Why is a SWOT analysis useful for small businesses?

Every business has positive attributes and negative tendencies—but how you identify and strategize around them can help make or break your company. This article will explain how a SWOT analysis can help you profit from opportunities and avoid obstacles, as well as figure out how to apply this process to your business.

What you need to know

• A SWOT analysis can help your business uncover problems, so you can chart solutions.
• SWOTs involve looking at the internal and external forces that impact your business.
• There are many different ways that you can apply a SWOT analysis, from wide-ranging to specific.

What is a SWOT analysis?

A SWOT analysis is a framework used to identify your business’s Strengths, Weaknesses, Opportunities, and Threats. One way to break this down is to look at the internal factors and external forces that affect your company. Internal factors are things you can control, while external forces cover everything you can’t control. Identifying these variables can help you develop strategies to seize opportunities and overcome threats as they arise.     

Internal factors of a SWOT analysis

Accounting and human resources are two examples of internal factors you can control. Manufacturing, production, and distribution also fall in this category. These are all the functions of your company that you can change. The deeper the analysis, the easier that will be. Here’s what you’re looking for…

Strengths

Business owners often need help assessing the strengths of their business. It’s easy to be too optimistic or even too critical when you have so much invested in your company. Have your team help you. Look at your balance sheet, employee retention rate, production numbers, and distribution costs to see where you outperform your KPIs or your competitors. If you can measure it, you can include it.    

Weaknesses

Your weaknesses should be apparent after you evaluate your strengths. Look at all the same areas, and ask where you can do things better. It’s important to be brutally honest during this step to get the full benefit from your SWOT analysis. That means admitting weakness where you think you should have strength.

External factors of a SWOT analysis

External factors outside of your organization’s control can also impact performance. Examples of this are the economy, your industry, and regulatory changes. These are out of your control, but how you compensate for them isn’t. For instance, you’re powerless over the decisions of the Federal Reserve Bank, but you can adjust to rising costs when interest rates go up.  

Opportunities

You never know when opportunity will come knocking. Regular SWOT analysis will help you recognize and take advantage of opportunities. Seasonal demand is a good example of this—check whether your company is doing everything it can to accommodate for swings in activity. Try to find ways to outperform previous cycles before the new season hits.    

Threats

Some threats—like global pandemics—can’t be foreseen. Other threats hit your business after several warning signs. Learn to recognize the latter so you can adjust accordingly. New competitors or legislation that could impact your company both fall in this category. Ask your team if they can identify a few others.  

SWOT in practice

When done thoroughly, a SWOT analysis can help you decide when and how to move forward. Here’s an example:

• Strengths: Strong balance sheet, solid customer base
• Weaknesses: Understaffed, poor customer service
• Opportunities: Increased demand for primary product
• Threats: Competitors starting a price war

Look at this from a holistic perspective. Your business is doing well financially, and you have loyal repeat customers, but you’re currently understaffed and your customer service is suffering as a result. There’s an opportunity to sell more of your most popular product because demand is high, but your competitor is cutting their price on that same item. What do you do?

Well, the SWOT analysis doesn’t give you a solution to your dilemma—but it does clearly identify the problem. Your team can use that analysis to find ways to improve your customer service and differentiate your company from competitors, preferably without getting into a price war. Several cost-cutting moves, like adding AI chat to your customer service queue, could help you be more effective.

Benefits of a SWOT analysis

The scenario described above is a practical example of how a SWOT analysis can improve your business. Here are some other ways you can use this tool:

• Explore best and worst case scenarios
• Define variables to set realistic goals
• Simplify complex problems
• Document a point in your business’ history
• Use it as a reference for future strategic decisions

In all of these points, SWOT data is applied to make informed decisions. You can use it to organize information that could reveal a problem, then develop a roadmap to a solution.  

How to do a SWOT analysis for your business

If we’ve inspired you to do a SWOT analysis for your business, here are some tips that could help you get started:

1.   Choose your goal

Every project should have a goal. A SWOT analysis can be done for the overall business or for targeted at a specific area where you need improvement, such as your brand, your positioning in the market, a new offering, or a marketing campaign.

No matter what you want to analyze, figure out what the primary objective of your SWOT analysis is. You could see how well you compete with others, whether you can grow and scale your business, or find ways to cut costs without hurting your customer service team.

2.   Gather internal and external data

Follow the suggestions above. The internal forces you’re evaluating are your strengths and weaknesses. The external factors that affect your company are opportunities and threats. Identify and categorize each of these, and be as thorough as possible. Fill out a four-square grid with one component of the SWOT in each corner. You can do this using pen or paper, on a whiteboard, or on the computer—whichever inspires you.

3.   Refine your ideas

The first iteration of a SWOT analysis is just a rough draft. Expand on each of the points and add more detail. You can write too little, but you can never write too much. This is a good place to brainstorm with your team. They may have ideas you didn’t think of.

4.   Strategize and implement

This is where it all comes together. You’ve identified your strengths and weaknesses and know which opportunities are ahead. There may be some bumps along the way. Sit with your team, strategize, and implement your solutions.   

Should I do a SWOT analysis?

The short answer to this question is: Yes, you should do a SWOT analysis—every business should. SWOT can also be adapted for personal growth or used to help employees reach their goals. As a small business owner, you could benefit from any of these methods.

In any case, SWOT is a planning tool to refine your current operations, simplify challenges, and find attainable solutions. If you want to innovate and develop something new instead, you might consider conducting a white space analysis that identifies potential gaps in the products or services marketed to your customers.