Analysing the company environment: what to think about before you start your business?

Starting a business requires careful preparation. However, in order not to make an important step blindly, it is worth mapping out the environment you want to enter with your idea in advance.

Strategic analysis methods are used to assess the market situation, which you can use not only when setting up your company, but also for key management decisions. Through analysis, you will discover the strengths and weaknesses of your business, evaluate your competition and price your products more easily.

Porter's Five Forces Analysis

Porter's method focuses on evaluating the competition in the market. It examines the risks your company faces from:

Each section of the analysis then looks at the different forces at work in the industry.

Existing and potential competitors

A key point in the analysis is to correctly identify competitors. Therefore, be clear about who you will realistically be competing with in the market. For example, if you produce luxury cars, you will not be significantly threatened by the producers of the cheapest cars.

Then compare your offer with your chosen competitors. How do your products/services differ? How do they stack up in terms of price? Do your competitors offer any additional services to their products? If the market is flooded with competitors with similar offerings, customers will easily flee elsewhere at the slightest problem. But if there are few competitors, your situation is easier.

A comparison will help you clearly identify the advantages of your products or services over those of your competitors. You can then use these advantages, sometimes called unique selling points (USPs), in your marketing.

In addition to existing competitors, you should also be interested in those who are not yet in the market. If you are in a lucrative industry that is easy to enter, new players may soon emerge. Therefore, when planning, take into account that competitors are growing or changing their offerings, so update your comparison from time to time.

Substitutes

Substitutes, i.e. products and services that customers may choose to substitute, also pose a potential risk to the company. A substitute can be very different from your product - it just needs to satisfy the same need. For example, if you produce tea, it is useful to monitor the price of coffee, which many people drink in the morning instead of tea.

Influence of suppliers and customers

Finally, assess the bargaining position of important partners in your market - suppliers and buyers. How big are they? Are you dependent on any of them? Their position will have a significant impact on your market position.

PESTLE

PESTLE analysis examines the surrounding environment (macro environment) of an organization. It will give you a clearer picture of the challenges that lie ahead in your chosen industry. The method will also help you to uncover potential opportunities for business development.

The data for the analysis can be obtained from legal regulations, official reports (e.g. from the state administration, the Czech Statistical Office, etc.) or from research organisations. A lot of information is also publicly available online.

The name of the method is an acronym from the English term for the influences on the enterprise:

Sometimes a basic variant of this method, PEST analysis, is also used, which omits legislative and environmental factors.

The factors identified are then categorised according to whether they have a positive or negative impact on your business and their importance is assessed (e.g. how much potential impact they have on your business).

For many strategic decisions, some of the factors mentioned are not relevant (for example, when setting up an advertising agency, you don't necessarily need to examine the environmental factors of the surroundings). So you can skip these parts of the analysis.

For example, a simplified output of the analysis might look like this:

SWOT

The SWOT matrix is a popular analytical tool that helps you identify the strengths and weaknesses of your future business as well as important external factors that may affect it - i.e. Opportunities/Threats.

What to imagine under each concept?

Use internal documentation (reports, financial statements, etc.), market research or statistical data as a basis for creating your SWOT. You will also need information from the previously mentioned analyses (for example, the outputs from a PESTLE analysis will help you identify opportunities and threats).

Evaluation of factors

Identifying the factors is, of course, only the first step in a SWOT analysis - it is soon followed by their evaluation. This will tell you which influences to focus on as a priority. The evaluation usually takes place in a team.

You evaluate strengths and weaknesses according to how important they are in addressing the strategic issue at hand. In practice, this is done, for example, by having each team member divide 100 points among the strengths/weaknesses identified. Those with the most points are then the most important.

Opportunities and threats are ranked according to their impact and likelihood of occurrence. The most important opportunities/threats are then those that will impact the business most strongly and are very likely to occur.

List the most important factors in a table that you will use later to develop your strategy. For example, a simple SWOT with specific examples looks like this:

Do you want to start your own business?

The analysis is just the beginning of the process. Learn how to create a successful business plan. If you have already thought everything through, we will be happy to help you set up your company formally. Leave us a message and we'll work out the details.