Why You Need a SWOT Analysis for Your Business

What is a SWOT analysis?

A SWOT analysis is a type of analysis that helps you develop your business strategy by comparing internal factors (strengths and weaknesses) against external factors (opportunities and threats). Examples of internal factors include things that you have control over and can change, such as your staff or your intellectual property. External factors are things that you cannot control, such as consumer trends or competitors.

A SWOT analysis has four quadrants:

The analysis provides you with an accurate picture of what your business is currently doing well and how it can improve.

“[A SWOT analysis] gives you a firm grasp of what is affecting your business internally and externally,” said Lynne Pratt, creative content expert. “By carefully evaluating the analysis, a business can find new ways of progressing and achieving growth.”

Why should you do a SWOT analysis?

Every company, no matter its size, should do a SWOT analysis periodically. It is a crucial strategic tool that will reveal problems that need to be fixed, strengths that need to be capitalized on, potential threats that need to be mitigated and opportunities for growth.

Unbiased, big-picture look at the company

Sometimes, it’s hard to see the big picture when you are involved in the day-to-day operations of a company. A SWOT analysis gives you a detailed, unbiased overview of your business as a whole or a specific product or campaign. By involving a variety of stakeholders, you get a perspective that you might not have gotten as an individual or small group of executives. 

Help with overall company direction or project feasibility

It can also help train your brain to consider every factor that could affect your project or business. When you’re facing a tough issue or if you’re just unsure of your current strategy, a SWOT analysis illuminates details so you can formulate actionable plans based on each of the four quadrants.

For example, if you were considering opening a new location for your business, you could run a SWOT analysis to see if you are in a good position to do so. You could also use it to identify outside factors that you will need to plan for.

Preparation for the future

The threats portions, in particular, can help you see and overcome any possible problems, either competitive or market-based, so that you can prepare a proactive initiative. For example, if you find out that a competitor has improved its technology, you can work on similarly upgrading your own. In the early stages of the pandemic, restaurants that did a SWOT analysis could identify the threat of fewer customers opting to dine in and change their strategy to focus on takeout and delivery sooner. 

“A SWOT analysis is useful so that you don’t get caught entirely off-guard,” said David LaVine, founder of RocLogic Marketing. “You [should] do a SWOT analysis for each application area you’re considering operating in.”

“We conduct [analyses] every six months as a rule in our business,” said Alistair Dodds, marketing director and co-founder of Ever Increasing Circles. “They act as a great check on how the competition has evolved in that time period.” [Discover seven effective ways to differentiate your product.] 

Marketing and sales focus

Although many of your company’s strengths should be known, you may discover one you hadn’t considered before or even something that might be new. Perhaps you have reached some threshold in revenue, sales, five-star reviews or customers that you can now use in your sales and marketing efforts. For example, a customer threshold might result in a marketing campaign with a headline of, “1 million customers have trusted Company X. Won’t you?”

Who should conduct a SWOT analysis?

A SWOT analysis should be a collaborative effort between several levels of employment within your company. Founders and leaders should be the most closely involved but, to gain a true picture of your business, gather input from a group of people that can contribute several perspectives.

“It’s vital to go through your analysis with key stakeholders,” said Dodds. “When you identify weaknesses, it’s a great time to get other department heads and staff to suggest solutions — you’ll be amazed at the creativity and problem-solving inherent in your team if they are given the opportunity [for] input.” 

If you’re a solo operation, ask close friends or related professionals, such as your accountant, lawyer or advisor, for input. Having plenty of outside perspectives helps make your analysis as well-rounded and objective as possible. 

How to do a SWOT analysis

The first step of a SWOT analysis is to create your grid. Start with strengths in the upper left corner, then weaknesses in the upper right corner, opportunities in the bottom left and threats at the bottom right of the grid.

Next, fill in each quadrant. An easy way to do this is to ask yourself questions that apply to each box. Here are some suggestions.

Strengths

• What do you do well?
• What unique skills or services do you have?
• What experiences do you have that can help you achieve your goal?
• What expertise, knowledge or other intellectual property do you have?
• What do you do better than your competitors?
• Where are you most profitable? Why?

Weaknesses

• What aspects of your business could hinder your progress?
• What skills or resources are you lacking?
• What is costing you money?
• Is there anything you feel like you’re failing at?

Opportunities

• What can you improve?
• What external conditions can help you achieve your business goals? [Related article: Tips for Setting Better Business Goals]
• Are there new audiences you could potentially reach?
• Is there technology you could use to enhance your business?
• Can you do more for your existing customers?
• Where or how could you expand your business?

Threats

• What external conditions could damage your progress or performance?
• What do your competitors do well?
• What are your competitors doing that you are not?
• What is going on in your industry?
• What is happening (or could happen) in the economy that could harm your business?
• Are there new competitors in your market?
• Is your target audience shrinking?

