Ok, so, if I am not referring to a special police unit what is SWOT and how can it help you run your business better? SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Every business should be doing a SWOT assessment every year to make sure that they understand the current market and to focus on the opportunities for the coming year and identify any particular threats which may be on the horizon. Threats and Opportunities are driven by the market and industry your business is in, whereas Strengths and Weaknesses are driven by your particular internal organization.

Click here to download our free SWOT Analysis template

Recently we had a business owner ask us a question about SWOT:

How would/could I use the SWOT analysis tool to assist in my purchase negotiations. How does knowing your strengths and weaknesses, etc., help?

This is a great question as it sheds light on why all businesses need to know their SWOT and should review it annually. If you are suddenly in a position to sell your business for instance, as in the case above, knowing your SWOT can help you in negotiations in the following ways:

  1. You can clearly outline the revenue opportunities for your business, by understanding the Opportunity portion of SWOT. Because the Opportunities are market driven they are simply there for the taking — if the business can recognize them, and put resources in the appropriate place. This is a great selling point for a business because opportunities should exist no matter who owns the business.
  2. By understanding the Threats, you can mitigate certain questions/fears that a potential buyer might have. You can address certain threats and clearly lay out a plan to combat them. You come out looking like a smarter business owner, and give the impression that you are running a tight ship – something all potential buyers want to know.
  3. By knowing your Strengths, you can emphasize them in your negotiations. Perhaps a strength is your history in the industry or the loyalty of your customers. Maybe a strength is the fact that your product and/or service has been the clear winner in the market. You want to clearly outline your strengths as they should help you get more $$ for your business if are trying to sell it.
  4. Your Weaknesses will probably be downplayed during the process of selling your business. But knowing your weaknesses prepares you to address concerns the future buyer may have.

So now you know specifically why SWOT can help you if you are selling you business, but how can it help you run and grow your business? Think about this example:

John is a real estate agent trying to sell a house. In order to price the house, and figure out the right way to market the house, he starts listing the different pros and cons:

  1. The house is in a great neighborhood. (Opportunity)
  2. The house has no garage. (Weakness)
  3. The house has an internal vacuum system. (Strength)
  4. The house may be in an area with weak planning restrictions. This means the house across the street could get torn down and an apartment building could be put in its place. (Threat)
  5. The house has a brand new kitchen. (Strength)
  6. The house has a shady backyard. (Weakness in Oregon, Strength in Arizona)

You can see the mental process that John has gone through in order to market and sell this particular house. This is the same thing you want to do for your business. In order to understand the pros and cons, and position your products and services in the current marketplace you NEED to understand what market conditions you are up against (threats), or make your solution perfect for the customer (opportunities) and what your company brings to the table (strengths) and what your company is not very good at (weaknesses). By identifying your SWOT you can then build a strategy to either take advantage of (strengths and opportunities) or combat (threats and weaknesses). Your SWOT is usually the first step towards creating a strategic plan to market and sell your products and or services. And when business gets a little tougher, maybe due to a bad economy, knowing your SWOT will help you put your energy in the right place, while being aware of which factors may threaten or weaken your business.

Have more questions about SWOT? Read more here. Download your free SWOT analysis template here.

AvatarSabrina Parsons

Sabrina has served as CEO of Palo Alto Software since 2007.