SWOT Analysis: A Guide for Small Businesses
A SWOT analysis provides your business leadership team with a nuanced understanding of organizational capabilities and the strategic foresight to help develop a sustainable competitive advantage.
A SWOT analysis is an essential tool for small business owners and entrepreneurs. It helps you take a closer look at your business by identifying its strengths, weaknesses, opportunities, and threats. This approach allows you to build on what your business does well, address areas where it may be lacking, seize new growth opportunities, and be aware of potential challenges in the market.
In this article, we'll walk you through the SWOT analysis process and provide an example to illustrate its practical impact. We've also developed a free SWOT analysis template to help you easily conduct your analysis and make informed decisions for your business, no matter your level of experience.
Conducting a SWOT Analysis
For small business owners and entrepreneurs who want to understand their businesses better and develop more impactful strategies, conducting a SWOT analysis is a crucial step. To successfully conduct a thorough SWOT analysis, follow these steps:
Determine the Scope of the Analysis
This might sound odd as the scope of a SWOT analysis seems defined by the name: Strengths, Weaknesses, Opportunities, and Threats. We’re referring to the scope of the analysis in the sense of its focus on the organization.
Being such a versatile tool, a SWOT analysis can be applied to an organization as a whole, a specific product line, or a specific function. For example, a large technology company like Microsoft may be more interested in seeing a SWOT analysis for individual product lines and groups rather than the organization as a whole. They can develop separate SWOT analyses for their software services, cloud services, device sales, and more.
Most small businesses don’t have such differentiated product or service offerings, so an organizational SWOT analysis should be sufficient. If your business does have enough product or service offerings to perform separate SWOT analyses, conduct an organizational SWOT analysis first. Strategic planning and decision-making should be guided by a consistently applied set of goals and objectives.
Assemble Your Team
Putting together the best analysis possible requires gathering input from various departments throughout the organization. If you’re a small operation with a handful of employees, the choices you have to make during this step become easier.
The team members conducting the SWOT analysis should all have relevant and specific knowledge and have a solid grasp of the company’s strategic goals and objectives. Generally, this group includes the executive leadership team and some department heads for an organizational analysis. An analysis focusing on a product line or service offering could generate more value by including product development, sales, and marketing personnel.
Conduct the SWOT Analysis
With the team ready and the scope defined, it’s time to begin the SWOT analysis. Strengths, weaknesses, opportunities, and threats don’t necessarily have to be analyzed in any specific order as long as they’re all completed.
In most cases, organizational personnel will better understand the strengths and weaknesses of the business, making these easier to address than opportunities and threats. It can be better to start with the internal characteristics and build momentum going into the external characteristics analysis.
Let’s first look at strengths and weaknesses. These are internal characteristics, meaning your organization should have significant control over them.
Strengths are the internal characteristics that support the success of strategic goals and initiatives. These characteristics are capabilities and resources that set the company apart, helping it establish a competitive advantage.
Common examples of strengths include differentiated product offerings, unique or proprietary technology, best-in-class marketing initiatives, a loyal customer base, or a superior distribution network.
Weaknesses are internal characteristics that obstruct strategic progress and success. These deficiencies have the potential to erode a company’s competitive standing and diminish the value proposition to customers.
Examples of weaknesses include inefficient or disorganized operations, a lack of working capital or investment to drive growth, a lack of employee talent, inferior product or service offerings, and poor brand reputation.
The next two characteristics to analyze, opportunities and threats, are external characteristics businesses should be concerned with. Although your organization will have less control over these characteristics - possibly no control - it’s important to monitor these characteristics to help inform organizational strategy.
Opportunities are external factors that can be leveraged substantially to elevate the company’s position in the market. Capitalizing on opportunities can lead to increased market share, const leadership, and other levers to drive growth.
Examples include overall market growth, changes in consumer preferences, technological advancements, strategic partnerships, and regulator or legislative changes.
Threats include external challenges that require monitoring and contingency planning to avoid potentially adverse effects on the company or a specific project.
Common examples of threats include degrading macroeconomic conditions, changes in the competitive landscape, the development of new distribution channels, and regulatory or legislative changes.
Remember, external factors can be both an opportunity and a threat simultaneously, depending on the strategies you and your competitors implement to address them.
Digest and Strategize
Once your team has completed the detailed list of strengths, weaknesses, opportunities, and threats, it’s time to digest the information. Examine each quadrant individually and together to develop a holistic view of your company’s position in the market. Your team may discover opportunities to leverage strengths that address threats or weaknesses simultaneously.
Once the output has been analyzed and digested, it’s time to develop strategies that allow the company to leverage strengths, take advantage of opportunities, improve weaknesses, and mitigate exposure to threats. Below is an example of a completed SWOT analysis for a manufacturing company. Click on the image below to download it as a reference while working through the process.
A few strategies this company may try and implement might include:
Taking advantage of technological advancements (opportunity) via capital investments to create more flexibility in production processes (weakness) and enable product expansion to address the limited product range (weakness)
Leveraging the skilled workforce’s expertise (strength) and the expanded product offerings to get attract new customers in emerging markets (opportunity) to mitigate the firm’s dependence on a few key clients (weakness)
Completing an audit on existing systems and processes to find opportunities for improvements in operating efficiency (weakness)
Conduct scenario analysis utilizing client order volumes, pricing, and various operating scenarios to develop disaster planning in case of an economic downturn or adverse regulatory changes (threat)
Communicate and Implement the Strategic Plan
Once your team has identified, the strategies they'd like to implement, it's important to communicate the strategic plan to the rest of the organization. Communicating the purpose of these strategies and the long-term vision with the rest of the employees provides a sense of ownership and a feeling of inclusion in leadership's decision-making, which will help facilitate successful execution and cultivate a strong organizational culture.
