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What is the SWOT analysis?

If you as the founder have worked through chapter by chapter of your business plan, the last important point before the executive summary is the SWOT analysis. On the one hand, it is important in order to be able to better assess the opportunities and risks of your business model. On the other hand, it is usually also challenged and read critically by investors (such as the bank).

SWOT comes from English and stands for strengths (S.trengths), weaknesses (W.eaknesses), opportunities (Oopportunities) and risks (Threats). The tool, which has been tried and tested for over 50 years, helps founders and companies to identify relevant opportunities and risks with the help of a market analysis and a competition analysis and to act accordingly.

So that you can make quick progress with your SWOT analysis, we have put together the most important points for you below.

1. The components of the SWOT analysis

The SWOT analysis is a framework for thinking and analyzing that should help you as a founder or entrepreneur to stay competitive. It structures the business challenge and helps you, for example, to develop USPs and competitive advantages over the competition.

Start with the environmental analysis

The SWOT analysis begins with the analysis of the environment and the competition.

  • Which competitors are dangerous?
  • What trends, regulations and laws are there that could be relevant for your company?
  • What is the economic and political situation like and does that have an impact on your company?

This is followed by the strengths and weaknesses analysis of your company

These external influences help you to analyze your strengths and weaknesses. Because a strength or a weakness can never be seen without reference to customer behavior, competition or other external developments and trends. The key question for you and your SWOT analysis is: "Are we prepared for these external developments?" If you are armed, you have strengths, if you are not, you have weaknesses.

We want to clarify this relationship using 4 examples:

  • Example of strengths / weaknesses in relation to customer behavior: Let's say the gym trend is towards Zumba dancing. Then there is a strength in the gym that offers space for Zumba dancing classes and that has instructors who offer Zumba dancing. The studio, whose instructors cannot teach this sport, has a weakness.
  • Example of strengths / weaknesses in relation to the competition: Anyone who competes in a market where over 80% of the users are mobile Internet users has a glaring weakness with a website if it is not programmed for mobile devices.
  • Example of strengths and weaknesses in relation to environmental developments: Take, for example, a watch dealer who is an active athlete himself and who is very familiar with the needs of athletes. At the moment when more and more watch fans are demanding sports watches and wearables, this knowledge of the sensitivities of athletes is a strength. Because this dealer can absorb this external trend faster and implement it more profitably than a traditional watch dealer.
  • Example of supposed strengths and weaknesses: With the beginning of the ecommerce boom, one could have expected that the classic mail order company would make the fastest profit from ecommerce. Because their strength lies in their logistical competence. Classic mail order companies, who saw no weakness in their lack of internet know-how and who relied on their logistics competence, still had no chance against Amazon & Co.

From this you derive opportunities and risks

By comparing external trends with strengths and weaknesses, you can derive opportunities and risks. An opportunity is given when an external trend meets a strength and this gives you the opportunity to make profitable use of this opportunity.

A risk always arises when an external event threatens your business model and you are not able to counter this threat effectively. Example: With the advent of ecommerce, an opportunity and a risk at the same time arose for traditional retail. Anyone who was open-minded and had the strength of a strategic instinct took advantage of the trend and set up a second online pillar next to their stationary business. Anyone who underestimated this trend accepted the risk of a gradual loss of sales.

Develop measures to profitably exploit opportunities and contain risks

Analysis is good, implementation is better. Once you have discovered opportunities, you need to use them and implement them profitably. In the case of an identified risk, you need to develop measures to keep the risk small or even to turn it into an opportunity. The retailer who got involved with ecommerce at an early stage seized an opportunity. The traditionally conservative retailer, who only relied on his advisory skills, has exposed himself to a risk associated with stagnating sales, falling sales and falling earnings. A risk can quickly turn into a corporate crisis.

Benefit from the sponsored start-up coaching: an experienced consultant supports you with the business plan and also with the SWOT analysis.

