External Environment Analysis :-

PESTLE is a strategic analysis tool. It is often seen as the most effective

analytical tools to analyze the impacts of external issues. It is an extended
version of PEST analysis. Other forms of this tool are PESTEL, STEEP, and
STEEPLE. The acronym PESTLE stands for 6 factors which affect the business.
The factors are:
 Political
 Economic
 Social
 Technological
 Legal
 Environmental

The constant global economic recession has dented the macroeconomic

environment which Starbucks operates in. The recession has hurt the
consumer’s purchasing power.
Recent market research reflects that consumers have not cut down on their
coffee consumption. Instead, they are shifting to options with lower prices.
This means that the firm can still influence the buying power by offering
cheaper products.
Starbucks has taken steps to be a part of the mobile computing revolution.
It has worked with Apple and introduced discounted coupons via iPhone
apps. They also attempt co-branding and cross selling. Starbucks is well
poised to enjoy the benefits of the Smartphone revolution.

Consumers in the US are also becoming more and more conscious of

ethics. This means the brands they buy from should abide by social and
environmental norms during production. Consumer awareness is challenging
Starbucks.
These are the most obvious factors affecting the firm’s business. But there
are many other factors seeking attention.

I have divided and organized these issues according to the PESTLE factors.
You will find the details for how the factors impact business for Starbucks
below.

Impacts of Political Factors on Starbucks

The main political factor is about sourcing the raw materials. This has
gathered a lot of the attention from politicians in the West and from the
source countries. For this reason, the company wants to adhere to social
and environmental norms. It is willing to follow the sourcing strategies. It
gives importance to fair trade practices.

Another impact is the need to follow the laws and regulations in the countries
from where Starbucks buys the raw materials. Activism and increased
political awareness in developing countries have made his essential.
The regulatory pressures within the home market in the US are also a
factor. Multinationals based in the US are now subject to greater scrutiny
of the business processes. The company must monitor political stability
within the country as well.

Some other factors to consider are:

 Tax policy
 Employment laws
Impacts of Economic Factors on Starbucks
The ongoing global economic recession is the prime external economic
driver for Starbucks. As I already mentioned, this factor dented the
profitability of Starbucks. This has convinced buyers to shift to cheaper
alternatives. As they did not quit buying coffee, Starbucks should seek an
opportunity here.

The company has to deal with rising labor and operational costs. The
inflationary environment and falling profitability is causing a lot of stress.

Some other economic factors which can affect Starbucks are:

 Local currency exchange rates

 Local economic environment in different markets
 Taxation level
Impacts of Socio-Cultural Factors on Starbucks
As already stated, Starbucks can offer cheaper products but it might have
to sacrifice the quality. This is the main socio-cultural challenge that the
start-up faces. It will expand consumer base to include the buyers from
the lower and the middle-income tiers.

The “green” and “ethical chic” consumers are also concerning. They fret
about social and environmental costs of the brands. Starbucks has to be
aware of this trend.
The baby boomer generation is retiring. This means spending by older
consumers will decrease. Now, Starbucks will have to tap the Gen X and the
Millennials as customers.
Other socio-cultural factors to focus on are:

 Changing family patterns in USA and Europe

 Consumer preferences
 Changing work patterns
 Changes in lifestyles of population
 The level of education of the population in local markets
 Changing values among population
Impacts of Technological Factors on Starbucks
Starbucks is in a good position to enjoy benefits of the emerging mobile
wave. Its partnership with Apple to bring app based discount coupons is
helping it ride the mobile wave easily.
The company introduced Wi-Fi capabilities in its outlets already. Internet
is important to the consumers. They can now surf the web and do work
while sipping Starbucks coffee. This is an added value to the brand. It
enhances the overall consumer experience.

Starbucks is also enabling mobile payments. They are testing this in pilot
locations in the US.

Some other technological factors to keep in mind are:

 Emergence of innovative technology

 Biotechnological developments
 Developments in agriculture
Impacts of Environmental Factors on Starbucks
Many Starbucks business practices concern activists and international
advocacy groups. Even the consumers have expressed issues. So, the
company should take these into account to continue holding consumers’
trust.

Some of the other environmental factors Starbucks should worry about

are:

 Environmental rules and regulations

 Environmental disasters in countries which produce coffee beans
 Global warming and other environmental issues in a global level
Impacts of Legal Factors on Starbucks
Starbucks must ensure that it does not violate any laws and regulations
in the home market and countries from where they buy raw materials.

It should also stay alert about introduction of caffeine production and

consumption related policies and regulations by health authorities.

