Writing a SWOT analysis is the first step to writing a business plan. Without any doubt, the number one secret of a successful business is planning, and more specifically writing your own business plan. But before you begin planning, you should make sure that you understand your business, your competitive environment and what it is going to take to be successful.
In his book “The Art of War”, an ancient general known as Sun Su said that if you know your enemy and know yourself, you need not fear the result of a hundred battles, if you know yourself but not the enemy, for every victory gained you will suffer a defeat and if you know neither the enemy nor yourself, you will succumb in every battle.
With the above analogy, he created a sort of SWOT analysis that will allow you to see yourself and your enemy or competitors more clearly. A lot of small business owners only see just a small part of their competitive environment.
They make decisions at a snap based on what seems to them to be the biggest issue or problem in front of them or they buy equipment thinking that they know their market and then end up not being able to pay for it. In addition, almost every lender or investor will want to make sure that they see the whole picture before they will be willing to part with their money. Before you make any decision you should be sure that you see everything.
What is SWOT Analysis?
SWOT stands for strengths, weaknesses, opportunities and threats and just like its name implies, it tends to review those four aforementioned parameters. SWOT analysis provides an avenue by which the management team identifies the internal and external factors that will affect how the company performs and ultimately its future.
A businesses strengths and weaknesses constitute its internal factors while the opportunities and threats faced by the business makes up its external or environmental factors.
SWOT analysis is done as part of the overall corporate planning process in which financial and operational goals are set for the upcoming year and strategies are created to accomplish these goals. It is also a very important and crucial ingredient in a business plan.
1. Strengths
Strengths refer to those things that a company does that provides it with <a class="wpil_keyword_link" title="competitive advantage" competitive advantage. It is those things that a company can do which no other company does better than them. It includes what the company is known for.
For instance, for a company like Walmart, one of its main strengths is the fact that they are able to maintain very low cost. This allows them to price their products much lower than a lot of their competitors can because they have the ability to keep their costs low.
Positive brand recognition is also another very good example of strength. Some companies are well known. When you see their image and logo, it evokes positive emotions in you about that brand in particular. These types of companies just have to put their logo on a particular brand and people will buy it just because they have strong brand recognition. They are viewed positively because they are known for the quality they possess.
Yet another example is a skilled work force. This is a very significant strength in the sense that human resources is to a large part the greatest asset that most companies can have. Good employees are hard to come by and employers that can retain their workers and continually train them use it as a competitive advantage. A good example of a company that has this is Costco. They have a well-known reputation of having longer tenure track than most other industries in the same area.
Normally in the retail industry, if you want to maintain low prices, you will have to maintain lower costs which usually means that you will not pay your staff very significantly. Costco on the other hand has done something that is quite different from the norm in that industry.
They pay high wages for the industry, they also offer benefits for part time employees and they also have a lot of other attractive perks that other companies in the line do not offer. This provides them with a benefit of having workers that stay there longer. If workers stay in a particular work for a longer period, they will ultimately get better at what they do.
An employee who has stayed in a business for 3 to 5 years will definitely be better at the job than an employee who has stayed for less than a year in a particular work. This also allows the management to save more money that would have been used to hire and train new staff. Other strengths include access to financial resources, intellectual property, cost advantage et al.
2. Weaknesses
Weaknesses are the things that a company does that are not necessarily positive and could potentially be a liability for them. Sometimes when a factor is not a strength, it may tend to be a weakness. Poor customer service constitutes a significant weakness for a company because it may affect the rate at which future customers will go to that company to purchase their products or services especially if they have heard about someone having a bad experience with them in the past.
Expiring intellectual properties, patents, trademarks and copy rights are also weaknesses. Rising cost is also a major weakness because it will reduce the profit margin of a company. Having an unskilled workforce also provides a weakness because you will have to commit multiple resources to training.
And of course, lack of financial resources can be a major weakness for a company. Just because something is a weakness for a company does not mean that it has to keep being that way. The company can devote more time and resources to reverse this negative trend.
3. Opportunities and Threats
Opportunities and threats are considered to be external to a company because the company cannot necessarily affect or change these elements. These things just happen and it is up to the company to try to recognize an opportunity. If they are able to recognize an opportunity, that can serve as a potential avenue for growth and profitability.
If an opportunity is not ceased, it can quickly turn into a threat. One of the most notable opportunities that exist in recent times is new technology.
Technology has undergone some rapid changes in the past decade or so and this has provided a lot of opportunities for businesses. For example, Amazon was able to look into the option of digital books and digital market and were the first to come up with an e-book reader.
At that time, it was almost impossible to imagine that digital books can even become popular but Amazon was able to key into the opportunity that technology provided and today is the number one in digital books.
Technology could also pose a threat too. Borders is an example of a company that was negatively affected by technology after it failed to foresee the impact that it would have on the industry and as a result they are nonexistent today. The same thing happened when Apple came out with iTunes.
People could now purchase digital rights to songs and not necessarily a physical CD and as such a lot of businesses that specialize in CDs could no longer continue to operate. Technology was an opportunity at one point for them but due to the fact that they did not key into it, it became a threat. Other opportunities include relaxing government regulations, elimination of international barriers, changing consumer preference et al.
4. Threats
Threats are changes in the external environment that have the ability to impact the company. Opportunities and threats are very closely interlinked because opportunities that are not seized can tend to escalate into a threat. Examples of threats are emergence of new competitors into a market, pending government regulations, increased trade barriers, pending lawsuits, new technology et al.
Writing a SWOT Analysis Report for a Business Plan – A Sample Template
To write a SWOT analysis for your business plan you would have to brainstorm and find out what constitutes your strengths, weaknesses, opportunities and threats. For best results, you should conduct a SWOT analysis from the perspective of management, sales, customer care and even the customers. Typically, a SWOT analysis for a business plan is conducted using a foursquare SWOT analysis template but alternatively, you can just make a list of each of the factors you intend to consider.
Once you are done with your brainstorm session, you should create a final version of your SWOT analysis in an order of priority. You should list each category with the elements that are of most priority at the top, and the elements with the least priority should be at the bottom.
For the purpose of illustration, here is a brief SWOT analysis for a hypothetical dog grooming business in the united states of America.
Strengths
- Have many return customers
- Do get walk-in business
- Mobile grooming van has eye catching logo and gives exposure when performing on-site services
- Customers are satisfied with our level of service
Weaknesses
- High overhead cost
- Don’t have a marketing plan
- Don’t have a structured marketing budget
Opportunities
- Increasing popularity of dogs in America
- Increasing use of social media
- Local annual pet fair
Threats
- Competition from other dog grooming businesses in town
- Expenses in running media ads
Uses of SWOT Analysis Report
- For strategic planning and decision making: a SWOT analysis is a very important tool for making strategic plans and decisions. It allows the business owner to consider every aspect of the business and also to make informed decisions from the finding he makes.
- Building on strengths: a SWOT analysis will help you to identify the areas in which you are doing well in your business. By identifying these areas, you can make sure that you maintain them so as not to lose that competitive advantage.
- Minimizing weaknesses: conducting a SWOT analysis will help you to identify the characteristics that put your business in a competitive disadvantage. By identifying these areas, you will then be able to easily minimize their impact on your business and thus improve what you already have on ground.
- Seizing opportunities: a SWOT analysis can open your eyes to opportunities that exist around you which your business can take advantage of and turn them into strengths. An opportunity that exists but is not seized by a business can prove to be disastrous in the future.
- Counteracting the effects of threats: with the use of a comprehensive SWOT analysis, a business should be able to identify threats and also proffer ways of nullifying their effects.