What Is A SWOT Analysis For Your Small Business And How To Make One?

Key takeaways

• A SWOT analysis is a tool to identify the strengths, weaknesses, opportunities, and threats for your business 
• Your strengths and weaknesses don’t just apply to your product or service—they extend to your staff and operations
• Evaluate for opportunities and threats regularly since they can come and go in varied intervals

As a small business owner, it’s important to understand your strengths and weaknesses as well as where you stand against competitors. According to the Bureau of Labor Statistics, 20% of new businesses fail in the first year, and 45% of small businesses fail within their fifth year of opening.

A SWOT analysis can help ensure you’re making informed decisions at every stage of your journey. But what is a SWOT analysis and how can it help your business survive and thrive? Read on to learn more about how you can use this process to inform your decision making.

What is a SWOT analysis?

A SWOT analysis is a simple but powerful process that compares internal and external factors that influence the successes and shortcomings of a business. The acronym—which stands for strengths, weaknesses, opportunities, and threats—was created in the 1960s by Albert S. Humphrey, an American business and management consultant.

In a SWOT analysis, think of internal factors as the things you can control and change about your business (strengths and weaknesses) and the external factors as the influences outside of your control (opportunities and threats). 

A SWOT analysis is a chance to develop an unbiased view of your business as a whole or to assess the launch of a new product or service. You can use the results to establish your competitive advantage, implement changes to your business strategy, and improve operations. 

4 elements of a SWOT analysis

You know what SWOT stands for, but how do you actually define those terms? A SWOT analysis template is a quadrant (sometimes called a SWOT matrix) made up of the four key elements: strengths and weaknesses on the top and opportunities and threats on the bottom.

Strengths

Your business’s strengths are what give you a competitive edge in the marketplace, yet your internal strengths aren’t just about your products or services. Having skillful team members who provide excellent customer service can also set you apart from your competitors. 

Questions to identify your strengths include:

• What does our company do well?
• What is our unique selling proposition?
• How are we different from our competitors?
• What assets do we have? (e.g., location, equipment, customer base)

Weaknesses

Every business has room for improvement. Identifying your company’s weaknesses during this exercise will help you operate more efficiently. Start by digging into your operations and then take a look at the way you’re positioning yourself as a business and how well you’re resonating with your audience.

Questions to identify your weaknesses include:

• In which areas do our competitors surpass us?
• What are the complaints we’re hearing from customers?
• Do we have any cash flow problems?
• Are we using inefficient systems or processes?

Opportunities

“Opportunity only knocks once” doesn’t necessarily apply to your business, but it is possible to overlook opportunities to help your business grow. During a SWOT analysis, you might uncover a potential advantage to help you improve visibility and/or grow your customer base. Some opportunities allow for continuous growth while others might be temporary, which is why it’s important to perform this exercise at regular intervals. 

Questions to identify external opportunities include:

• Are there trends in our target market?
• Do our competitors have any weaknesses that we could take advantage of?
• Are there upcoming events that could improve the visibility or reputation of the business?
• Is there something customers are asking for that we don’t offer but could add?

Threats

Where there are opportunities, there are always potential threats that could derail your business’s growth. While these are often out of your control, identifying threats can help you prepare against them to minimize their impact. 

Threats can be environmental, regulatory, or simply new competitors in the marketplace. They’re usually external, but there are some internal threats. For example, a gap in team management could be a threat. It could lead to inefficient employees causing a negative customer experience or employees who unexpectedly quit, creating a vulnerability for your business.

Questions to identify threats include:

• Are there potential threats to our supply chain or vendors?
• What’s happening (or could happen) in the economy that could impact our business?
• Are there new market trends that could become a threat to our bottom line?
• Are there new competitors in the market?

How to conduct a SWOT analysis for your business

We’ve answered the question, “What is a SWOT analysis?” Now it’s time to take a look at how to effectively conduct your own SWOT analysis. 

Gather the right people

A SWOT analysis is a strategic planning technique, so it should be a cooperative exercise that includes representatives from every department or team at your company. The goal is to understand business needs from different perspectives.

As a small business, you might have a lean team, so every employee’s perspective can be critical to understanding your company’s strengths and weaknesses. If you’re just starting out as a solo entrepreneur, a SWOT analysis is still a useful tool. It’s a great opportunity to bring in trusted friends and family members to help provide feedback.

If you’re doing a SWOT analysis for a specific initiative, then include the employees critical to that initiative, such as those who are customer facing at the counter or front desk. Whether you’re coming up with general ideas for growing your business or thinking about offering a new product or service, make sure you’re getting a well-rounded picture of your business or initiative using the SWOT framework. Including different team members in the decision-making aspect of your business will also make them feel like a valued part of the company.

Allow room for ideas

Treat a SWOT analysis like a brainstorming session. Each member of the team will bring a unique set of perspectives and experiences to the room. 

A good first step is to have 10 minutes at the beginning of the session for everyone to write down their individual ideas. If you’re doing this as a virtual exercise, ask your employees to bring their ideas to the meeting.

Once it’s time to dive into the analysis, gather the individual ideas and organize them in the appropriate section of the SWOT matrix. Be sure to group similar ideas together—you’ll want to have 3-5 ideas for each category.

Rank the ideas

Your team might come up with some great ideas to help improve your business, but you’ll need to be intentional in prioritizing them for the exercise to be effective. This is where ranking comes into play. 

There are a couple of different ways to rank ideas. You can use a rating system where you assign a ranking between one and three for each idea based on their importance or severity. For example, a strength with a rating of three would be a major strength for a company versus one being a minor strength. Another way to rate ideas is to give each participant 10 “votes” they can distribute in any way they like in the matrix to delineate which ideas are most impactful or critical to them. 

The ranking results will become a prioritized list of ideas you can use to create an action plan and a solid foundation for the next time you perform a SWOT analysis. Remember that there will be immediate strategies you can implement while others may take longer. Be sure to set up milestones for each long-term strategy to keep you and your team accountable to the plan.

Evaluating your SWOT analysis results

Now comes the critical part: using the results from your analysis to create an action plan for your business. 

It might be tempting to gloss over your strengths and go directly to your weaknesses, but leaning into your strengths can help you take better advantage of the external opportunities you’ve identified. For example, if one of your strengths is a strong customer base, then you can turn that into an opportunity by creating a loyalty program with incentives for referrals.

When evaluating your internal weaknesses, think of them in relation to each aspect of your business. Low customer retention could be due to the location of your business, poor customer service, or not giving your customers an opportunity to leave feedback. 

For example, claiming your Yelp Business Page not only allows you to add your contact information and upload photos, but it also gives you the chance to respond to reviews whether they’re positive or negative. 

Just as your strengths can be tied to opportunities, external threats could be a result of your weaknesses. You can potentially turn a threat into an opportunity if you can improve on the shortcomings you’ve identified.