The term "SWOT" is an acronym for strengths, weaknesses, opportunities and threats. A SWOT analysis is a method of identifying and listing the strengths and weaknesses of an organization as well as the opportunities and threats facing it from outside. This kind of strategic audit is just as useful to small businesses as to larger companies, as it can help startup entrepreneurs focus their energies on things that will have the greatest impact on growth and profitability. An effective SWOT analysis can uncover actionable information that can be turned into strategic advantages.
Strengths consist of the things your company does better than competitors, or any natural advantages that can give you an edge. Analyze strengths in the context of three categories -- financial, marketing and organizational -- to better understand how to use each strength to effectively gain an advantage in the marketplace. Financial strengths include things like a lean cost structure, long-term price agreements with suppliers, small-business tax advantages, and angel investors. Marketing strengths can include established brands or licenses, well-known business partners, or truly superior products. Organizational strengths can include things like lean payrolls and overhead, tax advantages related to your business structure, and scalable distribution partnerships. When analyzing strengths, look for ways to reinforce them to secure strategic advantages.
Weaknesses consist of any facet of your business that performs below expectations, or that causes you to struggle in the marketplace. Analyze weaknesses in the same categories as strengths to get a clear picture of how your advantages and disadvantages may be related. For example, if you identified a lean staff as a strength, you may find that your staff is unable to handle large, unexpected orders as quickly as it should, which would present a weakness in the marketing area, specifically sales and service. Focus on weaknesses that can be overcome or mitigated to make your SWOT analysis most effective.
Look for strategic opportunities in the marketplace, the legal environment, and the geographic areas in which you do business. Keep an eye on demand trends, underserved niches, new distribution channels, and new partnership opportunities. Each opportunity that you uncover should lead to a specific course of action. For example, if you find that consumers are spending more in the budget-priced end of your market rather than the mid-priced tier, consider expanding your product line to take advantage of the trend.
Additional opportunities can arise from the actions of competitors, or even from your list of strengths. For example, startup technology companies offering new and innovative services can benefit from competitors' marketing efforts if those efforts serve to educate consumers about the new service and stimulate new demand.
Analyze your competition as closely as you can to identify external threats. Any strength of a direct competitor can be a threat to your market share. If your new brand competes against a well-established competitor, for example, the brand loyalty your competitor already enjoys is a threat to your growth prospects. Competitors' future plans can present threats, as well. If competitors are developing new enhancements to their products, for example, their future product launches could lure some of your customers away.
Threats can come from the marketplace, the legal environment, and outside sources other than competitors. Keep an eye on political trends, economic swings and overall market conditions to identify things that could threaten your sales volume or profitability in the future, and always consider how to reduce or avoid the negative impacts of a threat becoming a reality.