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2. How to easily create your SWOT analysis

You have now got to know the basic principle of the SWOT analysis. Now we will show you how to implement your SWOT analysis simply and pragmatically. We recommend a 4-step procedure:

  • Step 1: Analyze trends, industry, customers & competitors
  • Step 2: Identify strengths and weaknesses
  • Step 3: Derive opportunities and risks
  • Step 4: develop measures

In the following, we will show you the stages of the SWOT analysis in detail and with corresponding recommendations for action.

Step 1: Analyze trends, industry, customers and competitors

The first part of the SWOT analysis deals with factors that are and could be relevant to your business model now and in the future - it is about trends.

For your SWOT analysis, write down the most important trends for your industry. It is best to proceed according to the "top-down" variant:

  1. The big trends: First describe the major trends that may not only be relevant for your market (e.g. demographic change, economic environment, changed consumer behavior, etc.)
  2. Your Market: Mention the most important factors that are specifically relevant to your market (e.g. customers are increasingly demanding organic products, etc.).
  3. Your competitors: Another important factor for the future development of your company are your competitors - what is the competitive situation like (e.g. the top 3 have a market share of 80%, price pressure etc.)
  4. Their customers: Who exactly are your customers and what do your customers want, what are their needs? Has anything changed in the last few years?

The goal is for you to write down in this part of the analysis all trends that are relevant to your business model and, in particular, may be in the future. From the abundance of trends, you should filter out 10 to 12 of the most important influencing factors for your company.

With these 10 to 12 trends from the environmental analysis, you can now go into the company analysis.

Step 2 of the SWOT analysis: create a profile of strengths and weaknesses

The analysis of trends from the environment, the industry as well as a well-founded competition analysis are the basis for the analysis of strengths and weaknesses and the derivation of opportunities and risks. The analysis of external trends sensitizes you in order to derive real strengths and weaknesses in your company from the external trends.

The object of the company analysis within the scope of the strengths and weaknesses analysis is your company itself. As a rule, you analyze company management, employees, quality of products and services and service quality, as well as things such as location, efficiency of the organization and logistics. Financial strength is also the subject of the analysis. Have the most important KPIs from your controlling dashboard ready.

Corporate governanceIs the team able to successfully face the identified external trends and maneuvers of the competition?
Management experienceIs there enough experience for current and future market trends?
Corporate cultureAre the way of thinking, philosophy and leadership behavior up-to-date with regard to the future trends identified in the market?
EmployeeDo we have enough motivated and qualified employees to cope with current and future market trends?
Key roles occupiedWhat are the key roles against the background of current trends in the market and the environment?
qualificationDo you have the necessary qualifications to profitably take advantage of current market trends?
Products and servicesAre our products and services attractive in the eyes of the customers and competitive compared to the competition?
Product qualityDo customers praise our products? How is the quality compared to the competition? How are the product reviews?
Service offersWhat services does the competition offer? Do our customers praise our service?
Financing offersHow good are our financing offers compared to the competition?
imageWhat cult factor do our products have? Are our customers proud to buy our products?
designIs our design contemporary? Does it suit our customers? Do our customers praise it?
Organizational factorsAre the location and quality of the processes and the organization suitable so that we can successfully meet the current trends in the market?
LocationIs our location suitable for working our market effectively and efficiently?
Organizational efficiencyHow stable are our processes? Is it stuck somewhere? Does this give rise to problems for service and product quality or employee satisfaction?
logisticsCan we deliver quickly, reliably and inexpensively?
FinancesAre we financially prepared to meet current and future trends?
Financial strengthCan we make the necessary investments ourselves?
Access to capitalDo we get the necessary investments financed at all times?
Profit marginIs our profit margin so high that we can survive dry spells?
IndebtednessDoes our level of indebtedness influence our ability to act in order to be able to react appropriately to external trends at any time?

How you formulate this catalog of questions as part of your strengths-weaknesses analysis depends on your business model. A craftsman certainly needs different questions of detail than a retailer or a freelance designer.

Based on these core questions about the strengths and weaknesses analysis in the context of the SWOT analysis, you create your strengths and weaknesses profile. Advantage: It visualizes the strengths and weaknesses in your company so that you can see at a glance whether you are in a good or bad position. You can use our free tool for your competitor analysis.

