Running a successful online business is stressful. There is so much to do, and it is often difficult to focus. You could easily get caught up in the day-to-day running of the business and lose sight of the bigger picture.
Yet, the long-term success of your online business depends on your ability to view the medium- and long-term prospects and weigh them against the market and your competitors. This is where a SWOT analysis can be beneficial.
A SWOT analysis is a simple but powerful technique used by businesses across the globe. You use it to list factors that may affect the long-term viability of your business. Once you’ve done that, you cut the list back. Now you can focus on the most impactful issues affecting your business.
A SWOT analysis is a tried and tested tool that business owners use to analyze internal and external business conditions. Strengths and weaknesses, such as your skills, assets, and resources, fall under internal conditions. Opportunities and threats are present in the external environment. They include issues such as changes to regulation, public perception, and economic activity.
What is a SWOT Analysis?
A SWOT analysis is a technique that most businesses use to evaluate organizational skills and resources. They then balance these against external opportunities and threats.
The technique is best demonstrated by using examples and questions used to explore the factors.
Your strengths are all those things that set you apart from the competition. They include everything that your online business does best. To find your strengths, you should ask the following questions and more
- What does your online business do well?
- In what areas does your business out-perform your competitors?
- What tangible assets do you have that give your online business the edge?
Weaknesses are those things that your business doesn’t do that well. They diminish your strengths and may leave you vulnerable. Ask the following questions to determine your weaknesses
- What do your competitors do better?
- Do you lack resources?
- How strong is your product proposition?
- Do you have skilled staff?
Opportunities differ from one industry to the next and may include the following growth prospects
- Expansion into new markets
- New product introduction
- Companion products
- New marketing opportunities.
- What is happening in the industry that could hinder growth?
- What new competitors will enter the market?
- Are customer requirements or attitudes to your product changing?
- Will legislative changes affect any of your processes or markets?
A SWOT analysis allows you to think about the future of your business. Then, you can use the knowledge gained to develop a strategic plan that will take your online business into the future.
Internal and External Factors
Some businesses refer to internal and external factors. Strengths and weaknesses are internal, and opportunities and threats are external. Here’s how they differ;
- Internal factors are inward-looking. External factors exist in the surrounding business environment
- Internal factors typically focus on the here and now, whereas external factors are forward-looking
Organizations can control their strengths and weaknesses. Yet opportunities and threats are typically outside of their control. Therefore, online businesses must anticipate changes in the external environment and react accordingly.
Why Do a SWOT Analysis?
A SWOT analysis is an essential part of strategic planning. It should come into use from the very beginning when you first formulate your online business plan. If you apply for business financing, you will have to demonstrate that you understand the SWOT analysis factors.
Online businesses should do a SWOT analysis every year. It is necessary to stay up to date with your industry, your competitors, and the economy at large. In addition, the analysis should help you predict changes and possible problems, allowing you to avoid losses and grow your business.
SWOT Analysis – the Process
A SWOT analysis is a subjective measure of how your business is doing. Therefore, the process’s effectiveness depends on your capacity to remember and analyze internal and external circumstances and understand how they might affect your business.
A SWOT analysis is formatted as a square with four quadrants. The strengths and weaknesses appear in the top two quadrants. The opportunities and threats are beneath them. This format allows you to quickly identify elements in your analysis.
Call a Brainstorming Session
It is best to include as many people as possible in drawing up SWOT analysis. This ensures that you receive lots of valuable input and cover all the aspects of your business. Including people in the process may also encourage staff support for the strategic plan that follows.
The SWOT analysis process starts by asking a series of questions.
- What resources and skills do you have that your competitors lack?
- What is your unique product proposition?
- What is your competitive advantage?
- Why do your customers keep buying from you?
- What does your online business do better than other online businesses?
Answers to these questions will indicate where your strengths lie
Use the same process to find our weaknesses
- What resources do you lack?
- What part of your product proposition do your customers complain about?
