SWOT analysis – giving you results that are easy to understand and ready to use.
Why would you need to use a SWOT analysis?
In almost any situation, your likelihood of success can be better understood by getting a handle on known strengths, weaknesses, opportunities and threats. Launching a product, perhaps. Rebranding. Buying-out a competitor, or taking a new direction with your business altogether.
A good SWOT analysis is like a roadmap: it points out things you should take notice of and it highlights key areas for immediate action and consideration.
A SWOT analysis evaluates your business’s Strengths, Weaknesses, Opportunities, and Threats.
Doing a SWOT analysis can help you to see how your business can improve and capitalise on current opportunities.
A good SWOT analysis should also clarify what might hold you back, and how and when to take remedial action.
Because it relies on four neutral factors, a SWOT analysis is also very effective for getting an unbiased evaluation of a situation. Investors, stakeholders, board members – even customers – warm to a SWOT analysis that’s objective and well set out. Plus, a good SWOT analysis can be a useful tool in tracking progress and monitoring the evolving commercial landscape.
Is it difficult to do a SWOT analysis?
No. In short, you can conduct a SWOT analysis on the back of an envelope, in any situation, in just a few minutes. In fact, as a meeting tool, it can be a very useful concept for articulating complex arguments. However, the most useful SWOT analysis is best conducted as a considered exercise with input from key members of your team: setting out the objective in writing and working through each one of the four steps to capture the output in a document, for future reference.
In this guide, you’ll find two full examples of a SWOT analysis – one very simple example for a coffee shop considering new premises, and the other, for a small business that wants to develop its product lines and explore selling stock online – but every SWOT analysis starts with a grid-like matrix of four quadrants.
This quadrant layout makes it easy for everyone to see which elements are internal or external, and how they might relate to each other in practice.
The four quadrants of a SWOT analysis
As a small business owner, your aim is to capitalise on strengths. Clearly, the situation you’re evaluating may change depending on the questions you’re asking.
You’ll need to monitor threats to ensure you’re mitigating risks to your business or your project.
Weaknesses need attention and improvement at least, as well as active management and consideration as you move forward.
Threats may or may not have a direct impact on your business, but where you can you need to reduce or eliminate threats.
How to do a SWOT analysis in practice
Working through each quadrant in turn, ask yourself the questions appropriate to the situation. It may help to do this as a team with staff from various parts of your business providing on-the-ground detail and views. Different people could have different perspectives on things that are strengths or weaknesses, for example.
A pad of sticky-notes gives everyone a chance to make their voice heard. It also prevents 'group thinking' and provides an easy way to group similar ideas. When you have captured thoughts on all four areas, it is useful to rank the views. Some may be less pertinent; others may be of vital importance.
Many guides to SWOT analysis recommend setting down three or four bullet points per quadrant - buy your business's situation may be more complex than that. Let the circumstances and your instincts guide you as to the amount of detail required.
It's best to think of STRENGTHS and WEAKNESSES as internal factors, and OPPORTUNITIES and THREATS as external factors.
Remember, the best SWOT analysis relies on complete honesty. It's easy to focus on what's working in a small business, especially if it's something you've put your heart and soul into. But you should also be pragmatic about calling out the things that aren't working as well.
What do you do very well in the business?
Which departments or procedures are very successful in their own right?
What tangible assets do you have – equipment, technology, IP or property?
What do team members bring to the business – skills, contacts, reputation?
What are your competitive strengths? Which qualities separate you from competitors
Are there any skill gaps on your team?
Which business processes or products would benefit most from improvement?
Are there things your business could do to be more competitive?
Are there any tangible assets your business needs, such as equipment?
Do you struggle with getting invoices paid on time and finding money for cashflow?
Is your location ideal for the long-term success of your business?
Is there an emerging need for your business, service or product?
Is your current customer-base expanding naturally and do people like what you do?
Are things happening in the market that you could capitalise on?
Could there be changes to regulations that might impact the business?
Do you have good PR? Do customers think highly of you? Are there case studies you can create or testimonials you could capture?
Are there market trends that could become a threat?
Are there any competitors who might pose a problem to you?
Are you in total control of your supply chain and its pricing?
Does payment behavior impact your cash flow?
Have you had any poor PR? Is there any media coverage beyond your control that might impact you negatively?
Could future developments in technology, regulation or environment change how you do business?
Using your SWOT analysis
When you have collected details for all four quadrants of the SWOT analysis, you should be ready to use that information in practice – informing your strategy for the project, product, or business direction. Ideally, you should try to match your strengths with the opportunities – and tackle your weaknesses, turning them into strengths.
Assess your strengths. Think about how you can capitalise on them to take advantage of your opportunities.
Review your weaknesses. Make a step-by-step action plan to evaluate their importance and mitigate the risk they post for the business.
Evaluate the opportunities. Structure a plan that shows how you might take advantage of them, and what might hinder your progress.
Weigh up the threats. Record their potential impact on the business if you can, and explore ways in which your strengths might help you overcome them.
When you review your business's strengths, congratulate your team on success to date and create a list of actionable insights from their views. This can help them to take ownership of and feel engaged with your business's strategy.
A start-up coffee shop is exploring the potential for success in a new area.
Own brand coffee liked by customers
Great reviews by local people
Good cash flow
Profit margins are low
Not enough staff in peak times
Suppliers have been unreliable
Great long-term deal on new location
Seasonal trade in add-ons (cakes)
Competitor’s coffee-shop 150m away
Suppliers’ prices likely to rise
Increases in food regulation imminent
A small business wants to develop its product lines and explore selling stock online.
Great manufacturing workflow
Enthusiastic, engaged, experienced team
IP on new widget filed
Marketing team is part-time
Not selling online yet – no web presence
Cash flow has been poor (late payments)
Market wants the widget online now
Sister business showing at exhibition
Close connections with great PR team
Competitors have similar widget
Uncertainty about future widget data
Rising costs of component pricing
Tools and templates
Please note that these guides are provided for information purposes only and not as advice or recommendations. Before deciding to undertake any course of action you may wish to seek independent professional advice.