Ethiotime1
By Fraser Sherman Updated March 08, 2019
A business concept that looks perfect on paper may prove imperfect in the real world. Sometimes failure is due to the internal environment – the company’s finances, personnel or equipment. Sometimes it’s the environment surrounding the company. Knowing how internal and external environmental factors affect your company can help your business thrive.
External: The Economy
In a bad economy, even a well-run business may not be able to survive. If customers lose their jobs or take jobs that can barely support them, they’ll spend less on sports, recreation, gifts, luxury goods and new cars. High interest rates on credit cards can discourage customers from spending. You can’t control the economy, but understanding it can help you spot threats and opportunities.
Internal: Employees and Managers
Unless you’re a one-person show, your employees are a major part of your company’s internal environment. Your employees have to be good at their jobs, whether it’s writing code or selling products to strangers. Managers have to be good at handling lower-level employees and overseeing other parts of the internal environment. Even if everyone’s capable and talented, internal politics and conflicts can wreck a good company.
External: Competition from other Businesses
Unless your company is unique, you’ll have to deal with competition. When you start your company, you fight against established, more experienced businesses in the same industry. After you establish yourself, you’ll eventually have to face newer firms that try to slice away your customers. Competition can make or break you – look at how many brick-and-mortar bookstores crashed and burned competing with Amazon.
Internal: Money and Resources
Even in a great economy, lack of money can determine whether your company survives or dies. When your cash resources are too limited, it affects the number of people you can hire, the quality of your equipment, and the amount of advertising you can buy. If you’re flush with cash, you have a lot more flexibility to grow and expand your business or endure an economic downturn.
External: Politics and Government Policy
Changes in government policy can have a huge effect on your business. The tobacco industry is a classic example. Since the 1950s, cigarette companies have been required to place warning labels on their products, and they lost the right to advertise on television. Smokers have fewer and fewer places they can smoke legally.
The percentage of Americans who smoke has dropped by more than half, with a corresponding effect on industry revenues.
Internal: Company Culture
Your internal culture consists of the values, attitudes and priorities that your employees live by. A cutthroat culture where every employee competes with one another creates a different environment from a company that emphasizes collaboration and teamwork. Typically, company culture flows from the top down. Your staff will infer your values based on the type of people you hire, fire and promote. Let them see the values you want your culture to embody.
External: Customers and Suppliers
Next to your employees, your customers and suppliers may be the most important people you deal with. Suppliers have a huge impact on your costs. The clout of any given supplier depends on scarcity: If you can’t buy anywhere else, your negotiating room is limited. The power of your customers depends on how fierce the competition for their dollars is, how good your products are, and whether your advertising makes customers want to buy from you, among other things.
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