SWOT Analysis: What It Is and 7 Steps to Execute One Like a Pro

If you’ve ever taken a business class, checked out a business plan template online, or spent time at a corporate conference or retreat, you’ve probably heard the term SWOT analysis thrown around from time to time. You might have even learned the acronym it refers to: strengths, weaknesses, opportunities, and threats. But has anyone ever explained the process of conducting a SWOT analysis or how it can be used to propel your business forward?

Think of the SWOT analysis as your business’s pros and cons list on steroids. From whether to launch your business idea in the first place to what vendors or partners to match with, who to hire, and even what clients to take on—this tool can help you evaluate how you’re doing and make any major decision that arises along your business journey.

No wonder it’s so often talked about! Once you better understand exactly what a SWOT analysis can do, you’ll certainly be eager to learn how you can go about performing one for your business.

What Is a SWOT Analysis?

To kick things off, let’s take a broad look at the four elements that make up a SWOT analysis. While these terms are likely all familiar to you, it’s important that you understand their meaning in the context of this exercise.

Strengths: These are the positive characteristics within your organization, both tangible and intangible, that help your business to succeed. Strengths are always internal to your organization, meaning they are within the business’s control.

Weaknesses: Anything internal to your business that could detract from your organization’s value or create a disadvantage in the marketplace would be described as a weakness. Remember, every business has weaknesses of some kind! Recognizing your organization’s weaknesses is the most critical step to mitigating any risks they might cause.

Opportunities: In a business context, an opportunity is any outside circumstance or factor that may allow your business to prosper. These are situations not within your direct control, but they represent a higher probability of positive outcome for your organization.

Threats: Any external factor outside your business’s control that could pose a risk to your existence or growth represents a business threat. New competitors, copycats, and negative market trends are examples of threats to your business that could arise at any time, and it’s important to create contingency plans in order to mitigate these risks.

Through the process of evaluating each one of these categories and putting them all together, you will gain new insights into the internal and external factors that are driving your business’s results.

Why Do You Need a SWOT Analysis?

Simply put, the SWOT analysis is the single best tool business experts and veteran entrepreneurs have found to systematically evaluate how a business is doing at any stage. It’s your doctor’s office check-up, your decision-maker, and your benchmark for continued progress.

To better illustrate this, let’s look at a few key scenarios in which performing a SWOT analysis can help your business perform at its very best.

To Set Your Business Up for Success

Is this business even a good idea? Does anybody even want what you’re selling, and can you offer it at a price they’ll be willing to pay while still generating a reasonable profit? Performing a SWOT analysis will help you answer these and other basic business viability questions before you invest significant time or money making your idea a reality.

As the foundation of your business planning process, your SWOT analysis will teach you about the current business landscape and help you understand your position and potential value to the market.

To Help Your Business Adapt to Change

No matter how successful you are in the beginning, your company’s long-term survival depends on your ability to swim with the tide as your market and business landscape evolve. Whether you’re assessing new market opportunities, considering a potential strategic partner, or even evaluating a potential new hire—the SWOT analysis is a fantastic decision-making tool to help you weigh all the potential factors and steer your business in the right direction.

To Maintain Your Business’s Long-Term Focus

In the ups and downs of daily operations, it’s easy to lose sight of the big picture. Do you even remember the goals you set for your business? Do new team members understand their role and how they’re helping to move the ball forward? Regularly reviewing and re-evaluating your SWOT analysis is a great goal setting practice to help you figure out what you want to achieve as a team.

Perform a new SWOT analysis once per year to include new stakeholders and consider changing circumstances. You might also plan for a quarterly check-in with your SWOT analysis team to avoid misdirection and monitor for new opportunities and threats as they emerge.

But regardless of when or why you’re performing your first SWOT analysis, what’s most important is that you put in the work to get these critical insights for your business.

Conducting Your First SWOT Analysis: A Step-by-step Guide

Now that you understand what a SWOT analysis is and why this tool is so critical for your business, let’s get into the gritty details of exactly how this exercise works. This step-by-step guide walks you through exactly how to go about analyzing your organization’s strengths, weaknesses, opportunities, and threats.

1. Gather Your SWOT Team

To put together the most complete and objective picture possible of your business’s S’s, W’s, O’s, and T’s, gather a group of people with differing perspectives to offer their insights in each area. For this reason, a company retreat can be a great time to conduct a SWOT analysis—but there are other ways of going through the process. If your business has too many stakeholders to include all at once, consider using individually written surveys or forming small, representative focus groups to go through different portions of the exercise together.

Whatever process you choose, your most important job is making sure you’re bringing in new points of view that you haven’t already considered.

A quick word to the solopreneurs of the world: Don’t panic! Even if you don’t have a team to gather, the SWOT analysis can absolutely still be a valuable tool for your business. To the extent you can, consider involving a loyal customer, a trusted mentor, or even a few business-savvy family members or friends to contribute their perspective.

If you’re going it alone, it will be even more crucial that you think critically and objectively about what’s really going on with your business. No room for bias here!

