A good idea may have gotten your business off the ground, but that initial idea—no matter how clever—won't be enough to sustain your growth. Taking stock of your company in order to grow is a critical step after the initial glow of startup.
One way to do that is through a SWOT analysis. No longer reserved just for MBAs, today, all businesses should understand their SWOT—and act upon what they uncover.
What Is a SWOT Analysis?
The acronym SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Because the first two (strengths and weaknesses) are usually internal aspects of your business and the second two (opportunities and threats) are usually external, SWOT analysis is also sometimes referred to as an Internal-External Analysis.
While the creation of the SWOT analysis has often been credited to Stanford Research Institute’s Albert Humphrey, he never claimed to be the originator of the technique, and its origins are unclear. Others credit its creation to Harvard Business School (HBS) professors George Albert Smith Jr. and C. Roland Christensen, and its further development to HBS professor Kenneth Andrews, who created practical applications and methods for using a SWOT analysis.
SWOT began to gain popularity in corporate America in the 1960s, when it was first discussed in detail in the book Business Policy, Text and Cases, and it continues to be used by businesses today. Despite its early history as a tool used by big business, SWOT analysis has valuable applications for businesses of every size, including a one-person operation. (In fact, it can even be used for personal development.)
Why Should You Do It?
As a small-business owner, it’s sometimes hard to see the forest for the trees. Doing a SWOT analysis helps you get a “big picture” view of a situation before you undertake anything new. It can be useful before launching a new product line, expanding your geographic market, choosing a new location or developing your marketing plan for the coming year.
SWOT is also widely used in project management. Implementing SWOT analysis before starting any complex internal or external project can help you gather adequate resources, identify potential problems and figure out ways to avoid roadblocks or handle challenges ahead of time.
SWOT can help you:
- Set goals for your business
- Brainstorm new ideas
- Assess how well current strategies are working
- Assess the feasibility of potential partners, markets and other business opportunities
- Deal with crises or emergency situations
How Do You Do a SWOT Analysis?
Typically a SWOT analysis is done using a four-square grid or four-column chart that lists the internal and external factors side by side. A quick online search will uncover plenty of templates in Excel, PowerPoint and Word formats, or you can create your own.
While it’s possible to do a SWOT analysis on your own, to get the most from the exercise, you should pull in other people. As an enthusiastic entrepreneur, you may get so excited about your latest big idea that you want to rush in without thinking it through. Doing a SWOT analysis with others will help forestall this tendency, and the more perspectives you get, the more thorough your analysis can be. Business partners, key employees, department heads, company advisors such as board members, and even personal mentors can be useful assets to a SWOT team.
Once you’ve got your group and your grid, start with the internal factors: strengths and weaknesses. These can include:
- Financial resources (assets, capital on hand, available credit)
- Physical resources (equipment, buildings or locations, vehicles, factories, technology)
- Human resources (employees, partners, advisors, contractors or freelancers)
- Intellectual resources (in-house knowledge or experience; intellectual property such as trademarks, patents and copyrights)
- Internal systems and processes (operational efficiency, software, training)
- “Intangible” resources (your company’s brand, image and culture)
Then move on to opportunities and threats, which can include:
- Market trends (demographics, culture, politics)
- Economic trends (local, national, global)
- Funding sources (access to capital, trends in banking)
- Current events (everything from natural disasters to wars to sporting events)
- Political (legislation, regulations, elections)
As you can see, while the SWOT grid is small and simple, the thinking required to carry out a good SWOT analysis is deep and wide. You should pull in research and data about current trends inside and outside your industry to make sure you’re considering all the possibilities.
It’s also important not to rush through a SWOT analysis or use it simply to back up a plan you already want to follow. Be sure to verify the data you use, consider all sides of the situation and play the role of “devil’s advocate” to truly analyze your next move.
What Do You Do With Your Completed SWOT Analysis?
A well-executed SWOT analysis can give rise to many new ideas. For instance, you might realize that the upcoming baseball season creates new opportunities for your T-shirt business to profit by selling licensed goods. By identifying the possible threats to this plan, as well as both your strengths and weaknesses, you can determine what steps, resources and partners you’ll need to make this plan work.
And once you’ve completed your SWOT analysis, don’t put it aside and forget about it. You should use it as the basis for developing detailed plans to achieve your newfound goals. Only by doing so can you move from opportunity to reality.
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