What Is A SWOT Analysis & How Can It Help Your Small Business?

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Last Updated on November 25, 2019 by Frank Moraes

Despite sounding similar, SWOT is very different than SWAT.

Instead of armor and weapons, businesses are armed SWOT analysis to assess a business, industry, or product.

SWOT stands for:

• Strengths
• Weaknesses 
• Opportunities
• Threats

A SWOT analysis (or matrix) is a more robust pros and cons list for internal and external factors for business decisions.

If you’re new to SWOT, or just need a refresher, this guide will cover everything you need to start using it to make more profitable business decisions.

What is a SWOT Analysis?

SWOT has its roots back in the 1960s and 1970s.

Surprisingly, no one is sure who created it. Many credit Albert Humphrey, but he’s never taken credit for it.

But it’s still a widely-used, and powerful tool to understand.

How is a SWOT Analysis Used?

First, let’s get a picture of what a SWOT analysis looks like in practice.

The most common layout is a SWOT matrix, which is a 2×2 grid, with one square for each main part.

However, it’s also fine to make a standard table with a column for each part, or even just write it out in paragraph form. It typically depends on how much detail you’d like to add for each bullet point.

When do you use SWOT?

The whole point is to use it when you have to decide whether or not to go ahead with a product or business launch. While many huge companies use SWOT, it also works just fine for small businesses.

Here is a list of uses for SWOT:

• Analyzing Emerging Industries
• Product Launches
• Business Launches
• Generating New Ideas

You can also use SWOT to analyze emerging industries as a whole, and decide if it’s worth coming up with a product or business to launch in it.

The most important thing to understand about SWOT is that it’s a quick and easy way to judge the surrounding elements of a decision. 

However, it’s just the first step. If the SWOT analysis looks promising, then you dive into more specific details.

Typically you’ll create a SWOT analysis in the early stages of creating a new business.

If you do go ahead with the business, it’s typical to include your SWOT analysis near the beginning of your business plan to provide a high-level summary of the business’s viability to potential investors and lenders.

The 4 Main Parts of a SWOT Matrix

There’s a reason that a 2×2 matrix is usually the layout of choice.

 The strengths and weaknesses are usually along the top row. These are both internal factors.

On the other hand, opportunities and threats are along the bottom row, and are external factors.

Let’s look at what qualifies as a valid point in each category, and what a good example looks like.

Here are the four parts that make up a SWOT analysis:

• Strengths (Internal)
• Weaknesses (Internal)
• Opportunities (External)
• Threats (External)

Internal Factors

Internal Factors is used to describe strengths and weaknesses that come from inside the business.

SWOT Strengths

A strength is a part of the business or product idea that differentiates itself from other existing options (in a positive way).

Some examples of strengths are:

• Having strong brand recognition.
• Having large cash reserves.
• Having an innovative and patented product.

Note that these are all internal factors. While they are relative to other existing options, all of these points are about the business or product being analyzed itself.

That means that something like “is in a growing industry” is not a valid strength to list. The growth of the industry depends on external factors, typically consumer interest, which is out of your control.

SWOT Weaknesses

A weakness is the exact opposite. It’s a part of the business or product idea that puts you at a disadvantage compared to competitors. Again, it needs to be internal.

Here are some examples of internal weaknesses:

• High levels of debt.
• Low levels of customer acquisition.
• Poor customer reviews.

External Factors

Now we move onto external factors. These are out of your control and reflect outside factors like the environment, government(s), consumer attitudes, and more.

SWOT Opportunities

An opportunity refers to any external factor that could give a business or product a competitive advantage.

Here are a few examples of opportunities:

• Expanding to new stores in surrounding cities.
• Restructuring into a different business structure.
• Creating new product lines to respond to trends (like green or healthy products).

These opportunities may exist now or may be likely in the future. You do want to go into more detail in your business plan about the data backing up any assertions here.

SWOT Threats

Again, a threat is are the opposite of an opportunity. These are external factors that could render your business or product less viable or even cripple it altogether.

Here are some examples of threats:

• Government legislation (tariffs, product labeling, etc.)
• Diminishing product supplies.
• Rising costs of labor (due to unions or short industry supply).
• Increased competition.

Threats are usually more hypothetical because the point of threats is to try to protect your business or product from failing in the future.

Tips For a Better SWOT Analysis

There are a few things you should keep in mind while creating a SWOT matrix:

1. Order points from most important to least important.
2. Be brief, expand later on in a report.
3. Get other perspectives from other employees, partners, or community members.
4. Update it over time, situations change.

Benefits and Drawbacks of Using a SWOT Analysis

We have a pretty good idea of what a SWOT analysis is at this point, and even how to start making one.

Before looking at specific examples, let me go over the main pros and cons of using SWOT as an analysis tool.

Benefits Of Using a SWOT Analysis

Here is a list of benefits associated with using a SWOT Analysis:

1. A Simple and Fast Screening Process
2. It Can Be Applied To Almost Any Situation
3. It Looks At The Wide Picture

A Simple and Fast Screening Process

SWOT is as simple as it gets.

You’ve read a few hundred words and already understand the concept pretty well.

It’s also cheap, you don’t need to hire external consultants to help you if you don’t want to.

Finally, it’s fast. You can create a thorough matrix in under an hour.

It Can Be Applied to Almost Any Situation

SWOT is incredibly flexible.

It can be used to assess the viability of a specific product idea, business, or even an industry as a whole (e.g. green businesses).

