People are often intimidated by the idea of doing a SWOT analysis, not knowing it could be both an enjoyable and extremely productive exercise. The process is almost always pretty quick, and it can give you a fresh perspective on the original vision for the business.

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SWOT analysis defined

A SWOT analysis is a high-level strategic planning model that helps a business maximize its use of available resources to achieve its goals. An acronym, the term stands for Strengths, Weaknesses, Opportunities and Threats. In a nutshell, a SWOT analysis examines a business' stable and vulnerable areas, as well as the options and risks that line its path to success, and ultimately becomes the basis for developing its core strategy.

How to do a SWOT analysis

The first thing to remember when conducting a SWOT analysis is to include people with different viewpoints and stakes in your company. You want to give everyone - from top executives to sales reps and HR managers - a voice. This way, you'll produce a well-rounded strategy.

The analysis is usually done on a template with four squares, but it can come in a list form with four categories, as well. In the end, it's the content that matters.

In any case, this is where brainstorming can make a big difference. There's no need to elaborate at first. In fact, it's good to begin with bullet points that represent the gist of each idea raised in all four quadrants. After brainstorming, you can sort out all your insights and list them by priority under the following headings:

Strengths

This is where all the positive attributes of the business go, both tangible and intangible. Examples of tangible assets include capital, existing customers and technology. Intangibles could include reputation, skills and education. In short, this part is dedicated to the company's advantages and potential advantages over its competitors.

Weaknesses

Obviously the opposite of strengths, this part is dedicated to areas in the business that need work. For example, lack of expertise or technology, poor location, inefficient processes and so on. The idea is to write down which areas are pulling the business down, so proper corrective actions can be taken, and the business can become more competitive.

Opportunities

Opportunities are conditions and resources that help a business prosper, such as cheap labor and recent market growth. It's also important to consider whether these opportunities already exist or if you'll need to actively seek them. If this is the case, timing is crucial.

Threats

Threats could be anything that compromises the business strategy or itself. Some examples would be negative market growth or new technology that makes the company's existing equipment obsolete. Threats should be outlined and brought to the attention of decision-makers for containment. Even if they're beyond the company's control, established contingency plans help the business survive when they occur.

Sample SWOT Analysis

Understanding SWOT analysis and how it works is easier with an actual sample. Take Thei's Pasta, a gourmet pasta maker and cafe in downtown Seattle. They make fresh, authentic pasta in several varieties, such as vegan, keto and zero sugar. They're thinking of opening their second branch in the downtown area. Here's an example of how their SWOT analysis would look:

Strengths

  • Experienced chef
  • High-traffic location
  • Proven marketing strategies
  • Known for innovation

Weaknesses

  • Lack of personnel
  • Increasing rentals
  • Issues with cash flow
  • Inefficient record keeping

Opportunities

  • Reputation for being the best pasta in the area of the first branch
  • Avid customers
  • High market growth
  • Only one direct competitor in the second branch's location

Weaknesses

  • Competitor serves faster because they use packaged pasta
  • New pasta cafe opening soon

What Comes Next

A SWOT analysis is useful, but not an end in itself. You'll transform it into a dynamic strategy as you glean insights from the contrast between strength and weakness, and opportunity and risk. Eventually, you should create an actual list of steps and goals according to their level of importance to ensure that you're maximizing resources in the most crucial areas.

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When you're assigning priority levels, every item on the list must be examined down to the nitty-gritty. And you should use concrete, verifiable statements instead of vague, unquantifiable concepts. For example, "Cost savings of $15 per kilogram," is more actionable than "Higher return on investment."

Any corrective steps should be applied at the level where they're specifically needed. For instance, if a product is underperforming, those steps must be taken at the product level instead of being thrown aimlessly at the company in general.

Before you take any actions, it's important to scope through the crisscross connections between the four quadrants of the SWOT matrix. This might mean building on existing strengths or resolving current weaknesses to discover new opportunities. While a SWOT analysis is vital to the creation of a business strategy, it's best used in conjunction with other tools such as USP Analysis and Core Competencies Analysis.

When to conduct a SWOT analysis

A company (or sometimes an individual) will typically conduct a SWOT analysis before making major decisions like adding a new location or opening up the business for franchising. After the first round, you'll put your resulting strategy to the test, and then review it side by side with the SWOT analysis. The frequency of this activity will depend on the industry and the changes it undergoes.

Let's take the tech industry for exampl e. Evolving more rapidly than the steel industry, it will require a more frequent SWOT review. With the analysis relying largely on environmental data, companies can perform a review anytime, especially in response to key political or economic movements that could impact their organizations.

Facing the Facts

A SWOT analysis isn't complicated, but it can be unsettling for leaders who are forced to look at the true state of their business -- vulnerabilities included. But this is no reason to look away. It could even be viewed as an opportunity to improve the business. When you know what you've achieved so far, you can continue building and growing.