2. Diversify for Maximum Success

From stockholders to customers, your newest part-time employee to your business’s founder, every stakeholder within your organization has a different perspective on the company’s strengths, weaknesses, opportunities, and threats. To maximize the accuracy and the impact of your SWOT analysis, be sure to assemble a team of participants that is reflective of your organization’s larger ecosystem.

3. Make Room for Lesser-Heard Voices

In every room of people, a few voices will always dominate the discussion (you know the ones!). Of course, there is nothing wrong with these natural leaders—their contributions are vital to your team. But chances are that on most subjects related to your business, you already know what they think.

The ideas and perspectives you haven’t already considered will most likely come from the lesser heard voices within your organization. After all, your part-time customer service representatives are the ones most directly interacting with customers. Your high-school-age stock boy may be the best-equipped person to point out the flaws in your inventory control system. Making room for those lower-level stakeholders to share their feedback will bring out the new and useful insights you’re looking for.

To keep things manageable, remember that every group doesn’t have to participate in the same way. Could you involve customers in your SWOT analysis process by sending a survey to your email list? Could stockholders, mentors, or other outside influencers participate in small focus groups outside your main brainstorming session? Get creative to include a variety of perspectives while maintaining some order to your process.

4. Stay Open to Criticism

There’s nothing inherently wrong with validation or a pat on the back, but ultimately the good news that comes out of your SWOT analysis—the stuff that you want to hear or that validates your existing opinions—won’t be particularly useful to you in the long run.

In reality, the feedback that is most difficult to hear—the survey results that make you wince or the brainstorming session commentary that most propels your inner defensiveness—is the very thing that offers your business the most potential to grow and improve.

Look for that criticism. Expect it, stay open to it, and resist the urge to laugh it off or shoot it down. Ultimately, your willingness to hear and apply dissenting opinions may be the single most critical factor in the success or failure of your SWOT analysis process.

5. Evaluate the Internal: Strengths and Weaknesses

First, you and your newly assembled team should focus on what’s happening inside your organization. Your strengths and weaknesses describe the positive and negative attributes of your internal structure, processes, products and services, and your business model as a whole. To be considered either a strength or a weakness, the characteristics you come up with should be true regardless of what the outside market is doing. If you come across a positive or a negative that is rooted outside your business, make note of those for later on when we discuss external influences.

Strengths: Start your SWOT analysis on a positive note by noticing and celebrating your strengths. After all, you and your team have worked hard, and there is a lot to be proud of! Ask these questions to find out what’s working within your organization.

• What does your business do well?
• What does your business do that your competition can’t?
• Why do customers come to you instead of the competition?
• What financial resources or assets are helping your business succeed?
• How are your current office or retail space, location, and equipment serving your business well?
• What products, trademarks, marketing campaigns, or other intellectual property does your business most rely on?
• How are the talents and unity of your team contributing to your success?
• How has your team’s culture and morale helped you achieve your goals?
• What current systems and processes are serving your business well?
• What are the best things that happy customers say about your company?
• What is one factor that puts your business in the best position for future growth?

Talking through your strengths should help to bolster your team’s confidence. Take some time to celebrate the things that are going well! You’ll need that positive energy for this next section as you evaluate your company’s vulnerabilities.

Weaknesses: Okay, friends, this is the part of the exercise we know you’ve been dreading the very most. After all, we sweep dirt under the proverbial rug for a reason, right? Nobody wants to look at that mess! But in truth, there is no such thing as a perfect business—and ignoring your flaws doesn’t make them go away.

So it’s time to be brave! These questions will push you to hear the hard truths, acknowledge reality, and figure out how to address your business’s weaknesses head-on.

• In what areas is your company struggling most?
• What makes customers choose a competitor instead of your business?
• What specific challenges are preventing you from maximum performance?
• What concerns do you have about your business’s current financial position (such as your cash flow, debt to income ratio, or diversity of revenue sources)?
• Is anything about your business’s equipment, location, or the state of your physical space holding you back from success?
• Are any products, trademarks, marketing campaigns, or issues with intellectual property protection causing a problem for your business?
• Are challenges with any specific team members or departments holding your business back?
• How could your team’s culture or morale be limiting your company’s success?
• Are inefficient systems or processes getting in the way of your team’s success? What are the bottlenecks in your workflow?
• When you hear customer complaints, negative reviews or feedback, what are the most frequent concerns?
• What single weakness could be most damaging to your business’s current growth potential?

Chances are, the time you spend discussing your business’s shortcomings is going to leave you feeling a little discouraged. While that’s an absolutely normal reaction, don’t let yourself or your team dwell on those negative feelings! Though every single business has weaknesses of some kind, choosing to recognize and face your organizational weaknesses is actually another sign of strength.

6. Navigate the External: Opportunities and Threats

The second set of positive and negatives are all about what’s happening outside of your business—and therefore beyond your team’s sphere of influence or control. Opportunities and threats are circumstantial or environmental factors that (you guessed it!) either invite a new opportunity for or pose some level of risk to your company’s future growth.

Let’s take a deeper dive into each category, including specific questions your team can research and discuss to recognize potential opportunities and threats impacting your organization.

