A PESTLE Analysis is the norm for big firms, but did you know that your small business can also benefit from one? Conducting a PESTLE analysis helps entrepreneurs minimize business risks and identify opportunities based on what’s going on in their environment.
What is a PESTLE Analysis?
A PESTLE analysis is a business tool used to assess the external environment in which a company operates. and thus, PESTLE stands for:
There are other variations of the PESTLE tool, such as PEST and PESTEL analysis; however, they are very similar in approach. Some think of the SWOT analysis as an alternative to the PESTLE. However, I see them all as strategic tools that help you effectively manage your business’s opportunities and risks.
What Are the Benefits of Doing a PESTLE Analysis?
There are many benefits to a small business doing a PESTLE analysis and they include:
- Helping you better understand the environment in which your business will operate
- Enabling you to assess the impact of changes in the external environment on your business
- Allowing you to identify and evaluate opportunities and threats in the outside environment
- Allowing you to evaluate your operational strengths and weaknesses
A PESTLE analysis can help a small business to make informed decisions about how to react to changes in the external environment. In general, it can help to improve the business’s overall competitiveness.
An Overview PESTLE Component
The PESTLE analysis helps you identify factors that could impact your business model. To understand the different factors, let’s look at them more closely.
Political Factors of a PESTLE Analysis
The political component allows you to assess how and to what degree the government impacts our business. It includes areas such as:
- Tax policy
- Government stability
- Political unrest
- Import and export regulations and restriction
- Corruption level
- Freedom of the press
- Government regulation or deregulation
- Competition regulation
- Voter participation
- Defense budgets
- Government subsidies
- Government sanctions
- Trade policy
Economic Factors of a PESTLE Analysis
The economic analysis enables you to look at various aspects of the economy and the outlook in each area. It includes:
- Economic growth rate
- Interest rate
- Inflation rate
- Exchange rate
- Credit availability
- Disposable income
- Consumer spending
- Federal government budget deficits
- Gross domestic product trend
- Unemployment rate
- Stock market trends
- Price fluctuations
Social Factors of a PESTLE Analysis
The social factor enables you to know your consumers better and analyze what influences consumer behavior. Some areas include:
- Population size and growth rate
- Marriages and Divorces
- Immigration and emigration rates
- Life expectancy rates
- Social classes
- Family size and structure
- Health consciousness
- Average disposable income
- Attitudes towards government and work
- Environmental concerns
- Consumer buying habits
- Ethical concerns
- Cultural norms and values
- Religion and beliefs
- Racial equality
- Education level
- Crime rates
- Attitudes towards savings, investing, retiring, product quality, customer service, foreign people, and a diverse population
Technology Factors of a PESTLE Analysis
The social factors include industry innovation, trends, and perks. It includes:
- Innovation level
- Research and Development activity
- Access to new technology
- Internet infrastructure
- Communication infrastructure
- The life cycle of technology
- Technological change
- Technology awareness
Legal Factors of a PESTLE Analysis
Legal factors are critical to every business as it sets the tone for what you can and can’t do. Look at all aspects of the law include:
- Discrimination laws
- Antitrust laws
- Employment laws
- Consumer protection laws
- Copyright and patent laws
- Health and safety laws
- Education laws
- Privacy laws
Environmental Factors of a PESTLE Analysis
These factors include how the physical environment may affect business, such as:
- Climate change
- Environmental policies
- Natural disasters
- Air and water pollution
- Recycling standards
- Attitudes towards green products
- Support for renewable energy
How to Conduct a PESTLE Analysis
Like any other business activity, a PESTLE analysis requires a well-thought-out approach. Solopreneurs and micropreneurs do not have the same resources as big corporations. They, therefore, need a scope that matches the budget and resources they have.
1. Determine the scope and budget for your research
Keep your scope to areas that affect your industry and your company. This information is important whether you do the analysis yourself or hire a consultant.
2. Outline an approach to collecting data and evaluating the data
Data gathering is key to this exercise. Determine your team size and evaluation method to determine which risks or opportunities are impactful enough to address.
3. Identify the sources of information.
There is a wealth of information out there to gather data. You can use a research company or collect information from government and industry-specific association sites.
4. Gather information
Use a template of some sort to gather the data — it can be a spreadsheet, word document, or a custom template you make yourself.
5. Group and assess data
Depending on how you gather the information, you may need to use this to group like information. Rate the impact level and concentrate on the most risk and impact factors. If you focus on all aspects, you run a chance of burnout and analysis paralysis.
6. Conduct the PESTLE analysis by analyzing data patterns
Analyzing the data is one of the most significant steps. Look for patterns, and identify the factors that can affect your business.
This evaluation will define areas of opportunity and threats. It determines your strategic direction and affects whom you serve and your business model.
4. Create a strategic plan
Introduce your approach to addressing these issues (in priority order).
5. Take action.
Decide what action you will take according to your plan.
Once you conduct a baseline analysis, plan on periodic research and analysis because things continuously change. Keeping up with outside factors can minimize the effort needed in future assessments.
While a PESTLE analysis is helpful, you can get lost in the data or underestimate its power. I encourage you to conduct one or have a professional conduct one.
Undoubtedly, this world needs life coaches; however, you can have difficulty navigating the business world without a strategic approach to life coaching.
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