This very well could’ve been a post about guac — but now that we’ve got your attention, here’s some equally fresh insight for you and your business.
If you’re an entrepreneur or business owner, you’ve likely been hit with a ton of great (albeit conflicting) advice. While there’s no exact formula for success, there are a number of management frameworks that you should consider a mainstay in your arsenal of business tools. One of the most important frameworks for new entrepreneurs is the PESTLE analysis.
What is a PESTLE analysis?
A PESTLE (also known as PEST, PESTEL, STEEPL) analysis is a simple and widely used tool that will help you to audit the Political, Economic, Socio-Cultural, Technological, Legal, and Environmental landscapes surrounding your business. This in turn helps you understand the “big picture” forces of change that you’re exposed to, and allows you to take advantage of the opportunities that these changes may present.
Think of it as a radar of sorts, identifying factors external to your organization to help diagnose issues or conflicts you may want to sit down and strategize for. Having this sort of insight from the get-go is invaluable. You’ll find that the results of this analysis will link closely with the Opportunities and Threats section of your business’ SWOT Analysis, which we’ve also covered before… Lucky you! Be mindful that you’ll probably see a lot of crossover in your PESTLE analysis, purely because things like political factors affect economic factors and vice versa.
The first of these external influences that can affect your business is the political landscape. Despite political decisions being out of your control, governments have a hand at things like regulations, policy, and taxation that often have a direct impact on your business decisions. Some see these factors can be the “red tape” that keeps your business on the ground, while others see them as a necessary intervention against unsafe/unethical practices. Like with most things, this is heavily dependent on your industry.
Let’s take Airbnb as an example to help put things into perspective. Countries (and cities) around the world have varying housing laws and short-term rental regulations. These guidelines are constantly being challenged and changed. Because Airbnb operates in nearly every country around the world, its teams need to stay apprised of the current regulatory landscape. The company and its homeowners constantly need to have a finger on the pulse of tax regulation and operating restrictions. Another more recent example of this is various bans placed on Airbnb and restrictions on travel during the COVID-19 pandemic and also housing crises around the world.
The second factor is the economic bubble. This component of the framework helps to address the areas of the economy that might directly impact your business. What state is your local economy in? What about the employment rate, or interest rates? Does your industry have tariffs? It’s obviously a broad area but this component also encourages you to explore inflation rates, the possibility of a recession, and other factors that may affect cash flow. This could directly influence your profit, your offering, and your overall pricing strategy.
Again, expect some crossover with other sections of the PESTLE formula. The world economy has taken a beating this year, with the hospitality industry taking a huge hit. Consumers are not traveling or spending money, and bans on Airbnb also pose an economic threat. Another threat the brand may face when analyzing the economic factor is competition — a smaller piece of the pie. The company may also feel a slump should there be an increase in local housing demands causing fewer people to list as hosts. However, we may also extract an opportunity here as travelers may opt for a more inexpensive alternative to bougie hotel chains in times of economic trouble.
Next, you’ll want to take a look at socio-cultural factors. Although you may think that you’ve nailed down your demographic, you may not have considered everything. Does your target audience make up a majority of the demographic in your industry? What does this say about their disposable income, their health? All of this will affect how they interact with your business. You’ll also want to consider consumer trends and pressure groups.
Once again, the cultural shift in social gatherings moving online poses a massive threat to Airbnb (and the hospitality industry in general.) Airbnb has also built quite a reputation for guests trashing million-dollar homes and hosting rowdy parties or getting noise complaints from neighbors, which could incentivize homeowners or pave the way for restrictive legislation. Although factors like this are difficult to predict, inadequately planning for this risk has left many Airbnb hosts in the lurch for damages in the thousands, and absolutely turned off of the platform. Horror stories circulating online have also caused a PR headache.
The fourth factor is technological. How will technological advancements impact the future of your business? Will it make your industry more efficient, or even completely disrupt it? Think of everything from iOS upgrades, to Gigafactoies, to Artificial Intelligence (AI), and even business models — nothing is off the table. Advancements in these areas could drastically transform the way your industry handles literally every part of its operation. Advancements in this area are likely to increase productivity, but new toys don’t come cheap and often need heavy maintenance.
It’s fair to say that Airbnb emerged as a prime example of a technological disruptor. When it launched in 2008, online-based Airbnb had the trifecta of convenience, cost, and comfort. Within a very short space of time, the hotel industry found themselves competing less with each other and more with Airbnb. As a result, the company has been privately valued at $31 billion.
Moving forward, the brand has also seamlessly integrated and kept up with technological advancements throughout the years. Not only is their process virtually contactless, but they also provide users and hosts the opportunity to connect in a safe and convenient way. Newer technology, however, comes with greater risk to privacy and security. Especially considering the type of data and transactions that pass through the Airbnb system. For this reason, Airbnb has made the personal and financial data of its customer base one of its top priorities.
When we think of the legal component of PESTLE we might imagine it has close ties to the political component of the analytical framework. It absolutely does. However, the legal part of this framework has more to do with the laws already in effect, like minimum wage, employment laws, and health and safety. Changes to laws can happen quickly, and you have to be ready to adapt—this includes any applicable changes to business practices, eLearning modules for your team, and external communications.
Airbnb has faced issues for failing to comply with housing regulations and the company is well aware of their legal obligations. On their website, they have stipulated that hosts must abide by these regulations. Hosts must agree to terms and conditions, provided by Airbnb, agreeing to follow taxation, housing, and tourism regulations. This verbiage is all packaged in a binding document that prevents Airbnb from being liable when issues appear. In this case, Airbnb has taken this legal factor and created a business strategy to ensure the health of the company through such turbulence by shifting the onus onto homeowners. It’s also likely the reason why the brand has a very bad reputation among legislators and low-income renters.
The final factor in this analysis is environmental. While this point may be last, it surely isn’t least — it’s 2020, we know better and we should be doing better. Your business should be focused on environmental laws, sustainability, pollution, supply chain, ethical sourcing of materials, and labor – to name a few. Again, each country and industry has its regulations when it comes to any of the aforementioned, but it’s your job to stay ahead of the curve by striving to do better (within your means) in general. This factor will also affect your pricing, whether that’s though government-backed green initiatives or the cost of various parts of producing increasing.
According to its website, Airbnb passes the environmental stress test with flying colors. Not only is the home-sharing model a suitable choice for hosts, guests and the planet, by lodging with Airbnb, but it’s also implied that you can help reduce waste usage, energy, and wastes. Their strategic shared economy business is based on utilizing existing resources such as spare rooms, or rental properties and traveling in a more environmentally friendly way.
Should I apply PESTLE to my business?
PESTLE is an important tool that will help determine the future standing of your business. After assessing your opportunities and threats, rank your priorities, and start tackling each factor head-on with a powerful business strategy. Thinking about these factors before you’ve even got business off the ground may seem intimidating, but it one step closer to future-proofing your business. In the time of the COVID economy, that’s more important than ever. It’s also important to revisit your PESTLE Analysis to make updates and improvements to your business plans as you see fit.
PESTLE on, Phlywheelers!