Evaluating the Potential of a Business Idea: Conducting a Strategy Analysis
by Pablo Arroyo | November 21, 2024
Business managers have at their disposal several techniques to achieve a sustainable competitive advantage. The goal is to be in a position to compete successfully in the market over the long-term and ensure the survivability of the company. As a manager of a small business, we need to handle many tasks at the same time, such as the day-to-day operations, implementing strategies that were decided previously and examining the environment to adapt for the future. Therefore, it is critical that we conduct a strategy analysis to review the external environment, such as competitors (out of our control) vs the internal environment (capabilities and resources). This provides a clear idea of what we have and the needs that need to be covered.
This analysis comes at the start of the process and directs the decision making that follows. These concepts also apply to nascent businesses, who are getting started and are writing a business plan for a business that doesn’t yet exist; however, they need to position their business relative to existing competitors or potential customers in order to maximize their likelihood of success.
PESTEL Analysis
Luckily, for strategic analysis, there is an important tool frequently used by business owners called the PESTEL Analysis. This tool is used to assess the external environment and represents the categories/factors to be examined: political, economical, sociocultural, technological, environmental and legal. A firm must adapt, take advantage, and confront what is happening in the world around it to succeed. PESTEL is a useful tool to evaluate the external environment and can help to answer questions such as:
- What technological opportunities exist for my business?
- What sociocultural trends provide opportunities for my business?
- Are there laws or regulations that affect what I can sell or how I can design my product or service?
Real-life Example
Let’s say for example, we are considering establishing a business in the automobile service industry, such as an auto maintenance and repair shop. We would look at how each of these factors could impact our operation.
- Political Factors: In terms of the political factors, the enactment of stricter emission rules will impact the technical aspects of automobiles being sold and repaired.
- Economic Factors: As far as economic factors, the high price of new cars makes it more feasible to keep maintaining a vehicle for a longer time, which is positive for our business. Consumer trends might indicate a preference for versatile and sport-utility vehicles. For customers, convenience is a priority, where easy pick-up and drop off, low wait times, and offering alternative transportation are a must.
- Technological Factors: technological factors certainly imply that electronics are more complicated and repairs involve keeping automation features working properly.
- Environmental Factors: point out to a shift to hybrid and electric vehicles, which have different requirements in terms of maintenance and upkeep. There are also laws that stipulate how consumers are protected from deceptive practices and how pre-work estimates, and the use of recycled parts must be disclosed.
In addition, at the present time, there are bills being proposed to provide consumers the “right to repair” their own cars and bring them to independent mechanics. Historically, car manufacturers have used proprietary tools and software that prevent third parties from accessing this information. These are just a few things to keep in mind when conducting the PESTEL analysis; the more information you plug in the better your analysis is.
Including a Competitive Analysis
The PESTEL analysis will provide a solid foundation for analyzing the external environment. Another important element would be to conduct a competitive analysis to assess the competition, monitor their activities for benchmarking, and identify gaps currently not being served in the market. In the auto shop example, it would be wise to determine how many other similar shops are in the area and what their marketing tactics, pricing strategy, and service offerings. We can find out much information by just reviewing their websites and social media channels. The objective is to find out their deficiencies and gaps in the market and then devise a differentiation strategy around that. This analysis might reveal that other auto shops have limited hours of operation, deficient customer service, long wait times, and no online reservations. Then, we can exploit those deficiencies.
In the next article, we will go over another tool that is used to evaluate your business, this time internally. Click here to go to the next article.
Pablo Arroyo, MBA, CGBP, CME
Arroyo, Consultants, International Consultants 2, International Trade, TampaSpecialties: International Trade, Marketing, Business Planning, Startup Assistance Pablo Arroyo has 17 years of experience in business development as an owner and business consultant in the public and private sectors. He is a Certified Global Business Professional (CGBP) and a Certified Marketing Executive (CME). He holds a bachelor’s degree in animal science, concentrating on international agriculture and agriculture economics, from the University of Missouri, and an MBA from the University of South Florida in marketing and international business. Arroyo was involved in strategic market expansion for companies from diverse sectors with emphasis on manufacturing, technology, agribusiness, food, tourism, hospitality, entrepreneurship and value-added enterprise development. Originally from Puerto Rico, he is fluent in Spanish and English.