Establishing regular progress meetings and checkpoints is important so employees know these strategic plans are closely monitored by leadership. This also enables the leadership team to. identify the strategies that are working and those that are not so the company can pivot if needed.
Benefits of a SWOT Analysis
The primary outcome of any business strategy should aid in the goal of establishing a sustainable competitive advantage within the market. Completing a thorough SWOT analysis has several benefits that can do just that. When executed successfully, the benefits of a SWOT analysis will help foster better decision-making, communication, and innovation resulting in a higher-performing management team, operating team, and business.
Comprehensive Business Review: SWOT analysis provides management with a holistic view of the business, uncovering the internal and external factors that can be leveraged for success, addressed to improve weaknesses, or mitigated to neutralize threats. This helps understand the current position in the market and the potential for improvement with well-executed strategic planning.
Improved Strategic Planning: identifying the strengths, weaknesses, opportunities, and threats associated with your business gives business owners a clear view of their company’s current situation and how it can be improved. This allows the team to develop impactful strategies and make informed decisions about resource allocation to achieve strategic goals and objectives.
Better Risk Management: understanding the company’s weaknesses and threats allows business owners and management teams to develop strategies to address weaknesses and mitigate the risks associated with threats before they become more significant problems that can threaten the livelihood of your business.
Informed Decision-Making: SWOT analyses aren’t limited to total company reviews. A SWOT analysis can be performed to evaluate an acquisition, opening a new location, launching a new product line, or several other scenarios. Considering all internal and external factors associated with various strategic decisions helps business owners and management teams make the best decision possible.
Improved Communication and Collaboration: a successful SWOT analysis involves members from various teams working together to achieve a common goal. This cross-functional collaboration facilitates inter-departmental communication that helps employees learn about other department functions and challenges. Involving multiple teams in these discussions ensures all teams are on the same page and working towards a common goal.
Increased Innovation: uncovering potentially unknown areas for improvement, threats that need to be addressed, or strengths and opportunities that haven’t been capitalized on gives business owners a better understanding of their organization and can spark creative thinking resulting in new ideas related to product development, market expansion or penetration, and employee pay and benefits among other things.
As you can see, the benefits of completing a SWOT analysis are significant. When strategies are implemented and executed properly, the above benefits will deliver improved overall performance
Limitations of a SWOT Analysis
Despite the significant benefits mentioned above, some limitations come with a SWOT analysis. Business owners should keep the following considerations in mind when facilitating this exercise to get the best results possible:
Oversimplification of Issues: the SWOT analysis provides a simple framework to deal with potentially complicated, nuanced issues facing a company. This simple framework risks oversimplifying complex issues and missing important details if not thoroughly considered. It’s important to consider the potential downstream effects of strategic decisions, how competitors may react, and all components of any legal or regulatory threats and opportunities.
The Analysis is Subjective: a SWOT analysis requires brainstorming and thorough evaluation of a company’s internal and external factors from multiple teams. Different team members may have different opinions about what can be considered strengths, weaknesses, opportunities, or threats. The subjectivity involved may result in a biased output.
Limited Scope of the Analysis: the SWOT analysis is a snapshot of the internal and external factors facing a business at a specific point in time; it doesn’t consider how things might change going forward. A SWOT analysis should be updated periodically to reflect the current state of the business and ensure previous strategies are still relevant and foster growth.
Lack of Actionable Insights: while a SWOT analysis will illuminate the key internal and external factors a business needs to be concerned with, it doesn’t explicitly provide solutions or strategies telling you how to address the factors identified. Business owners and management teams will have to work to develop strategies that address what the SWOT analysis has uncovered.
Lack of Prioritization: the output from a SWOT analysis may not necessarily prioritize the findings. It’s up to business owners and management teams to identify the highest priority items rather than address the uncovered internal and external factors in order. Failure to prioritize can lead to a failure to address critical issues promptly, leaving the business exposed to risk.
Being aware of these limitations and taking steps to address them will ensure the SWOT analysis is still a valuable tool for your business.
The limitations can be mitigated by including a variety of team members with differing perspectives, combining the SWOT analysis with other tools like Porter’s Five Forces, or the PESTEL analysis for a more comprehensive view of the external environment, and focusing on the strategies the SWOT analysis can inform - a completed SWOT framework doesn’t mean the job is done.
Using SWOT Analysis to Improve Your Business
A SWOT analysis is a powerful tool that empowers small business owners and entrepreneurs to gain a deeper understanding of their organization. By systematically examining your strengths, weaknesses, opportunities, and threats (SWOT), this tool can be a key part of developing a roadmap for achieving a sustainable competitive advantage.
This article has equipped you with the knowledge to conduct a thorough SWOT analysis, from assembling the right team to strategizing on identified factors. Remember, a SWOT analysis is an ongoing process. Regularly revisiting your SWOT analysis allows you to stay ahead of the curve, capitalize on emerging opportunities, and mitigate potential threats.
Download our free SWOT analysis template today to make more informed decisions, improve organizational communication, and drive innovation.
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