Here are some additional points to consider as you fill in your quadrants:

Your quadrants do not have to be perfect — you can always create multiple drafts of your analysis, editing what you have filled in as you go. Host a brainstorming meeting to complete your first draft.

After you have filled in the quadrants, review each quadrant and evaluate your results.

In preparation for these conversations, review some of the most important terms for business owners to enhance your ability to assess each area of the SWOT analysis and brainstorm solutions.

How to evaluate your results

Once you complete your SWOT grid, you need to analyze the information you’ve collected. Here are a few things to consider.

Capitalize on your strengths

To evaluate your SWOT analysis effectively, start with your strengths and don’t brush them off, said Pratt. “You might feel that because you’ve got these nailed down that you don’t need to do anything with them, but this is wrong,” she said. “There is always room for improvement and working on your strengths, as well as [with] the [other quadrants], will help them remain your strengths”:

• Rank your strengths from strongest to weakest.
• Focus on using your strongest points to drive marketing and sales.
• Bolster your weaker strengths by implementing improvements.

Address your weaknesses

Next, look at your weaknesses and identify which aspects of your business each weakness is related to. For example, do you need to boost customer retention by better training your staff? Or is location and/or competition the problem? “Identify where the problem is coming from so you can begin to plan to address it,” said Pratt.

• Identify the sources of each weakness.
• Address each area of weakness, starting with the most important ones first. Such actions can include:
  • Change of policy
  • Improve company culture and leadership
  • Increase investment
  • Hire/fire employees
  • Improve marketing or sales messages
  • Secure business capital from investment or lender
  • Change your suppliers or renegotiate terms with them

Pivot to defeat threats

You can also see which of your threats are related to your weaknesses and if any of them are caused by something you can change. Try to connect your strengths to ways you can combat threats:

• Competitive threats:
  • Competitors are gaining market share: Determine why this is happening. Do they have a more compelling message, a lower price or better product? Then, take steps to combat whatever issue is occurring. [Related article: Ahead of the Pack: 8 Ways to Keep Your Business Competitive]
  • Competitors are bigger or have more money: Look to find additional funding to grow your company or position your small business as a place that provides better quality or customer service. You can also invest in clever guerilla marketing to attract attention.
• Market threats:
  • Economy is getting worse: Find ways to lower your prices, introduce a lower-priced version of your current product or shift marketing to higher-income customers.
  • Product is becoming obsolete: Improve or change your product to fulfill customers’ changing needs.
  • Material cost is increasing: Look for new suppliers or new materials and raise prices if necessary.
  • New government regulations: Assess any additional costs and possibly raise prices, change processes or pressure suppliers to comply.

Take advantage of opportunities

Finally, consider whether there are time constraints that could impact your opportunities. Are any of them short-term or seasonal? If so, make it a priority to hit those opportunities first and create an action plan for taking advantage of them.

Nathan Thompson, e-commerce and growth lead at The Others Beauty Co., said his company splits their business opportunities into short-, mid- and long-term goals. They set deadlines for each goal to ensure it gets done. “SWOT results should be analyzed and evaluated in order of actionability,” he said. “Having deadlines set for each milestone ensures accountability for all parties.”

• Organize opportunities by timeliness and budget.
• Identify the opportunities that will have the biggest positive impact on the company.
• Use this criterion to decide where to focus your resources first.

A sample of SWOT in action

To see how SWOT analysis works, consider this example:

Soft-Touch makes pads that attach by Velcro to the plastic face mask worn by sleep apnea sufferers to help them breathe while they sleep. The company founder herself has sleep apnea and she developed the product to increase the comfort of wearing the mask and to eliminate the marks it left on her face the following morning.

The company has largely grown its sales through word-of-mouth. A major sleep apnea equipment maker wants Soft-Touch to supply the pads for all of its masks. To satisfy the increased demand, Soft-Touch would have to outsource its manufacturing.

Here is a sample SWOT analysis for Soft-Touch as they consider this opportunity: 

Notice that the SWOT analysis doesn’t provide an answer. Instead, it provides a framework to help formulate an answer and allows you to see exactly what the opportunities are (an expanded market share and increased revenue), what weaknesses currently limit the company (lack of funding and marketing expertise, limited manufacturing capacity), its current strengths (unique proposition and trusted brand) and the threats it could face if it takes the opportunity (less control and need for financing).

“Taking time to think strategically will lead to ways you can streamline to get more done as well as take your business into new directions that can benefit (or even save) the company,” said Joshua Ladick, president and founder of GSA Focus.

Remember that your SWOT analysis is only a starting point, not an actionable plan. “Don’t confuse SWOT for strategy,” said Greg Githens, executive and leadership coach at Catalyst & Cadre. You are still responsible for developing a strategy that will take you from where you are to where you want to be, and SWOT provides a roadmap for that strategy.

​​Jennifer Dublino and Sean Peek contributed to this article. Source interviews were conducted for a previous version of this article.