A B U S I N E S S P L A N N I N G G U I D E TO D E V E LO P I N G A S O C I A L E N T E R P R I S E : A S S E S S M E N T
How can you analyse external market forces?
Based upon your conclusions, you should re-evaluate your business idea, identify any relevant trends and any potential niche markets and revisit your options appraisal. You may need to reconsider some of the decisions or assumptions you have made previously.
You should start to think about the various options you are considering for your organisation in relation to the external market, because ultimately you must be able to sell the product or service that you might choose.
How do you carry out a commercial appraisal? Although you will have some unanswered questions, it is at this point that you should begin to get a clearer idea of the type of business you want to run and a clearer idea of the social impact you might want to make. The key question is, how do ensure that you get your ‘ balance of aims’ right? This is a common challenge for many social enterprises. You might also like to think about how this will affect the balance between your commercial and non-commercial income.
A PEST analysis is designed to help you undertake this exercise. Pest stands for Political, Economic, Social and Technological. This may sound complicated but it does not have to be. You simply need to assess the trends that affect the market, in which you will be operating. Consider how, in turn, these might affect your own organisation. A PEST analysis is a good way of capturing and organising all of these external factors.
Achieving a balance of aims
The types of issues you need consider are:
Remember that your motivation is your starting point and your business is the vehicle by which you hope achieve your social aims. When trying to conduct a commercial appraisal, we’ve found it can be useful to consider your commercial purpose, the potential idea/business option, alongside your social purpose.
What particular external factors impact on your organisation/idea? How will emerging market trends affect your organisation/idea? What level of risk does this represent for your organisation? With these trends can you identify any niche market you might exploit? This type of exercise is best undertaken with a group of people to ensure that you get a broader perspective about the trends affecting your organisation. There will be areas that you may not know the answers to and inconsistencies in the way these trends are impacting upon different aspects of the business. However, the primary reason for undertaking a PEST analysis is to increase your understanding of the trends, not to sort out all the answers. Use the model below to think about the various external factors that might have an impact on your ability to deliver the particular product or service that you have in mind.
External analysis Political
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Economic
As an example, below we’ve outlined some of the questions that an organisation seeking to set up a social firm might ask. Social enterprise bridges the divide (where you see the dotted line) seeking to achieve commercial success in so far as it has a positive impact upon any stated social purpose. In this particular case, there may be some potential to reduce overheads but if the purpose of the social enterprise is to provide employment opportunities it is highly unlikely that a reduction in staff costs would be considered appropriate. Where there is no conflict of aims, there is potential to take action.
Commercial purpose
Social purpose
How much growth potential is there in the market?
Does the business provide the opportunity for a supportive working environment?
How much profit can I make on each product? Social
Technological
These can be political factors or policy decisions that affect the operating environment
These are issues that affect the purchasing power of customers and other businesses
These are factors that affect customer needs and potential markets
These are innovative developments or trends that might affect markets
Examples:
Examples:
Examples:
Examples:
Tax
Economic growth
Demographic and cultural changes
Research & development
Employment
Interest rates Population growth rate
Automation
Environmental regulations
Exchange rates Social attitudes
Technology
Trade restrictions/tariffs
Inflation Unemployment
Employment environment
Innovation
Political stability Europe
Supply/demand
How far can I reduce the costs of my overheads (e.g. staff ) in order to increase my profit margin?
How many jobs will the business create? How varied is the range of jobs you think might be created by the business?
It is impossible to be prescriptive about the questions that you should ask, as they will largely depend on your specific business idea, the related market potential, the motivation of your organisation and the social impact that you are seeking.
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