Why SWOT Analysis Is Important For Your Business?

SWOT analysis is something many of you might be familiar with. It is quite a known acronym in the business space. Moreover, it is used for individuals as well. SWOT expands to Strengths, Weaknesses, Opportunities, and Threats. This acronym allows us to define the above four metrics in any business, startup idea, or individual context. You will find many SWOT analysis materials on the internet for different companies and startups. But why SWOT analysis is important? I would like to answer this question in detail along with some examples.

What Is SWOT Analysis?

Before understanding why SWOT analysis is important, we should know the basics of this acronym. Here is a quick overview of what exactly is a SWOT analysis.

SWOT is an acronym. It stands for Strengths, Weaknesses, Opportunities, and Threats. It is a strategic planning tool that allows us to frame and identify the above four metrics of our business, startup, or individuals. SWOT analysis is also called situational assessment or situational analysis.

A simple overview of SWOT analysis frameworks would go like this

S: Strengths

It is an internal factor to your business or a startup idea. This includes a product or service that you are leading in. This can be your unique selling proposition. This can also be a common product or service wherein you are leading the market, despite the competition. As the name implies, this is your strength. You are currently the best in this.

W: Weaknesses

It is the second internal factor of your business or startup idea. This is your business aspect that you are weak in. You are lagging behind your competition. You are not the market leader in this service. This may be your weak link and customers would prefer some other company for this service.

O: Opportunities

It is the external factor in the SWOT analysis. It is a particular aspect of your domain that you can exploit to your advantage. It can be a new unique selling proposition that you launching. Or maybe a new feature in your already existing product or service. It is simply an opportunity to expand your business and get an edge over your competition.

T: Threats

This is the second external factor in your business. This is a factor in the business environment that can cause loss to your business. The loss can be in any manner. It can be a new competitor providing a better service. Or it can be a change in certain policies of the domain that may put you at risk. The threats need to be analyzed thoroughly to avoid business loss.

So, this is a general brief of what is a SWOT analysis.

Why SWOT Analysis Is Important?

We have covered a brief overview of what is SWOT analysis. Now, let’s come to the main question of why SWOT analysis is important. As said earlier, it is a strategic planning tool for businesses and individuals. It helps you assess your strengths, weaknesses, opportunities, and threats. Here are some points explaining why SWOT analysis is important. We would include a few examples of our Amazon SWOT analysis to help you understand better.

1. Learn About Your Competition

To tackle and grow in any competitive market, one must understand how their competition is performing. Performing a SWOT analysis of your business is the first step to understanding your current valuation. The second step is to perform a SWOT analysis of your competitors. Once you have the data with you, it will help you assess you strategize the entire business roadmap. As a company, your goal is to grow not from within but also outperform others in the market. Here is when SWOT as a tool is quite beneficial.

Example: In the Amazon SWOT analysis, the biggest learning about the competition is how they are running their logistics through a SWOT analysis.

2. Assess Internal Performance

Performing a SWOT analysis gives you a clear picture of your internal structure and execution of the company. As they say, change starts from within. As a business, is essential to understand what internal factors are helping you grow or stopping you from growing. A SWOT analysis provides a structured way to assess and analyze your strengths and weaknesses. Getting a clear picture is the first part before you start to improve your business.

Example: In an Amazon SWOT analysis, we can infer that some strengths of the business are they are market leaders, they run local vendors along with premium logistics.

On the contrary, weaknesses would include that they have limited physical stores and low-profit margins due to free shipping.

3. Prepare Business Roadmap

Performing a SWOT analysis for your business puts you in a position where your entire execution comes in a box-like structure. Knowing your strengths, weaknesses, opportunities, and threats is essential. Knowing all these metrics would help you prepare a robust roadmap for your business. Just imagine preparing a roadmap without knowing what your strengths are or what your competitors are weak at! This is where a tool like SWOT helps and benefits you. SWOT analysis can be done on a weekly, monthly, and quarterly basis to understand and implement changes accordingly.

Example:

Amazon’s SWOT analysis helped them realize the rise of cryptocurrencies in the current world. Many projects have been started to use cryptocurrencies and blockchain to strengthen their security and payment systems.

4. Better Use Of Resources

When you perform a SWOT analysis of your business, you are basically analyzing the entire business in a few simple points. These points are simple and straightforward but quite effective. Understanding the strengths, weaknesses, opportunities, and threats – provides you with a complete understanding of where to utilize which resources. Your business would be using a lot of resources in tech, sales, marketing, human resources, and much more. A SWOT analysis helps you align and allocate your resources productively and ensures minimum issues.

5. Helps Business Adapt Well To Market Changes

If you are regularly performing a SWOT analysis, you can understand where your business is going in terms of growth or limitations. SWOT analysis helps you understand your competition. This analysis will help you prepare a strategy that your business adapts well to market or competition changes. This is somehow the most crucial aspect of running any business. Many businesses fail due to inconsistency. The only businesses which we see today have been consistent in their growth. This growth is a result of adapting to the market trends, changes, and every competitor.

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