SWOT Analysis for the Small Business

SWOT analysis is a formal process for considering the Strengths, Weaknesses, Opportunities, and Threats that face a company. It's a type of study that's frequently used by large companies and there are fervent believers and disbelievers in the value of SWOT.

SWOT can be applied to a small business and even to a sole proprietorship. SWOT can also be used as a tool for personal development and career growth. There are many applications for SWOT, but this article will focus on using SWOT for creating business strategies.

SWOT analysis is nothing more than taking time to reflect on the internal qualities of your business (for better or worse) and the external forces (good and bad) that affect you. It's about using what you can control to try to address the things you have less control over.

Some caveats up front:

If SWOT analysis is your only tool, it won't do you much good. SWOT is just a bridge to help you move from goals to tactics, while providing a big-picture framework for your decisions.

Before you start a SWOT analysis, you should define what your business goals are. Hint: "I want to make money" is a goal, but you need to be more specific. For example, "I want to be a premier provider of a video-sharing service for seniors" is a specific goal.

Back to SWOT

SWOT analysis is often formulated by providing a table or box to fill in, listing:

Strengths

Weaknesses

Opportunities

Threats

Strengths and weaknesses are considered internal forces. Opportunities and threats tend to be less controllable and are considered external forces.

Filling in the Box

Treat this as a brainstorming session at first. Don't censor yourself.

Strengths

To fill in the "Strengths" part of the table, write down the talents you have (you personally and your company as a whole) and then consider the talents that others readily see. You may have to go the extra mile to prove you have the talents that others don't perceive. Consider the resources you have, both human and non-human. On the human side, do you have potential collaborators and partners? How about people you can learn from, like mentors? What about employees? On the non-human side, think about things like software, camera equipment, office space, and those always important financial resources.

Strengths can include: a new market, an optimal location for your business, collaboration with a respected partner, or a market being handled badly by competitors. And don't forget your own personal strengths - such as a gift for sales or for creating innovative technology. In the video-sharing business example, a strength might be significant experience in using the YouTube^TM platform.

Weaknesses

To fill in the "Weaknesses" part of the table, consider the weaknesses you know you have and the ones that others perceive. The two might not be the same. But couch these in terms of areas for improvement since this provides something you can measure and fix. For example, rather than saying you lack skills in sales, you could say that you need to increase your knowledge of sales techniques. You should also consider the resources you lack; it may guide you to target funds and human resources to specific areas of your business.

Weaknesses can include: a lack of marketing experience, products or services that are really pretty similar to your competitors' and poor location. For example, a weakness in our video-sharing business might be a proliferation of YouTube^TM clones as well as the strength of the YouTube^TM platform itself.

Opportunities

Now list your opportunities. What niche can your business fill that hasn't been filled before? What's your value proposition? Describe this with some specificity. What can you measure? What facts support your statements? Include only a brief summary of facts in your table; you can back this up with an appendix.

In the video-sharing example, an opportunity might be to create a software platform that's very user-friendly and considers the disabilities an elderly person might have. You should be able to support this opportunity statement with facts about your market -i.e., research showing that there are a significant number of seniors who are interested in using computers for social reasons.

Threats

The "Threats" box should include trends or outside forces that can harm your business. What are the threats that can keep you from reaching your goals? What is your competition doing that can harm you? What might your weaknesses make you vulnerable?

Examples of threats include: new competitors, competitors who offer extremely low prices, competitors with established marketing channels - they've got the reputation, you don't. New technology might make services you offer obsolete.

In our video-sharing business example, a threat might be the scenario where a more established competitor quickly seizes the idea of video-sharing platforms for seniors and uses its established marketing channels to prevent your new company from being successful.

Now What?

Once you've made your table, prioritize the most important factors. Get rid of distracters. Evaluate specific products and services your company provides rather than focusing on vague mission statements. For example, a strength like "Our company is innovative," really doesn't get you very far, while a strength like, "We have ten patents protecting our video-sharing technology," is more concrete. Compare your strengths and weaknesses to the strengths and weaknesses of your competitors.

