SWOT Analysis

Strengths, Weaknesses, Opportunities, and Threats.

What is a SWOT analysis?

SWOT analysis meaning: SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis helps entrepreneurs and business professionals understand their business by illuminating where the company is poised to grow and which negative factors might hold them back.  

A “SWOT” analysis is an objective look at your company’s strengths, weaknesses, opportunities, and threats. This section will answer two questions for the reader: “Can this company’s leaders look at themselves and the outside world objectively?” and “What do they see when they look?” Be sure to address the first question so that the reader will be interested in your answer to the second.

SWOT analysis will help you organize and identify internal and external business success factors. The acronym “SWOT” serves as a template: Strengths, Weaknesses, Opportunities, and Threats. We’ll dive deeper to make it easy. 

SWOT analytics is fundamental to any business plan because it shows that the writer clearly understands their current business environment, the marketplace as a whole, and how their model would fit in favorably to make a profit. A well-written SWOT analysis forces business leaders to explore where they shine and their weaknesses. If you pitch your business to a lender or investor, they will want to know that you have the perspective to see your business from all angles.  

SWOT analysis can (and should) be used by small businesses, large companies, and even for teams or specific projects. In each case, it helps the stakeholders think objectively about their plans and what it will take to succeed. 

Pay careful attention and take your time when writing a SWOT analysis, as it’s paramount to any great business plan.

Every SWOT Analysis Should Include the Four Factors in the Acronym:

Below, we’ll add “internal” or “external” to each factor in a SWOT analysis. Pay careful attention to these, as they are an essential part of a traditional SWOT format. It also makes it easier to think about what goes in your document. 

  • Internal Strengths
  • Internal Weaknesses
  • Outside Opportunities
  • Outside Threats

How To Create a SWOT Analysis – Template Guide

Step 1: Understand the SWOT framework

Start by understanding the SWOT framework for Strengths, Weaknesses, Opportunities, and Threats. This framework is used to analyze both internal and external factors that can impact a business.

Step 2: Identify the purpose and goal

Determine why you need to conduct a SWOT analysis. Are you doing it as part of your business planning or strategic planning process? Are you looking to identify new funding sources or potential risks to your business model? Having a clear purpose and goal for the analysis will help guide your team members as they work through the process.

Step 3: Gather a team

Select a team of individuals who can contribute to the analysis, including stakeholders from different departments or areas of the business. Make sure they are familiar with the SWOT framework and have access to a free SWOT analysis template or SWOT templates that they can use as a starting point.

Step 4: Identify internal factors

Start by identifying the company’s strengths and weaknesses. Strengths are internal factors that the business excels at, such as a strong brand or a talented team. Weaknesses are areas where the company can improve, such as inefficient processes or outdated technology.

Step 5: Identify external factors

Move on to identifying opportunities and threats. Opportunities, such as new markets or emerging technologies, are external factors that could positively impact the business. Threats, such as new competitors or changing regulations, are external factors that could negatively impact the business.

Step 6: Create a SWOT matrix

Use a SWOT matrix to organize your findings. This matrix is a simple grid that separates internal and external factors into four categories: Strengths, Weaknesses, Opportunities, and Threats.

Step 7: Prioritize factors

Prioritize the most important factors in each category. For example, which strengths and weaknesses are most critical to the business? Which opportunities are most attractive, and which threats are most pressing?

Step 8: Develop an action plan

Use the prioritized factors to develop an action plan. Identify specific steps that can be taken to capitalize on strengths and opportunities and mitigate weaknesses and threats. Make sure the action plan is actionable, specific, and measurable.

Step 9: Monitor progress

Finally, monitor progress regularly to ensure the action plan works as intended. Revise the plan as needed and continue to conduct SWOT analyses regularly to stay on top of changes in the business environment.

By following this step-by-step template, any business can conduct a SWOT analysis that provides valuable insights into its strengths, weaknesses, opportunities, and threats.

Important Considerations

While SWOT analysis is used for various disciplines, we will address important small business considerations when writing a business plan in this section. 

The SWOT Analysis section of your business plan will likely be only two or three pages long. Yet it could be the section where you’ll invest the most time. Creating a SWOT analysis involves a rigorous look at your company and the outside world of customers and competitors.

As shown in the SWOT Diagram at the end of this section, Strengths and Weaknesses refer to issues internal to your company, such as your people, your processes, operations, or cost structure. Opportunities and Threats refer to external factors, such as competitive issues or factors about your potential customer base.

Start by identifying as many Strengths, Weaknesses, Opportunities, and Threats as possible, but include in your diagram only the most important (as a general rule, no more than five in each category). It’s not uncommon to have just one item in a particular category if that item stands out above all others.

