SWOT Analysis – A Useful Small Business Analysis and Planning Tool

What is A SWOT Analysis?

SWOT (strengths, weaknesses, opportunities and threats) analysis is a useful small business analysis and planning tool that allows owners to focus on their strengths, minimize their threats and exploit new opportunities. SWOT analysis is most successful during brainstorming sessions and identifies the internal and external factors/conditions that are favorable or unfavorable in achieving specific business or project goals/objectives.

SWOT analysis helps small business owners to set realistic expectations by being aware of weaknesses and threats. It also helps them to discover new prospects that they are well-positioned to take advantage of based on their strengths and external opportunities. SWOT analysis is a valuable decision-making tool for small businesses owners in almost any situation with a defined result, end-state or objective.

Internal and external factors of SWOT Analysis

Examples of internal and external factors that small business owners should consider as favorable or unfavorable to reach an objective, include:

• Internal factors: These include strengths (favorable) and weaknesses (unfavorable) of marketing (brand, reputation and selling propositions), human resources (employee experience/skills and absenteeism), physical resources (technology and infrastructure), financial resources (income, funding and grants), methods (workflow, activities, processes and operational efficiencies) and business organization (strategy, structure and climate).
• External factors: These include opportunities (favorable) and threats (unfavorable) presented by the competition, customer base, market demographics (age, race, gender, socio-cultural), community, technology, economy (expansion, peak, recession, trough, recovery), ecology, politics (Democratic and Republican policies), laws (taxation, regulation of commerce and competition) and ethics (norms, values, ethical practices guiding doing business) and the physical environment (location, public transport and highways).

SWOT Elements – Strengths, Weaknesses, Opportunities and Threats

As a general rule, strengths and weakness are internally focused, while opportunities and threats focus on the external environment. The four different elements of a SWOT analysis, in more detail, are as follows:

1. Strengths: Strengths are internal factors or characteristics (see above) within a small business that are favorable to achieving goals/objectives and could possibly be a competitive advantage. What is your small business good at and separates you from the competition?
2. Weaknesses: Weaknesses are the internal factors or characteristics (see above) within a small business that are unfavorable in achieving goals/objectives and prevent the business from performing well. What are the shortcomings of your small business relative to the competition and what prevents your business from performing at its optimum level?
3. Opportunities: Opportunities are the external/environmental factors or conditions (see above) that are favorable to achieving your goals/objectives. What opportunities can your small business exploit to gain a competitive advantage?
4. Threats: Threats are external/environmental factors/conditions that are unfavorable to achieving your goals/objectives. These threats could cause trouble and potentially harm your small business.

How Does SWOT Analysis Help Small Businesses?

SWOT analysis is an easy to use tool that can help small businesses in many ways, such as:

• Improving small business decision-making. Using SWOT analysis forces small business owners to consider all the internal and external factors that influence achieving objectives.
• Minimizing weaknesses and avoiding threats. Identifying barriers that will limit achieving goals/objectives.
• Identifying problems and exploring new solutions to solve or avoid them.
• Maintaining and building on strengths. Finding ways to ensure your competitive advantage and grow your small business.
• Revealing possibilities and seizing opportunities to grow and increase profits.
• Finding competitive advantages by matching the strengths to opportunities.
• Converting weaknesses or threats into strengths or opportunities.

More specifically SWOT analysis helps small business owners to:

• Staying abreast on how changing market conditions and competitors affect the small business’s sales or processes.
• Identifying products/services to develop to attain objectives.
• Identifying and implementing new technologies to remain competitive and/or meet customers’ expectations.
• Improving operational efficiencies to drive down cost and become more competitive

Considerations When Performing A SWOT Analysis

A SWOT analysis is most effective in a group setting with an experienced and independent facilitator that knows how to conduct the SWOT session. However, the facilitator could be the small business owner or someone else in the company. Initially, the facilitator needs to capture as much information as possible from the group expeditiously, with little or no discussion. Specifically, the first round of SWOT analysis session (Steps 3 to 6 below) must allow participants to creatively brainstorm without pre-judgement or evaluation. This encourages free thinking and does not discourage group member participation. If the group is big enough, breaking up in the group into smaller groups will add more value. The smaller group brainstorming results are compared and discussed in Step 9 below.

Normally conducting a SWOT analysis includes following these simple steps:

1. Formulate the objective of your SWOT analysis (it could also be to answer a question)
2. Identify and research internal and external factors (above) that impact the objective
3. Brainstorm and list your small business’s strengths in achieving the objective
4. Brainstorm and list your small business’s weaknesses in achieving the objective
5. Brainstorm and list the potential opportunities for your small business in achieving the objective
6. Brainstorm and list the potential threats to your small business in achieving the objective
7. Identify any unknowns and topics/issues that need further research based on steps 3 to 6
8. Repeat steps 2 to 6 and add the missing information
9. Evaluate brainstormed lists and feasibly of achieving objective
10. If feasible, establish priorities and formulate action plans to meet the objective

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