What is a SWOT Analysis?
Swot Analysis is a strategic planning tool used to identify the strengths, weaknesses, opportunities and threats. SWOT helps companies understand where they stand within their environment and allows them to plan accordingly.
Here’s a quick breakdown of how SWOT analysis works. The SWOT acronym stands for
- Strengths
- Weaknesses
- Opportunities
- Threats
Strengths are the things that make you strong or successful in your business. They can be internal factors such as skills, knowledge, experience, or external factors such as market conditions, competitors’ actions, government regulations, etc.
Weakness on the other hand refers to areas that need improvement. It could mean anything from lack of expertise to poor customer service.
Opportunity means all those aspects that will help you grow your business. These include new markets, technology advancements, changes in legislation, increased competition etc.
Threats refer to everything that may harm your company. This includes negative publicity, natural disasters, economic downturns etc.
SWOT analysis involves looking at each area individually and then combining these into one overall picture. The process also requires identifying how much weight should be given to each factor. For example, if there are two competing products with similar features but different prices, it would not be fair to give equal importance to both price and feature when making decisions about choosing between the two. So we have to decide whether to focus more on product quality than cost.
SWOT analysis has been around since the 1950s and was originally developed by management consultants working for large corporations. However, over time this method became popular among small to medium-sized enterprises because it allowed them to get an accurate idea of their current situation without having to spend too many resources.
SWOT Analysis Example 1:
Objective: To grow my company by 10% per year for 5 years.
Strengths: We have an excellent reputation within our local community. Our products are very popular among consumers. We have been growing steadily over the past few years.
Weakness: The competition has increased recently. They are offering similar services but we cannot compete financially.
Threats: There are no immediate threats to us. However, I am concerned about future economic conditions.
Opportunities: We have several potential avenues open to us. For example, we may expand into another market segment. Or perhaps we should consider developing more innovative products.
SWOT Analysis
The basic steps involved in conducting a SWOT analysis:
1) Define Your Objective
What do you want to achieve? Do you want to increase sales revenue? Reduce costs? Increase profits? Gain market share? Or maybe even something else entirely!
2) Identify Your Strengths & Weaknesses
Once you know what you want to achieve, look back at your objectives and see if any of them match up with your strengths and weakness.
For instance, let’s say our goal is to reduce costs. If our strength is low production volume, while our weakness is high inventory levels, then reducing costs might seem like a good option. But if our strength is being able to offer competitive pricing, while our weakness is slow growth rates, then increasing revenues seems like a better choice.
3) List Opportunities & Threats
Now that you’ve identified your strengths and weaknesses, list out all the possible opportunities available to you.
Think about where you’re currently located geographically, who your customers are, what technologies exist today, what laws apply to your industry, what trends are happening right now etc.
Opportunity comes first here because they represent things that you can change yourself. A threat however represents something outside of your control. Examples of threats include bad weather, political instability, technological advances, changing consumer preferences etc.
4) Combine All Three Into One Picture
Finally, combine your lists. Look at every opportunity and threat from as many angles as possible. Think about which ones could help or hinder you from reaching your goals. Which ones will make you stronger or weaker? How does everything fit together?
Once you have done this, take some time to think about what areas need improvement. Is there anything missing from your list? Are there ways you can improve upon your strengths? Can you find new markets/customers? Maybe you can develop partnerships with other companies?
5) Take Action
After thinking through these questions, go ahead and implement changes into your business plan. Make sure you keep track of how well each strategy works. This way you can adjust accordingly when necessary.
As a recap, when you perform a SWOT analysis
You identify all the factors that could negatively or positively affect your company. You do this by listing each factor under either “strengths” or “weakness”. List them again, but now list them as opportunities or threats. It helps you to see things clearly, and it also ensures that you don’t miss anything.
1) Define The Problem – Start by defining exactly what problem you have. What is it that needs fixing? Why has it happened? Who else would benefit from solving it?
2) Generate Ideas – Next brainstorm ideas for solutions. Try not to limit yourself to just one idea per category. Instead, come up with several options for each question.
3) Evaluate Each Idea – When evaluating your ideas, ask yourself whether they’ll work. If so, why? And if not, why not?
4) Choose Your Best Option – Once you’ve evaluated all your ideas, choose the best option based on its potential impact, cost-effectiveness, feasibility etc.
SWOT Analysis Example 2
Let’s say we want to start a clothing store called ‘Fashion360’. We know that we could face competition from big retailers such as Zara, H&M, Gap, Forever 21 etc., but we believe our products are better than theirs. So let’s look at our opportunities and threats using a SWOT analysis.
Strengths
It is our belief that our clothes are more fashionable than those sold by our competitors. Many of our clients tell their friends about us, so we must be doing something right. Our shipping is free throughout the world as well. Our strength lies in these points.
Weaknesses
Experience is probably our biggest weakness. Our reputation hasn’t been established yet, but we still feel good about ourselves even though we haven’t been around for very long.
Opportunities
One of our greatest opportunities lies in creating unique designs. By coming up with original concepts, we hope to stand out among similar products. We might also attract people who prefer to shop online rather than in stores.
Threats
Right now, the competition is not a concern, since there are few alternatives. Nevertheless, once Fashion360 becomes popular, bigger chains will surely enter the market. The products they produce could be lower-priced, delivered faster, and of better quality.
Conclusion
Considering our strengths and weaknesses, we decided to create new designs instead of improving existing ones. Our target audience seems to prefer buying trendy items over classic pieces.
As you can see from the above example, a SWOT analysis doesn’t need to take much time to complete. In order to generate good ideas, you simply need to define the problem first. Before deciding which idea to pursue, make sure you evaluate each idea thoroughly.
You could use any other method to carry out a SWOT analysis, including PESTLE, VUCA.
SWOT analysis is not just useful, but also essential to most businesses. Chances are if you don’t understand your own company well enough, you won’t be able to make good decisions about its future. Therefore, every entrepreneur should conduct a SWOT analysis on a regular basis.
And remember… Don’t be afraid to try different strategies until you find one that works!
Legal Requirements for your business
The next toolkit walks you through the legal requirements.