Even better, because it focuses on fundamental concepts, it can be applied to any industry.

It Looks at the Wide Picture

A SWOT analysis looks at all levels of an opportunity.

It doesn’t just consider financial health or competitive environment. It also looks at reputation, social causes, legislature, and everything else.

Other types of analysis are hard to draw any real conclusions from because they only focus on narrow factors.

Drawbacks Of Using A SWOT Analysis

Despite the benefits of using SWOT, there are also a number of drawbacks to using this system:

1. SWOT Can Oversimplify Things
2. SWOT Is Inherently Subjective

SWOT Can Oversimplify Things

It’s a necessary weakness, but you need to be aware of it.

A small matrix can only hold so much information, so SWOT is designed to focus on the most important factors. So you may choose to omit some points that should ultimately influence your decisions.

Additionally, some things aren’t clear strengths or weaknesses. Or they can be both if one product line impacts the health of another.

The important takeaway is to use SWOT as a quick screening tool and a high-level summary of a situation. It lacks the data and detail needed to make any big decision. Use it in combination with some sort of business report for maximum impact.

SWOT is Inherently Subjective

When you make a SWOT matrix, you’re brainstorming off the top of your head.

Even if you have a group contributing, it’s still easy to leave out something important.

Additionally, everyone has their own biases. What you may consider a threat, someone else might not. That’s why SWOT should only be a starting point for a detailed analysis.

SWOT Analysis Examples

We have all the pieces at this point, but we need to bring them together before you’re ready to create your own SWOT matrices.

We’ve created a few examples to look at. They’re not exactly robust, but detailed enough that you should have a great picture of what your SWOT analysis should look like.

Nike SWOT Analysis Example

Let’s start with Nike, best known for their shoes.

Coca Cola SWOT Analysis Example

For background information, note that Coca Cola sells many soft drinks, as well as other beverages (even water).

Green Business SWOT Matrix Examples

After looking at a few examples for specific companies, let’s look at an example for an industry itself – the green industry.

This SWOT matrix is what green entrepreneurs would come up with when considering a business that is based on positive change.

From here, you’d go into more details about the specific metrics (like consumer growth) that may make a new business or product viable.

Depending on the details, you may decide that the “green” industry is just a fad that is not a good investment, or that it is an emerging industry that you want to get involved in.

Tools to Make a SWOT Analysis

You’ve seen the SWOT examples that I’ve given you in this post, they can be very simple.

It’s common to use a whiteboard when creating one as a group.

If you’re creating one on a computer, there are many free Excel templates, or you can use a simple table in a word document.

But, if you want to get fancy and make an attractive SWOT matrix worthy of a presentation or business report, here are 2 tools that make it easy.

1. Canva

Canva is a versatile drag and drop image creator.

They have templates for all sorts of images, including SWOT matrices.

There are several designs, and it couldn’t be easier to use.

2. Creately

Creately has a specific SWOT analysis creation tool.

Again, there are multiple templates to choose from, and everything is drag and drop.

They boast users like PayPal, Amazon, and National Geographic.

Either tool will work fine and produce a beautiful SWOT analysis.

Other Marketing Theories and Analysis Options

Some people love SWOT, others don’t.

Here are a few other options that you can use instead of SWOT, or even alongside a SWOT analysis.

• Porter’s Five Forces Analysis
• PEST Analysis
• Scope Planning

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis is the most popular alternative.

Like SWOT, its purpose is to determine a high-level viability of a business or strategy, so you’ll want to pick one or the other.

It was created by Michael E. Porter, and looks at 5 competitive forces that exist in every industry:

1. Threat of new entrants
2. Threat of substitutes
3. Bargaining power of customers
4. Bargaining power of suppliers
5. Competitive rivalry

SCOPE Planning

SCOPE is an acronym that stands for:

• Situation
• Core competencies
• Obstacles
• Prospects
• Expectations

There are a lot of similarities to SWOT, but it takes a different approach to certain factors.

For example, “obstacles” are a lot like “threats” from SWOT, but can be both internal or external. Obstacles are defined as shorter-term problems that can and should be overcome.

SCOPE is a good option if you find SWOT a bit confusing because of how internal and external factors are grouped, as well as existing and predicted situations. SCOPE divides these much clearer.

PEST Analysis

PEST is an analysis that focuses mostly on the big picture of factors in the external environment.

It stands for:

• Political – Laws, regulations, etc. in the present or future.
• Economic – Inflation, the economy, taxes, tariffs, etc.
• Social – Consumer buying trends, world events, ethics, etc.
• Technological – Licensing, manufacturing, funding, etc.

Unlike the other analysis tools, SWOT can’t really be compared directly to PEST.

PEST is meant for a high-level look at mainly external factors in more detail than SWOT.

Use it instead of SWOT if the external factors are much more important than internal factors in a specific situation.

Or, use both of them. They will have some overlap, but should provide a more thorough analysis that either by themselves.

Conclusion

Now that you’re a SWOT expert, you can see how simple and flexible a tool it is. It can be used in small and large businesses, and in any industry.

It should also be clear how useful it can be in quickly assessing business situations and opportunities.

As long as you keep in mind that SWOT should just be the starting point to help you determine what data you need to collect and analyze, it will help you make more efficient and correct business decisions.

Feel free to share this guide with anyone you’re trying to create a SWOT analysis with, or who you know just wants to learn more about business in general.

Image credits: All images via rawpixels.com