Step 3: Derive opportunities and risks

After the strengths and weaknesses analysis, take your 10 to 12 most important trends and evaluate them using the strengths and weaknesses profile. This determines whether a trend represents an opportunity or a risk for your company.

Now assign your 5 most important strengths and weaknesses to the three greatest opportunities and risks. If you do this in a table, as shown below, you can already put the first ideas and directions on paper on how to use an opportunity profitably or, conversely, to cushion a risk in the best possible way or even turn it into an opportunity.

The following table shows you how easy it is.

Using the example of this SWOT table, you can see very clearly how the analyst has already made considerations for implementation in some places. We'll talk about this in detail in the next section.

Step 4 of the SWOT analysis: Define measures

With the strengths and weaknesses profile, the trends and the resulting opportunities and risks, you have worked out the essential elements of the SWOT analysis.

The next step is to determine the specific actions you can take to reduce the most important risks and take advantage of the opportunities. In this part of the SWOT analysis, write down in detail how you will react to the most important 3-4 risks and which measures you are planning to be able to benefit from the 3-4 opportunities. Use our free SWOT analysis tool, which will guide you step by step to your finished SWOT analysis.

You should now budget the planned measures from the SWOT analysis and incorporate them into the financial plan.

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3. SWOT analysis example: Master painter Meier

We show how to use the SWOT analysis in practice with our fictitious SWOT analysis example. Master painter Meier first determines his strengths and weaknesses. He then writes down the most important trends and then decides whether the respective trend can be used as an opportunity or whether there is a risk for his business. Finally, he defines the measures to be taken to react to the risks and how he can benefit from the opportunities. You can find our practical example of the SWOT analysis here.

4. Use our free SWOT analysis tool

We at Für-Grü have developed a number of free tools for your business plan. Among other things, we have also created a SWOT analysis tool with which you can create your SWOT analysis yourself in a few minutes. The SWOT analysis tool is Excel based and can be downloaded here.

Request the free SWOT analysis tool now!

5. You should avoid these mistakes in your SWOT analysis

The SWOT analysis is a powerful tool with which you can control your long-term company development. Nevertheless, in practice there are always typical problems and mistakes that founders or entrepreneurs make in the SWOT analysis.

  1. the SWOT analysis is too extensive and too complicated
  2. the analysis leads to an unclear result
  3. the strengths and weaknesses are not presented honestly
  4. Opportunities and risks are not recognized
  5. Strengths and weaknesses are considered independently of customers and competitors

Your strengths are real when they bring you more customers, either directly or indirectly.

6. Other possible uses of the SWOT analysis

The following list shows more examples of how to apply SWOT analysis in practice.

  • Development of new products or services: Here the SWOT analysis should help to check the market opportunities of these innovations.
  • Inclusion of new product ranges in retail: How is the competition for this range at the location? Are our employees able to offer these ranges? Will our customers appreciate this new range? The SWOT analysis in this example answers such questions.
  • Branches at new locations: The business model at location A is profitable, will it also be at location B? The SWOT analysis, which specifically examines the conditions at the new location, is intended to find out. This application of the SWOT analysis is very important, especially for founders in the franchising sector.

Conclusion - SWOT analysis

Founders use the SWOT analysis primarily in the business plan. The environment analysis, the neutral assessment of strengths and weaknesses and the derivation of opportunities and risks should show the marketability of the newly founded company. A meaningful SWOT analysis is not only important for you and your corporate strategy. Investors are also interested in taking a very close look at the SWOT analysis.

It is important that you create a SWOT analysis that is as honest as possible - every company reveals weaknesses. The only question is whether you are aware of the weaknesses and how you deal with the resulting risks. The same applies, of course, to the opportunities: Are you ready to react flexibly to great opportunities?

Are you a founder? Then you have created the last chapter of the business plan with the SWOT analysis - congratulations!

Now it is a matter of writing a short, concise summary - the so-called executive summary.If you need support with a business plan, we recommend the sponsored start-up coaching.

Author: Für-Grü editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Grü for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Grü, he advised listed companies in the field of financial market communication.