One of the biggest struggles entrepreneurs may face when putting their plans on paper is preparing their business plan SWOT analysis. This particular business plan section is often misunderstood by both inexperienced and experienced entrepreneurs through no fault of their own. The business plan SWOT analysis can be confusing, and often information that explains how to write this section is very contradictory.
This section can be challenging as it requires the writer to take a giant step back and dig into areas where they’re lacking information. That can feel uncomfortable.
If you’re not familiar with a SWOT analysis, SWOT stands for strengths, weaknesses, opportunities and threats. The goal of this section is to look at both internal and external factors that may impact your business. It’s less detailed than a STEEPLE analysis, but just as important to help illustrate your overall strategy.
Strengths and weaknesses focus on the internal perspective, where you look at factors that can hurt or help your business. Opportunities and threats focus on the external perspective, and require you to look outside your business for factors that may have an impact.
Let’s look at how to create a business plan SWOT analysis that acts as a powerful risk assessment of your business idea.
Why a SWOT Analysis Matters
Your SWOT analysis has a big influence on your overall business plan strategy. You need to have much of your plan completed in order to do an effective analysis. This part of your business plan should be completed after your marketing research and operational plans. You can use that intel to find any weak spots.
Investors are looking for two key things when reading your SWOT analysis: depth and self-awareness. They want to see that you fully grasp the market landscape, and how you view the pros and cons of your business. Most importantly, they’re looking to confirm that you’ve looked at where your business is most vulnerable.
When bankers review your SWOT analysis, they want to see potential weaknesses in your business plan, along with how you plan to address them. They’ll also be looking to see your ideas on how to mitigate future threats and that you have an understanding of the overall risks to your business.
Breaking Down Each Component
The easiest way to tackle your business plan SWOT analysis is to focus on each section individually. Here are some suggestions on how to tackle each one.
This is where you list out all the unique advantages of your business. While it may be tempting to simply list out things like “we have a great front-end manager”, your goal here should be to qualify the why. Why is your front-end manager so great? What skills and experience do they bring to the table? Share those details in this section and explain the direct impact it can have on your business.
Some advantages of your business could include:
- Team members with previous experience launching a business.
- Any proprietary elements your business may have.
- Unique assets that provide a competitive edge.
As a startup, your business may have quite a few weaknesses, and that’s okay! You don’t need to share every single one. Instead, focus on internal things that are gaps specific to your business. Once you’ve identified your weaknesses, it’s critical to follow each one up with a brief explanation of how it will be addressed or eliminated.
Possible weaknesses could include:
- Not having filled a necessary role on the team (e.g. CFO).
- Being in a less-than-ideal location.
- Having a gap in capital.
Once you have focused on the internal influences, you will move on to the external influences. This is your chance to show forward thinking. Share any plans to capitalize on things that can have a positive impact on your business. It’s important to choose wisely, and focus mainly on opportunities that are specific to your business. This will help to support your overall mission.
This is also the perfect spot to lean on your previously completed STEEPLE analysis. You may have some opportunities listed there that would be appropriate here. For each opportunity, you’ll want to provide a brief explanation of how this can be a benefit to your business.
Some examples of opportunities:
- An invitation to an upcoming conference where you’ll have the chance to meet possible vendors and potential customers.
- A competitor is soon going out of business so you can do some direct marketing and possibly capture some of their customer base.
- A recent online article that highlights your business and drives traffic to your website.
As you’ve worked through all the sections of your business plan, you’ve likely given a great deal of thought to external threats to your business. These are things that are outside of your direct control, and you’ll need to make plans to mitigate risk. These mitigation plans will need to be included in this section and demonstrate you’ve covered your bases as much as possible.
Possible threats could include:
- A new sales tax rate that goes into effect next year and you’ll need to cut costs overall by 1% to avoid increasing prices.
- The cost of a specific material used to make your product is being impacted by a new import tariff so you’ll need to source an alternative distributor.
- A new construction project that will impact foot traffic to your location will start in the new year. You’ll work with the city to ensure appropriate signage to make sure people can still find your business.
Leverage the Work You’ve Already Done
For each factor you list as part of your business plan SWOT analysis, you’ll need to have an accompanying action plan. If this seems overwhelming and you aren’t sure where to start, try framing each one up as a SMART goal. Each mitigation plan should be Specific, Measurable, Attainable, Relative and Time-bound.
If getting started is a challenge, go back and review the schedule section of your business plan. Look at your milestones, and consider what may prevent you from meeting each one.
By leveraging the parts of your business plan you’ve already completed, along with brainstorming solutions, you can then create a business plan SWOT analysis that shows investors you’re both realistic and solutions oriented.
Check out my new book How to Write an Exceptional Business Plan here tips on what to include for a detailed SWOT analysis.