- What are the negative reviews?
- What returns do you receive?
- What could you do better?
Finding opportunities and threats may be somewhat more complex than determining your internal strengths and weaknesses. The external environment includes the following factors;
- Political or Regulatory
It may be necessary to conduct an in-depth competitor analysis to pick up all the opportunities. It is also essential to research the economic and business trends that may affect your industry.
You may have no control over the opportunities that exist in the external environment. Yet, by identifying them, you can decide whether and how to take advantage of them.
- Are there prospects in the current market?
- Are there geographic or product growth opportunities?
- How will changes to markets and the economy affect our sales?
- Can we harness resources that we currently don’t have?
- Are our input costs coming down?
While your business has no control over threats, identifying them ensures that you can take action to mitigate the consequences. Factors to consider:
- Are new market entrants likely?
- What about the current competition?
- Are there any industry changes imminent that might harm your market?
- Are input costs increasing?
- Is the market declining?
- Do you have any scarce supplies?
- Will regulatory changes affect your online business?
- Will current economic trends affect your sales?
The idea is to write down everything that comes to mind. Then, when you have finished your brainstorming session, it is time to go back and look at each item on the list. Take the time to discuss each of the line items. Then, prioritize them so that you can decide which deserves attention.
What to Do With Your SWOT Analysis
Now that you have identified all the internal and external factors, it’s time to do something with the information. Your SWOT analysis should form the basis of your strategic plan. Your action list should take account of the following:
- Match chosen opportunities with your organizational strengths
- Consider using your strengths to overcome external threats
- Take action to strengthen your weaknesses.
- Use the action plan as a basis for your business goals.
How to Act on Your SWOT Analysis?
After developing a SWOT analysis, it is time for you to act. Your strengths are the easiest factors to act upon. All you have to do is do more of what you do well. Then, use your strengths to take advantage of opportunities and, where possible, overcome threats.
Overcoming weaknesses can be somewhat more complex. This is especially so for factors such as geographic location or pricing when you’re up against international brands.
Why is it Important to Research Competitors?
Understanding your competitor is an essential part of developing a competitive advantage. When you know your competitors’ strengths and weaknesses, you can improve your own business strategy by taking advantage of competitor weaknesses. You can also target market sectors ignored by your opposition.
What is the Most Challenging Part of a SWOT Analysis?
The most challenging part of the SWOT analysis is the identification of opportunities and threats. Strengths and weaknesses are internal factors, so the online business owner can easily identify these. However, because opportunities and threats are external factors, further analysis is required. To identify external factors, you must understand the strengths and weaknesses of the competitors. You must also evaluate projected changes in the regulatory, social, and economic environments. Upcoming technological changes in your industry are also important considerations.
Recommendations – Our Top Choice
If you’re running an online business and you need a hand in creating a business plan, we have a solution for you – LivePlan. This is leading business plan software that helps you simplify your business planning, budgeting, forecasting, and performance tracking.
Why We Like LivePlan:
- It has a library of more than 500 sample business plans to match every industry or niche
- They offer step-by-step expert guidance and instructions to guide your online business from the very first day
- The automatic financials let you create financial forecasts without hassle
- It contains industry benchmarks and performance dashboards that lets you keep track of your performance as well as that of your competitors.
- Perfect for startup online businesses
- Deep analysis
- Easy to use and sync with Quickbooks
- No option to export reports into Excel yet; can only export into Word
- Sometimes it doesn’t have enough options in the forecasting area
Your online business can only thrive and grow in today’s competitive environment if you plan for the future. A SWOT analysis is a simple, tried, and tested technique. It’s used by most businesses to identify internal and external factors which may affect sales. Then, they use this information to take action to protect and grow the organization.
In identifying the strengths and weaknesses, business leaders can harness organizational strengths. They can use these strengths to mitigate threats and take advantage of opportunities. They can also work to overcome weaknesses so that their online businesses become stronger and expand into new, more profitable markets.