How to do a SWOT analysis

Everything moves quickly in the first couple of months of a startup, and founding teams often find themselves making decisions based on gut feelings. But for big decisions, you need something more strategic. That’s where a SWOT analysis — or, situational analysis — can come into play. This simple framework is designed to help you navigate complex situations and make well-informed decisions rooted in data, facts, and thoughtful insights.

In this article, we’ll explain how to write an effective SWOT analysis for your new business, when you need one, and what to do next.

What is a SWOT analysis?

SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors — everything that’s more or less within your control or relevant to your core competencies as a company. Opportunities and threats are external factors — things that are mostly out of your control and related to the broader industry, market, or ecosystem.

In a SWOT analysis, you’ll explore these internal and external factors through fact-based analysis and introspection. It’s a great tool to find fresh perspectives and make well-informed decisions. And the beauty of it? It’s very accessible, even for new founders.

By evaluating your company's competitive position, identifying dangerous blindspots, and finding hidden opportunities, the SWOT analysis gives you a more objective, informed foundation on which to base key decisions and plans. And this can be true for a number of situations that arise — from decision-making and planning moments, like deciding whether to launch a new product or make a big organizational change, to big-picture assessments, like analyzing the performance of your business as a whole. You just have to set clear objectives to stay on track and understand what you’re looking to assess.

Components of the SWOT analysis

Like we mentioned, the SWOT analysis is broken into four categories: strengths, weaknesses, opportunities, and threats, where strengths and weaknesses are the internal factors and opportunities and threats are the external. Below, we break them down a little further:

Strengths

Strengths are, of course, the things you’re good at compared to your competitors. Examples of strengths that show up on your SWOT analysis might be:

• Recent investments or a large amount of working capital
• Unique technology and innovative features
• A prestigious team of investors
• A skilled and motivated team
• Past job experiences
• Relevant connections

Weaknesses

Weaknesses are those things holding you back — the factors that might be standing in the way to success because you haven’t quite mastered them or pinned them down yet as a company. Examples of weaknesses might include:

• A weak brand and online presence
• An inadequate supply chain
• A lack of working capital
• No product-market-fit
• Important skill gaps

Opportunities

Opportunities are the external or environmental factors that could work to your company’s advantage in the near future, assuming you seize them accordingly. Examples of opportunities might include:

• A new technology that makes work easier (Generative AI, anyone?)
• Growing awareness of the problem you solve
• A competitor ceasing operations
• A positive shifts in regulations

Threats

Conversely, threats are any external factors that have the potential to hurt your company or affect business in a negative way. Examples here might include:

• Competitors with more funds
• A change in regulation or policy
• New legal restrictions imposed on your industry
• Economic conditions that negatively impact your customers’ buying power
• Rising costs for materials
• Tight labor supply
• A sharp decline in VC investments

Why is a SWOT analysis important for companies?

The SWOT analysis is an effective tool to make smarter business decisions, anchored less in assumption or bias and more in fact and objectivity — and this is true for companies of all sizes, whether the SWOT is assessing a market opportunity for emerging startups or helping chart the future’s course for a mature venture.

This 360-degree perspective is important because it gives context to the decision you’re trying to make, and it can lead to interesting insights about your company:

• Are you investing your time and money in the right marketing channels?
• Are you focusing on the right product and market, or should you pivot?
• How is your startup performing compared to its competitors?
• What are the opinions of customers and stakeholders?
• What’s holding you back from reaching your goals or entering a new phase of growth?

Conducting a SWOT analysis also gives you a written record of past decision-making processes. This will allow you to track past situations, wins, and mistakes.

When should you do a SWOT analysis?

A SWOT analysis is a valuable tool in many situations, but there are three use cases in particular where the decision-making framework can give way to particularly interesting insights:

• When you’re preparing to launch a new company
• Before you make a significant strategic decision
• When you’re expecting significant ecosystem shifts or external changes

You can perform an analysis as often as needed but mind that they’re time-consuming— and time is a very scarce asset.

How to do a good SWOT analysis?

The best way to do a SWOT analysis is to take it step by step and follow a data-driven approach. Since eliminating bias is one of the biggest challenges for businesses conducting a SWOT analysis, we recommend best practices like setting aside time to gather resources and reports.

Generally, an effective SWOT analysis can be broken down into five key steps:

1. Create a team and determine the objective

Creating a team for your analysis and determining its aims go hand in hand. Having a clear idea of what you want to analyze will help you put the right team together. And the team will help you nail down a specific objective.

Why is this important? Remember that a SWOT analysis can be about anything — from adding a new product to exploring your next financing options or defining your marketing strategy. The better you define the goal of the analysis, the better the results will be.

2. Gather internal and external resources

Because it’s important to base your analysis on facts and avoid bias, we recommend gathering as many resources as possible: financial reports, SEO audits, operational processes, and market insights. The goal is to create a strong picture of the current cultural truths and realities shaping the ecosystem and organizational structure in which you’re operating.

Determine which information is available and what’s lacking. Consider how reliable your information is and what the limitations are. If you’re clear about this before you start the analysis, you’ll avoid drawing false conclusions at the end.

3. Extract information and compile ideas

The third step is what it’s all about: extracting as many insights as possible from your resources. This is where the four factors of the SWOT analysis — the strengths, weaknesses, opportunities, and threats — come into play. Some people recommend taking it one by one but this could be limiting. So, we recommend brainstorming on all possible ideas. One report will likely reveal a mix of insights.

To ensure that you’re getting the most out of this analysis and don’t miss any crucial insights into your core strengths, current market opportunities, competitive landscape, environmental limitations, or otherwise, it can help to start with a list of questions to guide the conversation.

You can also consider layering on different frameworks for analysis to dig deeper. For example, the 4C Framework can be a good way to dig into strengths and weaknesses, while a PEST analysis can help you uncover threats and opportunities.

4. Refine your findings and make a SWOT matrix

You’re probably going to have dozens — if not hundreds — of ideas. There’s going to be some repetition, there may be some contradictions, and not everything will be as important.

So, now’s the time to combine ideas, explore which insights could be wrong, and determine what can be eliminated.

While refining your insights, it’s common practice to put them in a table or SWOT matrix. This is broken into four quadrants, with strengths in the top-left, weaknesses in the top-right, opportunities in the bottom-left, and threats in the bottom-right.

In your matrix, you’ll write concise bullet points with the key insights from your analysis. There’s no perfect number of bullet points — just don’t overdo it. You don’t want to overwhelm yourself. So, focus on the biggest strengths, weaknesses, opportunities, and risks in front of you. Write down what will have the biggest impact, and ignore what’s unlikely to affect your business. Finally, it’s best practice to reorder the bullet points and put the most important insights on top.

5. Analyze your findings and develop a strategy

Complete your SWOT analysis with an action plan. Look for potential connections between the quadrants of your matrix and figure out what to do next.

Here are some questions to guide you:

• Which opportunities are more likely to happen if we work on our weaknesses?
• Which threats will be more dangerous if we don’t deal with our weaknesses?
• How can we take advantage of our strengths?
• How should we monitor and mitigate threats?

Focus on prioritizing next steps based on effort and potential reward — things that will take minimal effort but offer a greater reward are more valuable than things that will take a lot of effort and barely move the needle. (And they’re more valuable than high-effort, high-reward actions as well.) Focus on putting your time and effort towards things that will make the biggest impact for your company with the least commitment of resources possible.