Others factors that might affect the company are:

 Introduction of stricter customs and trade regulations

 Licensing regulations related to the industry.
The PESTLE analysis above proves that Starbucks has a quite stable external
environment. The key reason behind this might be because it operates in
the Food and Beverages industry. This means consumers might reduce
consumption partially but will not stop buying completely.
So, as recession is the most important factor, Starbucks has to lower costs
and increase the value. This way it can retain its consumer base and also
gain consumer loyalty.

What is Environmental Analysis?

Environmental analysis is a strategic tool. It is a process to identify all the
external and internal elements, which can affect the organization’s
performance. The analysis entails assessing the level of threat or
opportunity the factors might present. These evaluations are later
translated into the decision-making process. The analysis helps align
strategies with the firm’s environment.

Our market is facing changes every day. Many new things develop over
time and the whole scenario can alter in only a few seconds. There are
some factors that are beyond your control. But, you can control a lot of
these things.

Businesses are greatly influenced by their environment. All the situational

factors which determine day to day circumstances impact firms. So,
businesses must constantly analyze the trade environment and the
market.

There are many strategic analysis tools that a firm can use, but some are
more common. The most used detailed analysis of the environment is
the PESTLE analysis. This is a bird’s eye view of the business conduct.
Managers and strategy builders use this analysis to find where their
market currently. It also helps foresee where the organization will be in
the future
Legal Requirements for Setting Up a Business

1. Register the Business

When setting up a business, your first job is to decide which business structure is best for you: sole proprietor,
corporation, limited liability company or a partnership. The business structure you choose dictates the
paperwork you have to file with the state secretary’s office where the business operates, but you first have to
register your business and name with the state secretary’s office.

2. State Business License

You must check with your state secretary’s office to see if the state requires you to carry a state
business license; some states require a business license while other states do not. Texas, for
example, does not require a business to carry a state license, but the state does regulate
businesses involved in financial services, insurance, real estate, massage therapy, tax consulting
services, child or elder care, and barbers and hair stylists.

3.Local Business License

Counties and other localities generally require businesses to obtain a license to operate within their confines.
The county clerk’s office where you set up the business provides guidance about the type of license you need
to establish and run your business.

4.Federal Business License

A federal business license is not a common type of license for a business to have to obtain. Federal business
licenses are required only if your business involves the sale of alcohol, tobacco or firearms; prescription drug
manufacturing; or providing investment advice.

5.Federal Employer ID Number

The Internal Revenue Service requires businesses, especially those with employees, to obtain an employer
identification number. An EIN is the business equivalent of a social security number for an individual. The
business uses the EIN for filing taxes and more. Obtain an EIN by completing and submitting Form SS-4 to the
IRS.

6.Sales and Use Tax Permit

If your business involves selling taxable product or services, most states also require you to obtain a sales and
use tax permit. Texas requires corporations, partnerships or limited liability companies to hold a Texas sales
and use tax permit. Other state laws vary, so check with the Department of Revenue for your state for the
requirements.

7.Business Permits

Other types of business permits may be requirements. These permits normally include a seller’s permit for
reselling wholesale merchandise, a health permit for food preparation businesses and a zoning permit for a
home-based business.

Venture capital sources:-

Venture Capital is a form of "risk capital". In other words, capital that is invested in a
project (in this case - a business) where there is a substantial element of risk relating to
the future creation of profits and cash flows. Risk capital is invested as shares (equity)
rather than as a loan and the investor requires a higher"rate of return" to compensate
him for his risk.

The main sources of venture capital in the UK are venture capital firms and "business
angels" - private investors. Separate Tutor2u revision notes cover the operation of
business angels. In these notes, we principally focus on venture capital firms. However,
it should be pointed out the attributes that both venture capital firms and business
angels look for in potential investments are often very similar.

What is venture capital?

Venture capital provides long-term, committed share capital, to help unquoted

companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into
a business, buy-out a business in which he works, turnaround or revitalise a company,
venture capital could help do this. Obtaining venture capital is substantially different
from raising debt or a loan from a lender. Lenders have a legal right to interest on a loan
and repayment of the capital, irrespective of the success or failure of a business .
Venture capital is invested in exchange for an equity stake in the business. As a
shareholder, the venture capitalist's return is dependent on the growth and profitability
of the business. This return is generally earned when the venture capitalist "exits" by
selling its shareholding when the business is sold to another owner.

Venture capital in the UK originated in the late 18th century, when entrepreneurs found
wealthy individuals to back their projects on an ad hoc basis. This informal method of
financing became an industry in the late 1970s and early 1980s when a number of
venture capital firms were founded. There are now over 100 active venture capital firms
in the UK, which provide several billion pounds each year to unquoted companies
mostly located in the UK.
What kind of businesses are attractive to venture capitalists?

