Subscribe to Entrepreneur for $5
Subscribe

Start 2022 With a SWOT Analysis

Whether or not you're in the process of creating a business plan, a SWOT analysis can be a beneficial tool to assess your business or organization.

By
Opinions expressed by Entrepreneur contributors are their own.

One of the components that typically goes in a business plan is a SWOT analysis. Whether or not you’re in the process of creating a business plan, a SWOT analysis can be a beneficial tool to assess your business or organization. So, what exactly is a SWOT analysis? SWOT stands for strengths, weaknesses, opportunities and threats. In a business plan, they are usually formatted as simple bullet points under each of these four prongs.

The SWOT analysis is typically formatted into four quadrants. The left side lists the strengths and opportunities, also known as the internal controls while the right side lists the weaknesses and threats, also as known as the external controls. I recommend starting with a SWOT analysis for any startup. It provides a macro overview of what your business idea entails. The following information describes these four prongs in more detail and gives some ideas to consider while creating a SWOT analysis to assess your organization.

Strengths

The strengths section of the SWOT Analysis is where you list the advantages you have over your competitors. In a business plan, this part of your SWOT analysis will look very similar (if not identical) to your competitive advantages section. Perhaps you can offer a lower price than your competitors or provide a higher level of service, higher-quality product or larger product selection. Whatever makes you superior to your competitors goes in your strengths section.

Related: The Ins and Outs of SWOT Analysis for Marketing Growth

Weaknesses

As you probably assumed, weaknesses would be the inverse of strengths. This part of the SWOT is where you candidly look at your competitors and determine their advantages over you. While it may seem counterintuitive, prospective lenders and investors will see it as a red flag if you don’t list any weaknesses at all. They understand that no company can be everything to everyone, and many will get the impression that you are either naïve or hiding something if you leave this section blank.

Don’t be afraid to be open and honest about how you might be weak compared to your competitors. However, it would also be beneficial to state how you plan to overcome a weakness if it is one that can be overcome. For example, suppose you are new to business ownership. This could be a weakness if more seasoned businesspeople own your competitors. However, suppose you are in a position to hire an experienced manager in your industry to oversee your operation or contract a consultant who can walk you through the ins and outs of your industry. In that case, either of these plans could help you overcome your weakness of inexperience.

Opportunities

The opportunities section usually focuses on external factors that could positively affect your business. If your industry is projected to grow substantially over the next few years, that could be considered an opportunity. If your goods or services are considered more discretionary than necessary, then a projected increase in per capita disposable income could also be an opportunity. Other opportunities can be internal. Perhaps you already own and operate a thriving coffee shop. If you have the cash flow or can secure additional funding, then opening a second location could be an opportunity as well.

Related: Your Free Business Idea Evaluation SWOT Analysis Template

Threats

What's the difference between a weakness and a threat? Weaknesses pertain to how you compare to your competitors, whereas threats, like opportunities, tend to be external factors that could negatively impact your business. For example, suppose you own and operate a craft brewery. Suppose that some politicians are also proposing legislation to raise the legal drinking age in your state to 35 years. Sure, that would hurt your business because of the decrease in the number of people who could legally drink your craft beers. However, such a change in regulation would also affect every brewery (and winery and distillery) in your state because they would also be subject to the new age restriction. Because this change would affect all industry operators in your state and not just your business, it would be considered a threat, not a weakness.

Pitfalls to avoid

Strengths, weaknesses, opportunities and threats are only as good as the data inputted. So, I recommend being honest about the business and market conditions. Also, be sure to use only credible and reliable information from trusted sources to give merit to your SWOT analysis. Lastly, try only to use information made available within the last 36 months. Market data and trends change much more rapidly in today's economy. Some industries, such as technology, can change as quickly as every 12 months.  

Related: Go SWOT Yourself: Taking an Objective Look at Your Leadership Style

Listing your perceived strengths, weaknesses, opportunities and threats can help you honestly assess your organization as you determine your plans for the future, whether or not you are in the process of writing a business plan.

Entrepreneur Editors' Picks