The Environmental Factors That Affect a Business

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The success of your business depends on several factors that may or may not be under your control. While you can try your best to improve your company's culture, employee performance and other internal factors, you cannot alter the course of events occurring outside the organization. These may include market fluctuations, changes in government policy, inflation, emerging technology trends and other environmental factors affecting business growth and revenue.

Understanding the Business Environment

All businesses big and small operate in an environment consisting of internal and external factors that can influence each other. Your company's mission and goals as well as its leadership, employees and corporate culture are all internal factors. As a business owner, you have control over these factors and can take steps needed to identify and solve any potential issues that can affect your performance and revenue.

External factors, on the other hand, exist outside your organization and can be more difficult or impossible to control. A company’s suppliers, competitors and marketing intermediaries are just a few examples. This category also includes environmental factors that influence the growth and success of an organization, such as:

  • State and federal laws
  • Economic growth or decline
  • Customer demand
  • Advances in technology
  • Ecological and environmental aspects
  • Trade and tax policies

Macro environment examples can also include politics, natural resources, technology awareness and adoption rates, globalization, changes in demographics and so on. Globalization, for instance, impacts your ability to operate across borders and reach an international audience. The world's most successful brands wouldn't be where they are today if trade barriers were in place.

Environmental Threats to Business Growth

Some of these factors represent environmental threats to business growth. An economic crisis, for example, can affect customers' purchasing power. As a result, people may not be able to afford your products and services anymore. In this case, your business would lose money.

Extreme weather and climate changes can impact your company's success too. First of all, these factors affect customer behavior in terms of what products they purchase. If you own a vacation resort at the seaside and the temperature drops, you may not have enough clients to sustain your business and keep it profitable.

In 2016, Macy’s cut over 2,000 jobs and lost revenue because its sales dropped due to unusually warm weather in the fall, which discouraged customers from buying coats and other cold weather outfits. In the UK, two-thirds of small businesses were affected by severe weather between 2012 and 2015.

Climate change will also have a direct impact on the availability of natural resources. Floods and water damage, for example, affect agricultural production and lead to higher levels of plant diseases. As a result, any business that purchases grains, meat, fruits or vegetables from farmers will lose money and customers. Whether you own a small grocery store, a restaurant or a bakery shop, your profits will suffer under these circumstances.

How to Mitigate the Risks

The environmental factors affecting business growth and survival cannot be fully controlled. The only thing you can do is to take preventive measures in order to mitigate the risks. Organizations often use the PESTLE analysis to better understand and identify environmental threats and opportunities.

A PESTLE analysis provides a 360-degree view of the political, social, economic, legal, environmental and technological factors that can impact your bottom line. Once you know these things, you can determine the extent to which they will affect your organization. Furthermore, you will have the information needed to create a backup plan and drive business growth.

Make sure you're prepared to adapt when things change. Customer demand goes up and down, new technologies emerge all the time and the economy fluctuates. Any of these factors can either help or hurt your business.

References

About the Author

Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.