The best way to create a SWOT analysis is to involve the key leaders of your company in a brainstorming session. For each category, create a long list. If you’re just getting started or you’re planning to be a solo entrepreneur, your initial brainstorming session might be with just one other person. Next, for each category, prioritize the list, and select those statements that are truly the most impactful.

The next step is the most important and the one that takes considerable time. Identify what you could do right now to eliminate or reduce the impact of threats and weaknesses. In the same way, identify how you could exploit strengths and opportunities or lock them in for the long term. This exercise will help you identify your niche and create strategies that genuinely take advantage of what makes your business unique. 

The thinking that comes from this analysis will impress potential lenders and investors and position you to succeed—both at getting the funding you need and at running your business.

Good SWOT statements are those where you could honestly say, “Customers would agree with this.” Or “Competitors could not dispute this.” Keep your SWOT statements factual and unemotional. For example, instead of saying, “Our products are superior,” you might say, “Customers will prefer our products because they can be shown to last twice as long.”

As a proud entrepreneur, you’re likely to discover weaknesses and threats that you would never want to acknowledge to a potential lender or investor. You recognize immediately that they are too glaring to be overlooked. For example, a weakness might be, “Nobody on our team has ever led or even worked on a sales team.” The point of a SWOT analysis is to identify and address key issues upfront. 

To improve the quality of your business plan, either remedy the weakness now, thereby eliminating it, or include your plan to compensate for the weakness.

A compelling business plan reduces threats and weaknesses to issues that could be resolved with additional funding. Think about it—if you have issues that could be resolved without funding, a wise investor would have you do so and come back afterward. Similarly, if, after receiving additional funding, you still don’t have a plan for addressing the threats and weaknesses, why would someone want to invest? Remember, your goal is to make it easy for the investor/lender to say “yes,” by clearing away the obstacles and highlighting the opportunities.

By identifying your threats and weaknesses, you’ll gain credibility with lenders and investors. They know that a business plan where the founders can’t identify any weaknesses or threats lacks objectivity and perspective. It’s not at all unusual for your financing partners to provide solutions to help address your limiting factors.  

Once you’ve identified your unique strengths and opportunities, your business plan should be written to capitalize on them. To truly exploit what is unique about your business, your opportunities should be well-matched to your strengths. Your business plan should address how you will make the most of your advantages and perpetuate them for as long as possible.

Following your SWOT diagram, include a brief description of each statement from each category. For strengths and opportunities, explain how you’ll take advantage of them, why competitors can’t immediately duplicate them, and how you’ll build them into your business strategy.

For threats and weaknesses, address how you plan to compensate for them. While you don’t need a detailed, point-by-point plan, your text should make it clear that you have a workable solution and a plan for implementing it.

SWOT Analysis Example

The table below shows a SWOT Analysis for a new company that provides online services to help data scientists create, validate and host artificial intelligence models. The company has already started using capital provided by the founder and technical contributions–essentially free labor- from co-founders.  

They met, together with three advisory board members who have experience starting and growing businesses. They went through the SWOT framework and came up with the following items for each category in the SWOT quadrant. 

After they collaborated and agreed upon the most important internal and external factors, the founder would create a narrative for each item listed (not included in the example below.) 

The descriptions would briefly expand the items listed. For weaknesses and strengths, the severity of the issue and a path to a solution was included for each. For the strengths and opportunities, the narrative describes how to leverage strengths and take advantage of opportunities.

This is an image showing a SWOT analysis example. In the SWOT example, you will find the following details:  Strengths Strong technical team with specific experience in the industry we serve. Proof of concept product already developed and receiving positive feedback. Founder and leadership team (4 total) have deep relationships with customers in our target market.  Weaknesses While technical leadership is strong, we do not have CEO or sales leadership experience on the team. Lack of capital increases risk of turnover among key employees. The company needs a bigger, cross-functional team to accelerate development and for selling.  Opportunities AI is suddenly receiving considerable press and the job of educating the market is happening by itself. The market for AI products is expected to grow by 35% CAGR for the next 5 years.  AI is a fragmented field with room for small companies to establish themselves and become leaders.  Threats There is a shortage of AI developers which means they are hard to find and expensive to hire when we do find them. Numerous startups are entering the market, with some of them already being well funded.

SWOT Analysis Business Plan 

The example above is ideally suited for a SWOT analysis used in a business plan. Follow the form and level of detail shown to arrive at an objective view of your business. Work to address any items that can be overcome quickly and include constructive suggestions on how to overcome others. Lenders and investors like entrepreneurs that see problems clearly and have a plan! Similarly, be sure that your descriptive information tells how you’ll leverage strengths and opportunities to get your business off to a great start. 

For more information on SWOT analysis, this article on Wikipedia expands on the concept and history of a SWOT analysis.

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