How To Analyze a Small Business by SWOT

Small businesses usually have greater flexibility in making decisions.  Their corporate structure is flatter and they have fewer decision makers.  However, whether a company is thriving or struggling, any small business can benefit from a SWOT analysis.  While this article covers the basics, you can learn detailed information on how to conduct a SWOT analysis by taking business classes.

A SWOT analysis is a close examination of a business’s strengths, weaknesses opportunities and threats.  Hence, the anagram SWOT.  In evaluating the situation of a small business, management needs to look at core competencies.  They may have excellent ratings in performance (strength) but the brand awareness of their business is low.  This may be due to distribution and the lack of market penetration, but it is still a weakness.  On the other hand, they may have a strong brand image (strength) but have disadvantages when it comes to economies of scale (lower cost because of volume ordering)--an obvious weakness.  There are other areas a small company must study such as their distribution, promotions and current financial situation.  The important thing is to analyze each and every aspect of the business and study all strengths and weaknesses.  Some weaknesses may be insurmountable such as capitalization.  But the key is to make outline all of the strengths and weaknesses.

The third part of the analysis is looking at current and future opportunities.  This will be contingent upon the level of competition.  If a small business is a pioneer in their field and the industry is relatively new (i.e. twitter), there  is a lot of opportunity for growth.  Consequently, there are going to be a number of competitors that try to tap into the market.  However, over time, many businesses will fail in this industry and only a few strong competitors will survive.  Threats have to do with dying technologies or new ones that will replace the old technology.  New regulations may be a factor as are changes in consumer needs or tastes.  A small soft drink firm may identify a certain decrease in sales because of a more health-conscious society.  Small companies that offer high interest loans may consider new laws as a major threat to their survival.

Once a company has identified their strengths, weaknesses, opportunities and threats, management can map them out on a grid.  For example, with strengths and weaknesses running across the x axis and opportunities running down the y axis, one can identify four separate grids:  Strengths-opportunities/strengths-threats/weaknesses-opportunities/weaknesses-threats.   Strategies can be developed for strengths-opportunities as this is where there is the most potential.  Contrarily, weaknesses-threats is an area that is possibly a lost cause.  This is where certain small businesses run into trouble (i.e. low capital/dying technology).  Strategies can be developed for each grid with most emphasis going to strengths-opportunities. Online courses in business can help you come up with the best possible strategy for your company.

It is much easier to be a key pioneer in an emerging industry versus a struggling company in a dying industry.


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