Step 1: Pick an industry
The first step is to provide the following:
- The title of the industry you want to open a business in (not the name of your business). For example: Solar Panel, restaurant, retail store, banking, and yes, even Cannabis!
- What is the total dollar value (size) of the industry in the U.S.?
- What is the growth rate (percentage) of the industry in the U.S.?
Step 2: External Environmental Analysis
“Environmental scanning is frequently utilized to help organizations [or potential new businesses] scan the landscape of competitors, customers, economic conditions, market conditions, etc. before implementing a new product/service.” (Christiansen, 2020, para. 20)
Below are 6 environments that you will research to answer the questions in regards to your chosen industry. The purpose in answering these questions is to determine if there are any changes in any of the environments that may provide an opportunity for you use in your business venture. Each environment has a brief description and example to help you understand the environment.
Political
“Political issues refer to the government’s level of intrusion in an organization’s operations. Particular issues of concern are taxation, tariffs, regulations, elections, and political stability. For example, different political parties have different stances on increasing the minimum wage. Small businesses may pay attention to an election where one candidate proposes an increase in the minimum wage because it can affect their product/service prices and ability to maintain current employees.” (Christiansen, 2020, para. 21)
Answer the following questions regarding your chosen industry:
- Are any changes to existing or new laws or regulations regarding federal taxation, and tariffs becoming active in the next 1-2 years that effect your chosen industry’s operations? Identify and explain the impact.
- Has there been any federal, state, or local elections/political party changes that may impact your business? Identify and explain the impact.
Economic
“Businesses who operate within the United States first focus on the health of the American economy as a whole, including growth, employment, inflation, and interest rates. Organizations that operate outside of the U.S. will focus on exchange rates. For example, a startup may evaluate the current health of the economy to determine whether or not they will be able to sustain themselves, as economic conditions affect a company’s long-range revenue and expenses.” (Christiansen, 2020, para. 22)
Answer the following questions regarding your chosen industry:
- Does the current and forecasted growth, employment, inflation, and interest rates indicate that the American economy is healthy enough for your industry to be successful? Explain why.
- Will your startup company be able to stay in business successfully based on the above forecasted rates? Explain why.
Social
“Social issues involve shifts in age, demographical changes, changing attitudes towards safety and health, consumer preferences and technological advancements, or population growth. For example, 86% of millennials utilize social media. As a result, companies who see millennials as their target audience are more likely to run promotional advertisements on social media platforms.” (Christiansen, 2020, para. 23)
Answer the following questions regarding your chosen industry:
- Are any changes with people generations, demographics, attitudes about safety & health, and population growth predicted in the next 1-2 years. Identify and explain the impact.
- Are consumer preferences or technological advances predicted in your industry within the next 1-2 years. Identify and explain the impact.
Technology
“Technology includes research and development, robotics, automation, or any type of technological change. Technological disruption refers to innovations that completely change the cast of leading competitors. For example, Facebook’s popularity was a technological disruption for Myspace, who was considered a dominating social media platform back in the early 2000s.” (Christiansen, 2020, para. 24)
Answer the following questions regarding your chosen industry:
- Are any changes in general technology predicted in the next 1-2 years? Identify and explain the impact.
- Have any technological changes occurred over the past year or are predicted in your industry that will affect the technology competitors? Identify and explain the impact.
Environmental
“Climate change, weather, air quality, and natural disasters are all environmental factors. Some industries are especially at risk from changes in the environment, including agriculture or tourism. To illustrate, farmers may watch the Weather channel or read the Farmer’s Almanac because the weather can affect. pesticide application, irrigation scheduling, planting dates, or fungicide application.” (Christiansen, 2020, para. 25)
Answer the following questions regarding your chosen industry:
- Are any predicted changes in weather and air quality, or predicted increases in natural disasters for the next 1-2 years? Identify and explain the impact.
Legal
“Legal factors include employment, health, and safety policies. Discrimination and consumer protection laws can also affect a company’s ability to operate. For example, the 2009 Dodd-Frank Act was passed by Congress after the Great Recession to place strict regulations on banks to protect consumers. Many larger banks were able to cope with the regulations imposed on them, but 90% of small banks claimed that compliance costs increased too dramatically and 81% said Dodd-Frank was too financially burdensome.” (Christiansen, 2020, para. 26)
Answer the following questions regarding your chosen industry:
- Are any changes predicted in federal, state, or local government regulations about employment, health and safety, discrimination, and consumer protection, in the next 1-2 years? Identify and explain the impact.
Reference
Christiansen, L. (2020, August 21). What is an environmental analysis? all your questions answered. Business Reporting Software. Retrieved December 13, 2021, from https://zipreporting.com/en/business-analysis/business-environment-analysis.html.