Using SWOT to Test and Analyze Business Ideas and Opportunities

Now that we have thought through and written down our business ideas and identified various entrepreneurial opportunities, we need to test them. We need to know if it is a strong idea that will result in a competitive and profitable business.

Opportunities occur when people discover a problem of some kind that can be solved with the provision of a product/service, or when people decide they have certain needs or wants to satisfy.

Opportunities may also arise from change. Sources of opportunities could also be an observed demand and supply gap arising from society’s needs and function, growing and evolving economics and economic niches, technological change, social change, demographic change, political changes such as war, tariff, and embargoes, or artificial scarcities.

Other conditions that may create opportunities include shortages, surpluses, price response, and shifts in demand.

One way to test business ideas and opportunities is to do a SWOT analysis.

What is a SWOT Analysis?

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. When you do a SWOT analysis you think about your business and write down all the strengths, weaknesses, opportunities, and threats.

For strengths and weaknesses, you look inside your business for things that you can affect yourself.

Strengths are your stronghold; things that your business will be good at. For example, maybe you will have a better product than your competitors, the location of your shop will be very good or your staff very skilled.

Weaknesses imply shortcomings. They refer to those things that your business will not be so good at. For example, maybe your product will be more expensive than your competitors, you will not have enough money to advertise as much as you would like or you will not offer the same range of services as your competitors.

For opportunities and threats you look outside your business for things that you cannot affect yourself:

Opportunities are possible areas of exploitation. They are things around you in the community that will be good for your business. For example, the product you will make is becoming more and more popular; there is no other shop like yours in the neighborhood, or the number of potential customers will increase because many new businesses are moving to your area.

Threats are things around you in the community that will be bad for your business. Put in another way, they are those things that are cogs in the wheel of progress, such as competitors.

For example, there are other businesses in the area making the same product as you, the sales tax will go up which will make the goods in your shop more expensive for your customers or you do not know for how long your product will be popular.

When you have done a SWOT analysis you will be able to evaluate your business idea and decide:

• If you are going to continue with this business idea and make a full feasibility study
• If you are going to make changes to the business idea
• If you are going to give up this business idea completely

How to Do a SWOT Analysis

Following these four steps to evaluate your business idea through a SWOT analysis:
1. Fill in the SWOT analysis form on the last two pages below.
2. Rate the strengths, weaknesses, opportunities, and threats as very important or less important.
Not all aspects you write in your SWOT analysis will have the same importance about how important it will be for your business.
3. Evaluate your business idea.
4. Decide if you are going to continue with your business idea.

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