Now there's some cycling through the table. Can you eliminate weaknesses to create more opportunities? Can you use your competitors' actions to stimulate your own thinking? What don't customers like about your competitors? Is this an opportunity for you? Just as you created a SWOT table for yourself, you can create one that evaluates your competitors and use it as a reference to revise your own SWOT table.

Can you distill your own SWOT analysis into a paragraph of text that keeps you focused on strategy?

From SWOT to Strategy

Don't forget that the purpose of your SWOT analysis is not to complete a table. It's to design strategies.

You should:

- Use your strengths to create additional opportunities.

- Use your weaknesses to identify areas for improvement and then improve!

- Think creatively - can your weaknesses be considered strengths in some scenarios?

- Use your opportunity statements to identify tasks and create timelines to accomplish them.

- Anticipate threats and guard against them. If you anticipate a technology changing, make sure you have the skills you need and software to remain competitive.

Now to Market

Use your new awareness of your strengths, weaknesses, opportunities, and threats to create a credible marketing campaign. For example, you may decide it's most efficient to market locally rather than casting a wide net. You may decide to specialize and exploit a trend you see in the marketplace rather than to mass market to a potentially global audience. In our video-sharing business example, we've got a specific demographic we're targeting - older folks - and we need to adjust our marketing plan accordingly.

If your SWOT analysis seems like a magic eight ball dooming you to failure, get extra creative to prove it wrong, but talk through why and how you can prove it wrong. If plan A isn't likely to work, what about plan B?

Of course, there's much about business that's a gamble, but by forcing yourself to articulate strategies, you gain a bit more control.

Challenging the SWOT Box

Are you anarchists and original thinkers out there getting nervous? Don't like the idea of being put in a box?

The upside to SWOT is that it forces you to articulate answers to questions you should be thinking of. The downside is that you might stop at the box or table and feel creatively stifled.

Additionally, if you look at SWOT analysis as a predictor for business success you may be seriously misled. Although natural talent and guts go quite a ways in building a business, there's lots about your environment and market you can't control. By the

same token, don't be paralyzed by a negative SWOT.

In other words, challenge the box. Following some of the tips below can help.

1. Don't try this at home alone.

Even if you're a sole proprietor, engage others in your SWOT analysis. For example, ask potential customers, vendors, and even friends, for input. If you're a small business with multiple employees, involve your senior managers and other employees. Remember to get buy-in from investors and other stakeholders when you've reached a concise version of your SWOT.

If you have the opportunity, have co-workers or senior managers come up with their SWOTs independently. Then go over these collectively and brainstorm some more. While you should take advantage of team SWOT analysis, avoid getting locked into a "group think" pattern.

2. SWOTs aren't born bad; they're just used badly.

Those who dislike SWOT analysis argue it creates complacency and worse, misleading data. How?

You do an analysis. You feel good about it - the magic eight ball, in your case, looks positive. Then you proceed to do nothing with your analysis except take it out to show investors.

You need to take your SWOT analysis out of the classroom or the Starbucks or even the boardroom and into the real world. Test it and readjust it. Consider this analysis as part of your larger business strategy. Your business is dynamic and your strategy should be as well.

3. Create SWOTs for different contexts.

A SWOT analysis for one business unit won't fit all business units and similarly, a SWOT analysis for one product or service won't necessarily fit another. An analysis of a market in one country won't necessarily apply to another country. See a trend? To use SWOT analysis appropriately, you may need to perform more than one SWOT analysis.

Importantly, if you have a Plan A and a Plan B (and you should), perform a SWOT analysis for each plan.

4. SWOT for the Future.

A big weakness of SWOT analysis lies in its formality. The traditional SWOT matrix focuses on current traits and trends. However, it's a mistake to assume your strengths and weaknesses are going to stay the same. Effective business strategies are based on anticipating. So if you do a SWOT analysis that considers your next year in business, also do an analysis that considers the next five years. There should be some overlap in the tables. For example, opportunities considered in the "immediate future SWOT table" should pave the way for and overlap with opportunities in the "five-years ahead SWOT table."

5. Lighten up - it's just a box.

Learn what you can from this analysis and keep moving. Business success ultimately comes from adaptibility.

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