When starting a new company the analysis of the external factors that influence the market is important because it can prevent future difficulties in running the business.
One of the model used in business strategy is PESTEL model.
PESTEL comes from Political, Economic, Social, Technological, Environmental and Legal factors.
When assessing the level of impact of this types of factors, we first need to know what is the target market, otherwise the analysis could have biases like checking the impact from a larger market. So, is the business targeting global, continental, regional, national or a city market? If so, there are different ways in which these factors are represented.
The decision to start a business is generally fast, based on an idea and potential funding. This means that generally it is little or no assessment of the factors that could have an impact on the business. In early stage of a company, in order to better prepare for the market conditions, knowing these factors could be very useful for the entrepreneur.
So, because these area is quite large, let’s have the example of a tech start-up that wish to launch a new app in Europe.
POLITICAL - this factor would require some analysis of the actual policies in Europe regarding launching the app (operating the business). The political stability is important, because launching a new app might mean targeting specific customers (which in unstable political countries couldn’t be useful). Tax and labor policy should require an analysis too, as IT & software related activities could have separate taxation. Hiring programmers could mean tax benefits in specific countries in Europe.
ECONOMIC - supposing the app is about ordering food. Knowing the actual economic development of the country could assess the level where the app should be present. Knowing the economy of the city could mean tracking area with higher potential customers.
SOCIAL - If the app is addressed to population between 20-45 years old, the start-up should assess the actual age distribution in a city/country, their careers and also responsiveness towards using the app. The issue here is targeting a city in which the actual population distribution is not relevant to reach a certain level of performance.
TECHNOLOGICAL – the start-up should assess the change and future version of its app to further adapt the market needs. The change should be step by step and in close relation with the clients’ opinions.
ENVIRONMENTAL – as climate change is affecting lots of industries and could mean positive impact in the future, the company should adapt the products. (in the food ordering app – new partners that offer BIO- related food should be brought on board)
LEGAL - the key issue in legal factors are licencing, patents or trade-marks that the start-up should register. Protecting your idea is the basis of developing the business.
For more assessment of these factors for your start-up, we are developing consulting/training programs to fit the needs of your business.
Contact us here.