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What is a SWOT analysis?

SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is a strategic planning technique that can provide an organization or a person with significant insight regarding favorable or unfavorable factors (both internal and external) that affect their business or project. It is a tried-and-true tool of strategic analysis that has been used by many types of organizations, such as commercial enterprises, nonprofit organizations, government entities and individuals, to help them evaluate their current strategic position and how to develop in a positive direction. SWOT analysis is also extremely helpful for startup companies as part of their business planning process. It will help define and communicate the business strategy, so that you start off on the right foot and the team knows the direction that it is heading [1,2].

The acronym SWOT originates from the four parameters that the technique examines:

  • Strengths are characteristics of the business or project that give it an advantage over others – what separates it from the competition.
  • Weaknesses are characteristics that place the business or project at a disadvantage relative to others – areas where it needs to improve to be competitive.
  • Opportunities are elements in the surrounding environment that the business or project could exploit to its advantage – favorable external conditions.
  • Threats are elements in the surrounding environment that could cause problems for the business or project – negative external conditions.

Strengths and weaknesses are internal factors, current characteristics of the business or project itself. Some examples include team size, funding, patents and intellectual property, engineering acumen and manufacturing skills.

Opportunities and threats are external factors, outside elements that can affect the business or project. Some examples include political and economic factors, climate, competitors, prices of materials, national and international events and changes in the marketplace.

SWOT analysis is usually presented and carried out through a matrix segmented into four quadrants, each one dedicated to a SWOT parameter, as shown in Figure 1. 

Figure 1 – SWOT analysis matrix – Each quadrant of the matrix lists Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T).

This practical visual arrangement provides a quick overview of the company’s strategic position. Although not all the points under a particular heading may be of equal importance, they should all represent key insights into the balance of opportunities and threats, strengths and weaknesses.

How do you perform a SWOT analysis?

SWOT analysis is best performed as a group discussion. For a SWOT analysis to be effective, company leaders need to be deeply involved. This isn’t a task that can be delegated to others. But company leadership shouldn’t do the work on their own either. For best results, you need to gather a group of people who have different perspectives on the company, from marketing and product development to manufacturing and sales. Everyone should have a seat at the table. Some companies even look outside of their own internal ranks when they perform a SWOT analysis and get input from customers and suppliers to add their perspectives to the analysis.

If you’re starting a business with just a few people or running a business on your own, you can still do a SWOT analysis. Recruit additional points of view from friends who know a little about your business, your accountant, suppliers, and customers. The key is to have different points of view.

In the discussion, the group should ask itself questions regarding the four SWOT parameters, such as:

Strengths:

  1. What are the skills of our team?
  2. How strong is our vision and strategy?
  3. What technologies / products under development are advancing well? (technology-wise and market-wise)
  4. What do third parties see as our strengths?
  5. How strong is our reputation?
  6. What products are performing well?
  7. What physical assets do we have?
  8. What business processes are successful?

Weaknesses:

  1. What skills are lacking in our team?
  2. What technologies / products under development are not advancing? (technology-wise and market-wise)
  3. Where can we improve?
  4. What products are underperforming?
  5. Are there tangible assets that our company needs?
  6. What business processes need improvement?
  7. Is your location conducive to success?

Opportunities:

  1. What market segments can we explore?
  2. What market trends benefit business?
  3. What new legislation benefits business?
  4. Are there new sources of funding?
  5. Are there new potential customers to approach?

Threats:

  1. What do our competitors do well?
  2. What market trends threaten business?
  3. Are there new competitors?
  4. Will suppliers be able to supply the materials we need at the prices we need?
  5. What new regulations threaten operations?

The SWOT analysis should start by everyone quietly generating ideas on their own. This prevents groupthink and ensures that all voices are heard. This can be done as individual preparation work before the SWOT group meeting.

At the beginning of the SWOT discussion, all participants should present their thoughts and the meeting leader should list them in each SWOT quadrant, grouping similar ideas together. Additional thoughts will come up at this point as someone else’s idea sparks a new thought in the attendees.

