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An environmental analysis, or PEST analysis, categorizes the changes and forces that affect your startup either directly or indirectly through your customers, suppliers and competitors. PEST is an acronym that stands for the Political, Economic, Social and Technological market forces. This type of analysis is usually conducted in the process of preparing a strategic plan, with the goal being to identify threats and opportunities for your business.

PEST is a common framework for conducting this macro-environmental scan that summarizes high-level trends as they relate to your target customersmarkets and technology. To perform an environmental, or PEST, analysis, answer the following questions:

1. What key political and regulatory developments are taking place now? How do these changes affect your market and customers? How do these trends affect your industry, suppliers, partners and customers? Focus your analysis on:

  1. tax regulations
  2. trade rules
  3. environmental legislation

2. Are economic changes affecting your company, your customers or your suppliers? Does this create opportunities, or does it threaten your market potential or your customers’ economy? Focus your analysis on:

  1. economic growth rate
  2. interest rates
  3. currency changes
  4. inflation

3. What social and cultural changes are occurring? Focus on shifts in the demographic profile, any broad attitudinal changes, and any cultural trends that may impact the potential of your startup in the short and long term. Look for movement in:

  1. demographic trends such as birth rates, aging, and migration patterns
  2. attitudes towards healthy lifestyles, organic foods, the environment, and so forth
  3. attitudes on issues such as security, executive compensation, and anti-terrorism

4. What key technological trends impact your business? Consider also technology advances that affect your customers and suppliers. Do any of these changes create opportunities or threaten your potential? Focus your analysis on:

  1. specific technological breakthroughs
  2. the launch of innovative new products
  3. areas that undergo much research and development
  4. patents that receive publicity

References

Schewe, C.D. & Hiam, A. (1998). The Portable MBA in Marketing. New York: Wiley.