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A SWOT analysis helps you determine four key aspects of your business: strengths, weaknesses, opportunities, and threats. Understanding these items will help you know where you stand as well as what steps are necessary for you to be successful.
The “S” in SWOT: Strengths
Strengths are what you do well. While that may seem obvious, in the context of a SWOT analysis, these strengths are specifically those that give you a competitive advantage.
These are the things you do well compared to your competitors. Your strengths could be in a number of different areas, such as branding/marketing, efficiency, customer service, or simply having excellent products and/or services.
To determine your strengths, you can ask questions such as:
- Why do customers buy our product/service?
- What do we do that our competitors can’t/won’t do?
- What is our unique selling proposition (USP)?
- What about our branding makes us different from our competitors?
The “W” in SWOT: Weaknesses
Weaknesses, then, are areas in which you aren’t as strong compared to your competitors. It may not be as fun to come up with your weaknesses, but identifying them is at least as important as identifying your strengths.
We all have areas in which we could improve. Perhaps you don’t market yourself as well as you could. Maybe your mission is not as clearly defined as it could be. Or maybe your email response time could be better.
Personally, I am an introvert, so networking isn’t always easy. I tend to be shy and never want to approach people I don’t know. If you are the same, there are things you can do to make networking easier.
Whatever the case may be, understanding your weaknesses is an essential part of success. It can be tough to improve if you don’t know what needs improving.
Strengths and weaknesses are sometimes called internal factors because they are specific to your organization, and they are things you can control. They may also be easier to identify since they only require you to know yourself or your company.
To determine your specific weaknesses, ask questions like:
- What are some common complaints we have received from customers?
- What are competitors doing that we aren’t?
- Why have potential customers chosen our competitors’ products instead of ours?
- What could we be doing better?
The “O” in SWOT: Opportunities
While strengths and weaknesses are internal factors, opportunities are the first of the external factors. These are market conditions that you could potentially use to your advantage.
They could be a way in which you are uniquely positioned, or they might be a market trend that you have either identified before your competitors – or to which you can react sooner. These trends could allow you to develop or product to meet a certain need that your competitors haven’t met.
The BBC has an article which refers to external factors by the acronym PESTEC: political, economic, social, technological, environmental, and competitive. Whether you like the acronym or not (it’s a bit clunky), it is, nevertheless, fairly spot-on.
There could be an untapped market segment or one in which there are few competitors. This could allow you to market yourself to new potential customers where there is little competition.
For example, my local market is a bit of a startup hub. My business partner and I will be looking to partner with local businesses who are growing their businesses – meaning we’re in the perfect place to do so.
Because this is an external factor, though, it may require significant market analysis. That may mean larger companies are more equipped to take on this challenge, but it is certainly worth doing if it’s something you can afford.
Identify opportunities by asking questions such as:
- How is the market changing?
- What are the different segments in the market?
- What has been our most effective marketing tactic for potential customers/clients?
- What is our biggest expense, and can it be reduced?
The “T” in SWOT: Threats
Threats, another external factor, are market forces that could potentially hurt your business. Threats could be the actions of your competitors, market trends, or negative press coverage. A threat could also be new regulations that hurt your productivity.
As a freelance writer, I have been worried about how new AB5 laws could affect our businesses. However, while it may not seem entirely “fair,” these things happen and we must find ways to adjust to them. All kinds of businesses find themselves having to grapple with new laws every year.
Threats could also be ways in which consumer sentiment toward your company is changing. Have consumers become bored with your product(s)? Have sales figures dropped in recent quarters? These, too, are threats.
In a nutshell, anything that has the potential to reduce your profits should be considered a threat. It doesn’t have to completely put you out of business to be considered as such.
Possible questions to determine your threats could be:
- Are there any recent regulation changes that could threaten our profitability?
- Are our competitors getting ahead of us?
- Have we had any negative press coverage lately?
- Is the market changing in a way that could make us obsolete?
How to Do a SWOT Analysis
To properly conduct a SWOT analysis, you’ll want to gather people from different teams and different levels within your organization. The idea is to have all viewpoints adequately represented in order to put together a complete picture.
Of course, the number of people you need to round up will vary depending on the size and complexity of your company. I currently have a business partnership and we have no other employees, so that process is, shall we say, pretty simple.
In any case, while it’s important to understand the qualities of your organization that the SWOT analysis identifies, this doesn’t have to be an all-day affair. You can probably knock it out in one to three hours.
The best way to do a SWOT analysis is with a SWOT matrix. Put together a simple table that looks like this:
In order to fill in each of the columns, pose the questions in the sections above to your team. And feel free to come up with new questions that are more tailored to your team and/or organization.
Why is a SWOT Analysis Important?
A SWOT analysis is important because it helps you identify where you stand, how you can capitalize on the market, and what could hurt your profitability. If you haven’t yet determined these things, it can be difficult to properly formulate a strategy.
Creating a SWOT analysis often has the end goal of increasing profits, but that doesn’t have to be the case. They can also be used to improve the effectiveness of non-profit organizations, to help freelancers gain an edge, or to find new clients.
Putting together a thorough SWOT analysis will make your customers happier and your clients and vendors easier to work with.
Once you have identified these items, you’ll be well on your way to a better and more productive future in business.