The SWOT matrix is now up for discussion and debate, by examining interactions between internal and external factors. For example, did a new weakness become apparent in the presence of an identified opportunity? These interactions between SWOT parameters should be examined many times, until all ideas have been exhausted. Oftentimes, the initial SWOT analysis changes throughout to reflect factors you were unaware of and would have never captured if it wasn’t for inputs coming from the whole group.

A company can use SWOT analysis for overall business strategy sessions or for a specific segment such as marketing, production, or sales. This way, you can see how the overall strategy developed from the SWOT analysis will filter down to the segments below before committing to it. You can also work in reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis. 

A SWOT analysis will force you to look at your business in new ways and from new directions. You’ll look at your strengths and weaknesses, and how you can leverage those to take advantage of the opportunities and threats that exist in your market. But remember that business conditions are constantly changing and you’ll want to reassess your strategy, reviewing your SWOT analysis every six to twelve months.

With your SWOT analysis complete, you’re ready to convert it into a real strategy. After all, the exercise is about producing a strategy that you can work on during the next few months.

The first step is to look at your strengths and figure out how you can use those strengths to take advantage of your opportunities. Then, look at how your strengths can combat the threats that are in the market. Use this analysis to produce a list of actions. With your action list in hand, start placing goals (or milestones) on it. What do you want to accomplish in each calendar quarter (or month) moving forward?

Example of SWOT Analysis

To further understand the role that SWOT analysis can play in developing a company’s strategy, we will imagine it being used at Apple, a couple of years after it was founded. As we all know, Apple was founded in 1976 by Steve Jobs and Steve Wozniak, who left college to pursue their passion to develop and commercialize a low-cost computer that we could all have at home. Two years later, by 1978, Apple had about 100 employees and sales of a few tens of millions of dollars. It was still a startup and a small business. What might a SWOT chart have looked like if Steve Jobs, Steve Wozniak and a few other representative members of the Apple team would have talked about it? Knowing what we know of Apple at that stage of its history, which is when the Apple II production volume was starting to ramp up, Figure 2 shows a few elements of their SWOT chart (a practical SWOT chart will typically have more than three elements per quadrant).

Figure 2 – SWOT analysis matrix for Apple in 1978.

This small chart powerfully depicts the strategic position of Apple as a small business poised for growth in 1978. It highlights issues in product development and manufacturing that need to be addressed. The important aspect is to translate the SWOT views into action to correct the issues. This is something that all organizations, large and small can benefit from.

References

[1] Kenton, Will; “Strength, Weakness, Opportunity, and Threat (SWOT) Analysis”; Investopedia, March 29, 2021.
[2] Parsons, Noah; “What is SWOT Analysis and how to do it right; LivePlan, February 2, 2021.

About the Column:

This is a regular column that explores business aspects of technology-oriented companies and in particular, the demanding business aspects of photonics startups. The column touches on topics such as financing, business plan, product development methodology, program management, hiring and retention, sales methodology and risk management. That is to say, we include all the pains and successes of living the photonics startup life.

This column is written sometimes by me (Daniel Renner) and sometimes by invited participants, so that we can share multiple points of view coming from the full spectrum of individuals that have something to say on this topic. At the same time, this is a conversation with you, the reader. We welcome questions, other opinions and suggestions for specific topics to be addressed in the future. If you have any questions or comments, please contact me at ipsnewsletter@ieee.org.

The expectation is that this column will turn into a useful source of business-related information for those who intend to start, join, improve the operation, fund, acquire or sell a photonic startup. A fascinating area that I have been one of those lucky to enjoy as a way of living for a long time. 

A Bit About Me:

I (Daniel Renner) grew up in the wilderness of Chilean Patagonia, which is one of the sources of my quest for adventure and for exploring new areas. In my early twenties I went to the University of Cambridge in England to do a Ph.D. in Opto-Electronics, a new area at the time. Now, decades later, I have lived through the whole range of experiences that relate to the development, manufacturing and commercialization of complex photonic devices and systems used in communication, sensor and industrial applications. My experience spans both technical and business aspects of photonic products. This experience has included both large and small companies, which gives me a reasonable vantage point to comment on the ups and downs of life in a photonics startup.

I am currently Chief Business Development Officer at Freedom Photonics in Santa Barbara, CA, and I look forward to our regular conversation through this column!