Why external factors kill more businesses than bad products - and how to see them coming.
Here's a question I love asking business owners: "What's the biggest threat to your business right now?"
Most answers fall into two categories: Competition and Cash flow.
Both valid. But here's the thing - in 20 years of working with businesses, I've watched more companies get blindsided by forces outside their industry than by direct competitors.
The restaurant that got crushed by a new parking regulation. The retailer who didn't see the tariff coming. The service business that missed a demographic shift until their customer base literally aged out.
None of these had anything to do with their product. All of them were predictable - if you knew where to look.
Enter PESTEL: Your Early Warning System
Fortune 500 companies have entire teams dedicated to monitoring external factors. They call it "environmental scanning." Sounds fancy, but the framework is surprisingly simple.
PESTEL stands for six categories of external forces:
Political
Economic
Social
Technological
Environmental
Legal
That's it. Six buckets that capture nearly every external threat or opportunity that could affect your business.
Let's Break It Down (With Real Examples)
Political
Government policies, trade relationships, political stability.
Example: A manufacturing business I advised had 30% of their supply chain in a country that suddenly faced new trade restrictions. Three months' warning would have saved them six figures. They had three weeks.
Questions to ask: What political changes could affect my suppliers? My customers? My ability to operate?
Economic
Interest rates, inflation, unemployment, consumer spending patterns.
Example: 2022 hit a lot of businesses hard - not because of anything they did wrong, but because inflation changed consumer behavior faster than they could adapt. The businesses that survived? They'd been watching economic indicators and started adjusting six months earlier.
Questions to ask: How sensitive is my business to interest rates? To consumer confidence? To employment levels in my area?
Social
Demographics, cultural trends, lifestyle changes, attitudes.
Example: A gym owner I know was killing it with the 25-35 demographic. Then she noticed something in the data: her area's population was aging rapidly. Instead of panicking, she pivoted - added senior fitness programs, partnered with physical therapy clinics. Now she has two revenue streams instead of one.
Questions to ask: How is my customer base changing? What cultural shifts might affect demand for what I offer?
Technological
Automation, digital transformation, innovation in your industry.
Example: "We don't need a website, our customers know where to find us." I've heard that exact sentence from three businesses that no longer exist. Technology doesn't care about your business model.
Questions to ask: What technology could disrupt my industry? What tools could make me more efficient? What are my competitors adopting?
Environmental
Climate considerations, sustainability expectations, resource availability.
Example: This isn't just about being "green" - though that matters to customers. A landscaping company I worked with faced a water restriction they didn't see coming. The businesses that had already pivoted to drought-resistant services? They picked up all the contracts.
Questions to ask: How might environmental regulations affect my operations? Are my customers increasingly making choices based on sustainability?
Legal
Regulations, compliance requirements, employment law, liability.
Example: Remember when GDPR hit? The businesses that scrambled at the last minute spent 5x what the businesses that planned ahead spent. And some got fined on top of it.
Questions to ask: What regulations might be coming? What compliance requirements apply to my industry? What legal risks am I not thinking about?
The Problem With Your Current Approach
Most business owners do some version of this instinctively. You read the news. You talk to people. You have a general sense of what's happening.
But "general sense" isn't strategy. Here's what I see go wrong:
You focus on the obvious categories (usually Economic and maybe Technological) and miss the rest. You react instead of anticipate - by the time something hits the news, you're already behind. You don't connect the dots - a political change might create an economic opportunity, but only if you see it early.
A Simple Monthly Practice
This doesn't need to be complicated. Once a month, spend 30 minutes asking:
For each PESTEL category: What's one thing that's changing? Could it be a threat or an opportunity for my business?
Keep a simple log. Over time, you'll start seeing patterns. You'll start anticipating instead of reacting.
The goal isn't to predict the future perfectly. It's to not be blindsided.
One Example That Ties It Together
Here's a real scenario: A small accounting firm in 2019.
Political: Talk of tax law changes
Economic: Strong economy, businesses starting new ventures
Social: Millennials starting businesses at higher rates than previous generations
Technological: Cloud accounting software becoming mainstream
Environmental: Not particularly relevant to this business
Legal: New data privacy regulations coming
The firm that connected these dots? They specialized in startup accounting, adopted cloud-first technology, built systems for the new privacy requirements, and positioned themselves for the tax changes.
When 2020 hit and business formation actually increased, they were perfectly positioned. Their competitors were still figuring out how to work remotely.
The Bottom Line
You can't control external forces. But you can see them coming, and you can position your business accordingly.
The companies that thrive aren't the ones with the best products. They're the ones who understand their environment and adapt before they're forced to.
PESTEL gives you a framework to do that systematically - without needing a team of analysts.
This is part of a series on strategic frameworks that actually work for small and medium businesses. Next up: Understanding where you have power (and where you're vulnerable) with Porter's Five Forces.
About StratBear: We bring Fortune 500 strategic frameworks to businesses that don't have Fortune 500 budgets. Because everyone deserves access to the tools that actually work.