When crafting business plans, new entrepreneurs are eager to tell the “good news,” but are often reluctant to describe the types of things that could go wrong or undermine the business. A balanced, well-thought out and written SWOT analysis is both a necessary part of the plan itself as well as a great exercise for the owner. Unlike, say, a sales presentation or a job interview where you want to keep the focus on the positive, consideration of both the helpful and the harmful factors is important for doing a SWOT analysis well.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses describe the internal forces within the company: the owner has deep expertise in the services be offered (strength), but the owner lacks business management experience (weakness). Opportunities and threats are forces that affect the business from the outside. These could include economic conditions, social attitudes, or competition.
The strength of a SWOT analysis is its simplicity; however, the weakness is that it does not consider the issues in depth. It is great within the context of a business plan because it gives a snapshot that is easily digested, and also give the business owner an opportunity to show potential investors or funders that the business case has been well thought out.
Getting started with a SWOT analysis
The beginnings of a SWOT analysis are very intuitive, and cover many issues that the prospective business owner has most likely already considered. To get started, draw the categories out on a matrix or a set of lists and beginning writing down your thoughts. Many find it helpful to get input from others who are close to the business concept. A fresh perspective can add depth and new ideas to the SWOT.
For strengths and weakness, think about the internal workings of your company. Consider key personnel, assets, intellectual property, core competencies and capabilities, organizational culture and value chain activities. If an item seems to be both a strength and a weakness (say your organizational structure), then drill deeper and add more detail. Consider the factors that make it a strength, as well as the ones that make it a weakness.
As discussed, opportunities and threats come from outside of the company and may often be uncontrollable. These are situations that can be beneficial when seized upon, or they may be potentially damaging warranting thought as to how to defend against them. Market changes would top this list, including competition and trends. Other categories to consider include legal, environmental, technological, social, economic, or political changes.
Once again, certain factors could represent both an opportunity and a threat, indicating that a little more detail is needed. An example would be the economy. To elaborate on it, you could use a statement such as: “A severe downturn in the economy would result in lowered sales,” (threat), or “Continued economic improvement will raise discretionary spending, encouraging more customers to enter the market” (opportunity).
General SWOT guidelines
- When possible, think of the factors relative to competition
- Try to present 4 to 6 items in each of the 4 categories; you neither want the lists to be too short nor endless to the point of being daunting
- When possible, add specific details, but not at the risk of bogging down the fairly simple format
- Try to incorporate action words (“Owner brings deep experience and expertise” is better than “Experienced owner”)
SWOT is a roadmap
Yes, a business plan benefits from a SWOT analysis, but the true value in this exercise is helping the entrepreneur think the business case through from many angles. Sometimes it will present challenges that need further analysis or even description throughout the course of the plan, but most will find that it is a valuable part of thinking through a new business.
Beth Nichols is a freelance writer and business and marketing consultant.
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