Opportunities: Experienced entrepreneurs know that success in business is simply a matter of seizing the right opportunity at the right time. But in order to take advantage of key business opportunities, you first have to recognize them!

Use these questions to help you identify potential opportunities for your business to grow in scale, efficiency, and profitability over the short and long-term.

• How is your target market growing or changing for the better? What opportunities do these changes present?
• What industry or consumer trends could your company take advantage of?
• How’s the economy doing? Could upcoming economic shifts allow your potential customers to make more purchases?
• Do any new or changing vendor relationships offer your business new opportunities for growth?
• How might new and emerging advances in technology make your business easier to run or increase the potential of your product or services?
• Is the talent pool in your industry growing or becoming better qualified? How might the availability of high-quality new hires present new opportunities for your business?
• What new funding or revenue opportunities could you benefit from this year?
• Have any of your direct competitors left the marketplace, pivoted away from your target market, or made major missteps with their customer base? How could you take advantage of that newly available market share?
• How could upcoming shifts in government regulations or the political landscape be beneficial for your business?
• What single opportunity or possibility for your business are you most excited about in the upcoming year?

While some of these questions or categories may not apply to your business, this list of questions should help guide your team’s research and discussion about new opportunities for your organization.

Before discussing these questions, think carefully about which members of your SWOT team are best equipped to address each one. Asking your entry-level staffers about government regulations affecting your business probably isn’t going to get you very far!

So, make sure you’re asking the right questions of the right team members, and take care to phrase questions in such a way that those involved can easily understand and participate.

Threats: Entrepreneurs tend to be an optimistic bunch, so we venture to guess that fretting over potential threats to your business probably doesn’t sound like your idea of a good time. And of course, it’s true that constantly looking over your shoulder for impending doom is no way to live or to run a company. Even so, a healthy dose of risk management is never a bad idea.

Recognizing threats that may be impacting your business gives you the opportunity to minimize your risk, meaning you spend less time playing defense. Walk your team through the following questions to help you identify and prepare for the potential challenges ahead.

• Have you lost or do you anticipate losing any key vendor relationships? How could recent or upcoming changes in your vendor relationships pose a direct threat to your business?
• Is the economy in a recession? What economic shifts might prevent your customers from making future purchases?
• Have any new direct competitors entered the marketplace, pivoted toward your target market, or experienced major growth? What threats do these competitors pose to your existing market share?
• How might new industry or consumer trends make your business less desirable to customers than it has been in the past?
• What changes in the size or demographic of your target market pose a significant threat to your business?
• How might new and emerging advances in technology render your current systems or even your product/service obsolete?
• Do you anticipate any price increases or supply limitations for the raw materials, supplies, or labor needed to produce your product or service? How might these changes threaten your ability to serve your customers?
• Is the talent pool in your industry shrinking or underperforming? How might the availability of quality new hires put your business at risk?
• Could changes in the availability of business funding hurt your business in the near future? If so, how likely are those funding changes?
• How might new or changing government regulations or the political landscape pose a direct threat to your business?
• What single competitor, circumstance, or other threat are you most concerned about in the upcoming year?

Keep in mind that because opportunities and threats are factors that exist outside your organization, you might have to do some digging to uncover them. If you’re too insulated or unaware of what’s happening in your industry at large, you risk being hit from far left-field by an unexpected threat!

To make sure your bases are covered, assign one or a few team members to research these questions in depth. You might even consider bringing in an outside consultant to help you identify threats as well as opportunities that may have slipped your notice.

7. Refine and Prioritize Your SWOT Analysis

At the end of all that brainstorming, surveying, and group discussion, you’ll most likely have whiteboards and post-it notes littered with conflicting ideas and considerations. Not quite the structured business evaluation you were looking for! That’s why it will be so crucial to go back through and edit your findings thoroughly.

Type up those notes and pare down any duplicates, then keep right on reducing and refining until you have a prioritized set of 5-7 items in each category. While it was important to think big in the beginning, this process of narrowing things down will help you decide where to spend your team’s energy!

Using Your SWOT Analysis to Build a Business Strategy

That’s it! You did it! SWOT analysis complete! Time to hang it on the bulletin board and send everybody back to work, right?

Not so fast, my friends!

The purpose of this exercise is absolutely not to just fill out some corporate worksheet and then continue running your business exactly as you had been before. Evaluating your strengths, weaknesses, opportunities, and threats is only the discovery portion of your business’s strategic planning process.

To put your SWOT to work and make lasting change for your business, you have to put the various categories together in a way that creates specific action steps.

Discuss strategies your team could use to:

• Maximize opportunities by applying strengths.
• Use your strengths to minimize threats.
• Improve weaknesses by taking advantage of opportunities.
• Minimize weaknesses to avoid threats.

These combinations should allow you to turn analysis into action, driving clear and measurable goals for every member of your team can be held accountable both individually and as a collective unit. Remember, the work you put into performing a SWOT analysis is only as valuable as what you do with it moving forward!

The post SWOT Analysis: What It Is and 7 Steps to Execute One Like a Pro appeared first on Fundera Ledger.

from Fundera Ledger https://www.fundera.com/blog/swot-analysis