Venture capitalist prefer to invest in "entrepreneurial businesses". This does not

necessarily mean small or new businesses. Rather, it is more about the investment's
aspirations and potential for growth, rather than by current size. Such businesses are
aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can
offer the prospect of significant turnover growth within five years, it is unlikely to be of
interest to a venture capital firm. Venture capital investors are only interested in
companies with high growth prospects, which are managed by experienced and
ambitious teams who are capable of turning their business plan into reality.

For how long do venture capitalists invest in a business?

Venture capital firms usually look to retain their investment for between three and seven
years or more. The term of the investment is often linked to the growth profile of the
business. Investments in more mature businesses, where the business performance
can be improved quicker and easier, are often sold sooner than investments in early-
stage or technology companies where it takes time to develop the business model.

Where do venture capital firms obtain their money?

Just as management teams compete for finance, so do venture capital firms. They raise
their funds from several sources. To obtain their funds, venture capital firms have to
demonstrate a good track record and the prospect of producing returns greater than can
be achieved through fixed interest or quoted equity investments. Most UK venture
capital firms raise their funds for investment from external sources, mainly institutional
investors, such as pension funds and insurance companies.

Venture capital firms' investment preferences may be affected by the source of their
funds. Many funds raised from external sources are structured as Limited Partnerships
and usually have a fixed life of 10 years. Within this period the funds invest the money
committed to them and by the end of the 10 years they will have had to return the
investors' original money, plus any additional returns made. This generally requires the
investments to be sold, or to be in the form of quoted shares, before the end of the fund.

Venture Capital Trusts (VCT's) are quoted vehicles that aim to encourage investment in
smaller unlisted (unquoted and AIM quoted companies) UK companies by offering
private investors tax incentives in return for a five-year investment commitment. The first
were launched in Autumn 1995 and are mainly managed by UK venture capital firms. If
funds are obtained from a VCT, there may be some restrictions regarding the
company's future development within the first few years.

What is involved in the investment process?

The investment process, from reviewing the business plan to actually investing in a
proposition, can take a venture capitalist anything from one month to one year but
typically it takes between 3 and 6 months. There are always exceptions to the rule and
deals can be done in extremely short time frames. Much depends on the quality of
information provided and made available.

The key stage of the investment process is the initial evaluation of a business plan.
Most approaches to venture capitalists are rejected at this stage. In considering the
business plan, the venture capitalist will consider several principal aspects:

- Is the product or service commercially viable? - Does the company have potential for
sustained growth? - Does management have the ability to exploit this potential and
control the company through the growth phases? - Does the possible reward justify the
risk? - Does the potential financial return on the investment meet their investment
criteria?

In structuring its investment, the venture capitalist may use one or more of the following
types of share capital:

Ordinary shares These are equity shares that are entitled to all income and capital
after the rights of all other classes of capital and creditors have been satisfied. Ordinary
shares have votes. In a venture capital deal these are the shares typically held by the
management and family shareholders rather than the venture capital firm.

Preferred ordinary shares These are equity shares with special rights.For example,
they may be entitled to a fixed dividend or share of the profits. Preferred ordinary shares
have votes.

Preference shares These are non-equity shares. They rank ahead of all classes of
ordinary shares for both income and capital. Their income rights are defined and they
are usually entitled to a fixed dividend (eg. 10% fixed). The shares may be redeemable
on fixed dates or they may be irredeemable. Sometimes they may be redeemable at a
fixed premium (eg. at 120% of cost). They may be convertible into a class of ordinary
shares.

Loan capital Venture capital loans typically are entitled to interest and are usually,
though not necessarily repayable. Loans may be secured on the company's assets or
may be unsecured. A secured loan will rank ahead of unsecured loans and certain other
creditors of the company. A loan may be convertible into equity shares. Alternatively, it
may have a warrant attached which gives the loan holder the option to subscribe for
new equity shares on terms fixed in the warrant. They typically carry a higher rate of
interest than bank term loans and rank behind the bank for payment of interest and
repayment of capital.

Venture capital investments are often accompanied by additional financing at the point
of investment. This is nearly always the case where the business in which the
investment is being made is relatively mature or well-established. In this case, it is
appropriate for a business to have a financing structure that includes both equity and
debt.

Other forms of finance provided in addition to venture capitalist equity include:

- Clearing banks - principally provide overdrafts and short to medium-term loans at fixed
or, more usually, variable rates of interest.

- Merchant banks - organise the provision of medium to longer-term loans, usually for
larger amounts than clearing banks. Later they can play an important role in the process
of "going public" by advising on the terms and price of public issues and by arranging
underwriting when necessary.

- Finance houses - provide various forms of installment credit, ranging from hire
purchase to leasing, often asset based and usually for a fixed term and at fixed interest
rates.

