How to do a PESTLE analysis for your small business


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Authored by Hiscox Experts.
3 min read
SME founder runs analytics using tablet

Small businesses navigate a constantly evolving landscape of challenges and opportunities. PESTLE analysis can assist small businesses like yours in identifying and responding to trends before they affect your operations.

In this guide, we’ll explore how small businesses can examine Political, Economic, Social, Technological, Legal, and Environmental factors to make informed decisions that protect and grow their companies.

What is a PESTLE analysis?


A PESTLE analysis is one way to evaluate external factors that can impact an organisation or business. 

Companies use PESTLE analysis to identify potential opportunities and threats, which can help them develop effective strategies and make informed business decisions.

What are the elements of a PESTLE analysis?


It stands for: 

P – Political: Government policies, political stability, trade regulations, tax policies, and labour laws that can affect business operations. 

E – Economic: Economic growth rates, interest rates, inflation, exchange rates, consumer spending patterns, and other economic indicators that can influence market conditions. 

S – Social: Demographics, cultural trends, lifestyle changes, consumer attitudes, and social movements that can affect demand for products and services. 

T – Technological: Innovations, automation, research and development activities, and technological advancements that can create opportunities or threats. 

L – Legal: Laws and regulations related to employment, consumer protection, health and safety, data protection, and industry-specific legislation. 

E – Environmental: Climate change, environmental regulations, sustainability concerns, and consumer preferences for environmentally friendly products and services.

Why do small businesses use PESTLE analyses?


Small businesses use PESTLE analysis to understand the external factors that could impact their operations and growth. 

Examining Political, Economic, Social, Technological, Legal, and Environmental elements is one of the methods businesses use to predict emerging trends

By performing PESTLE analysis, small businesses can identify the current state of the world in which they operate, spotting challenges and opportunities they might otherwise miss. This can help small business owners decide which changes warrant their limited resources. 

Moreover, small businesses are typically more agile than larger companies, as they have less bureaucracy and can make decisions more quickly. By identifying a niche and swiftly pivoting, small businesses can capitalise on emerging trends before they significantly affect the market. 

For example, a PESTLE analysis might: 

  • Inform marketing, media, and design campaigns that resonate with changing consumer preferences 
  • Guide product developments that align with technological advancements 
  • Support staffing decisions based on changing labour markets 
  • Drive organisational development to help the business thrive amid regulatory shifts or environmental concerns.

How to do a PESTLE analysis


There are many ways to conduct a PESTLE analysis. 

Many small business owners find that focusing on practical day-to-day concerns is their priority. With limited time, staff, and budget compared to larger organisations, it can be easy to neglect extensive business research. 

To minimise resource waste and make the PESTLE analysis process as efficient as possible, you can use a six-step structure: preparation, data collection, analysis, interpretation, and planning. 

Preparation 

  • Define your objective 
  • Assemble a diverse team with different perspectives, if possible 
  • Prepare templates or worksheets for capturing findings 
  • Set a clear timeline for completion. 

Data collection 

Next, gather information from reliable sources. 

For example, you might: 

  • Political: Research current and upcoming legislation, political stability, and government initiatives 
  • Economic: Review economic indicators, market trends, and financial reports 
  • Technological: Examine technology trends, innovation reports, competitor tech adoption 
  • Legal: Study regulatory frameworks, compliance requirements, and legal precedents 
  • Environmental: Assess sustainability trends, climate policies, and environmental regulations. 

Documentation 

Then, you can record your findings: 

  • Document your findings for each PESTLE factor in a structured format 
  • Rate impacts (high/medium/low) and likelihood (probable/possible/unlikely) 
  • Create visual representations (graphs, charts) for key findings. 

Interpretation 

  • Identify patterns and connections between different factors 
  • Prioritise factors based on impact and relevance to your business 
  • Distinguish between short-term and long-term implications. 

Planning 

  • Turn insights into strategic recommendations 
  • Develop specific action items for each significant factor 
  • Assign responsibilities and timeframes for implementation. 

Review and update 

After the initial PESTLE analysis, you can regularly review and update your plans based on new findings. 

  • Schedule regular reviews (quarterly, biannually, or annually) 
  • Update your analysis when changes occur 
  • PESTLE analysis can be most effective when it evolves with changing external conditions rather than as a one-time exercise.

Advantages and disadvantages of a PESTLE analysis


Whether or not a PESTLE analysis is an effective use of your business’s resources depends on various factors.

Commonly found advantages and disadvantages include:

AdvantagesDisadvantages
Comprehensive framework – provides a structured approach to analysing external factors affecting an organisation or business.Static analysis – represents a snapshot in time and can become outdated in rapidly changing environments.
Holistic perspective – consider diverse factors beyond purely economic concerns.Oversimplification – may reduce complex issues to simple categories, missing interconnections.
Proactive planning – helps identify potential threats and opportunities early.Subjective interpretation – analysis quality can depend on the analyst’s perspective and biases.
Risk mitigation – identifies external risks that might impact business operations.Information overload – can generate excessive data that’s hard to prioritise.

Disclaimer:
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.

Hiscox Experts

The Hiscox Experts are leaders valued for their experience within the insurance industry. Their specialisms include areas such as professional indemnity and public liability, across industries including media, technology, and broader professional services. All content authored by the Hiscox Experts is in line with our editorial guidelines.