SWOT Analysis or TOWS analysis, Analyzing the strengths, weaknesses, opportunities, and threats (SWOT) of a business is an established tool that is widely used by academics, consultants, and advisors. Although a simple concept, business owners often struggle when trying to use it because it is very broad. It is difficult to determine where to start, what questions to ask, and where to focus. Obvious problems get attention while many other important things can be ignored. SWOT analysis is a great tool, but effective use requires additional structure. In the SWOT or TOWS analysis, Strengths and weaknesses relate to internal factors, while opportunities and threats cover external. Internal factors can be divided into five categories: management, labor, sales and marketing, operational, and financial. The external factors are also divided into five categories: threat of new entrants, bargaining power of suppliers, customers bargaining, the threat of competition from competitors, and the threat of substitution.
To approach the analysis in a structured way, prepare a list of use categories mentioned above. Identify the factors in each category that are important to your business. Under management for example, the major weakness for virtually every small business is relying too much on their owners. What will happen to business if something happens to the owner? In the category of the labor factor can be employee turnover and availability of new employees. The threat of new entrants might include the possibility of big box retailers opening near your business. Bargaining power of suppliers and customers categories should consider the possibility of losing a major supplier or customer. Comes with a number of factors for each category to complete the list. It is important that you do not try to assess or solve any problems you identify them. If you do, you'll be stuck on each factor and never complete the analysis.
Once the list is complete, you have to assess each factor based on its importance to your business. Use the alphabetical scale from A to E, where A = very important, B = important, C = critical number, D = little importance, and E = not important. Next rate each factor based on the capability (internal) or vulnerability (external). Use a numerical scale from 1 to 5, where 1 = very proficient or not vulnerable, 2 = proficient or little vulnerability, 3 = average ability or some vulnerability, 4 = poor proficiency or vulnerable, and less or 5 = very susceptible.
Factor with the lowest letter and the highest number (A5) is the biggest weakness or threat. That the lowest point and the lowest number (A1) is the greatest strength or opportunity.
Using a structured approach to create a SWOT analysis is possible and practical for any small business. To make this process worthwhile you must use this information to take action. Working to fix the worst problems first, prepare the biggest risks, take advantage of the best opportunities, and build your secondary strengths.