Factoring companies - provide finance by buying trade debts at a discount, either on a

recourse basis (you retain the credit risk on the debts) or on a non-recourse basis (the
factoring company takes over the credit risk).

Government and European Commission sources - provide financial aid to UK

companies, ranging from project grants (related to jobs created and safeguarded) to
enterprise loans in selective areas.

Mezzanine firms - provide loan finance that is halfway between equity and secured
debt. These facilities require either a second charge on the company's assets or are
unsecured. Because the risk is consequently higher than senior debt, the interest
charged by the mezzanine debt provider will be higher than that from the principal
lenders and sometimes a modest equity "up-side" will be required through options or
warrants. It is generally most appropriate for larger transactions.

Making the Investment - Due Diligence

To support an initial positive assessment of your business proposition, the venture

capitalist will want to assess the technical and financial feasibility in detail.

External consultants are often used to assess market prospects and the technical
feasibility of the proposition, unless the venture capital firm has the appropriately
qualified people in-house. Chartered accountants are often called on to do much of the
due diligence, such as to report on the financial projections and other financial aspects
of the plan. These reports often follow a detailed study, or a one or two day overview
may be all that is required by the venture capital firm. They will assess and review the
following points concerning the company and its management:
- Management information systems - Forecasting techniques and accuracy of past
forecasting - Assumptions on which financial assumptions are based - The latest
available management accounts, including the company's cash/debtor positions - Bank
facilities and leasing agreements - Pensions funding- Employee contracts, etc.

The due diligence review aims to support or contradict the venture capital firm's own
initial impressions of the business plan formed during the initial stage. References may
also be taken up on the company (eg. with suppliers, customers, and bankers).

Documentation for Venture Capital Firms

and Funding Sources

Focus on the Financial

Many business plans fail to raise money because of the orientation of the business plan, i.e., the plan
focuses on the product or service, not the financials. When we assisted with the review of over 150
business plans for a three day Venture Capital Conference for 23 venture capital companies, only 25 of
the 150 plans asked for specific funding. Only 12 had specific uses of funds and exit strategies for
investors!

While we cannot promise your business will be funded, we can assure you that with our business plan
review program , your entire presentation package will be developed so that your chances of being
funded will be significantly increased.

It is important to remember that there is more money looking for a good investment with moderate
returns and medium risk, than there are "good deals".

Stages of Documentation

There are several stages of documentation required by most funding sources during the venture capital
process . They are usually tailored specifically to both the funding source being approached, and the
stage of your business. The primary documents are outlined below:

1. Market Feasibility Study:

Basic research done principally by the entrepreneur to identify a market niche for the product or service
to be offered. Identify the size, dynamics, competition, and other factors effecting the proposed business
operation prior to investing large sums of money, or proceeding with a "missionary marketing" venture
with little or no chance for success.

2. Executive Summary:

An outline of the complete business plan, usually only 4-8 pages long. It includes and describes principal
markets, personnel, financial highlights, and the proposed deal structure . The Executive Summary is
developed from the completed business plan, and summarizes the project.
3. Business Plan:

The business plan contains the complete plan for your business, including extensive
market and industry analysis, sales and marketing strategy, operational plans and
timetables, management organization structure and key personnel, risk analysis
(including competitors and comparable industry numbers), and complete historical and
pro forma financial analysis (including income and expenses, cash flow, balance sheet
and ratio analysis) for three to five years. The business plan financials should include
low, medium and optimum projections for various market conditions.

4. Business Valuation Study:

A document that includes several business valuation studies showing business values before and after
investment. Business valuations allow you to determine how much stock to sell for the money you are
raising.

This is extremely important when you are trying to raise money for a business that will be a candidate for
a merger/acquisition, or an Initial Public Offering (IPO) at a later date. It is also required for funding by
professional investors so that adequate returns on investment are shown.

5. Investment Plan:

Document outlining in further detail the timetable of required equity and debt financing, as well as the
payback, or liquidation, of the investors' position under various scenarios. This is where the "Deal" is
structured to make your business attractive to investors and lending institutions.

6. Due Diligence and Supporting Documents:

Include all additional information to support and supplement the business and investment plans. Do your
own Due Diligence on the sources of funds and the funding sources prior to making a deal.

7. Presentation Package:

Your marketing package is used to present your program to others. It may be a short series of color
slides or overheads, or a Power Point presentation, used when talking with investors or banks. Your
marketing package is developed along with your business plan and can enhance chances of funding.

Your completed Business and Investment Plan is a blueprint for the success of your business. It should
be a living document that is revised and updated periodically as conditions change, or when new markets
and products are developed, additional funding is obtained, or economic conditions change .