#4. Investors Expect You to PESTEL Your Business Plan
How to reality check your plan for global domination
When counseling new clients, I’ll often start by asking them to describe their vision for global domination. This usually provokes a laugh and reduces the anxiety many feel when first talking with an attorney about their business plans. Nonetheless, not everyone has intentions of building a multi-national conglomerate. To these folks I suggest that perhaps they can describe what I call “the fairy godmother” vision. In other words, what would their business look like if all their dreams came true? With the freedom to sound preposterous, I find that my entrepreneurs more often than not know exactly what they want, and this vision is the key to examining the overall viability of their idea.
For example, I often counsel clients who want to launch a “utility” token that they intend to be publicly tradeable on a variety of cryptocurrency exchanges worldwide. In many cases, they’ll come to me having already prepared a whitepaper, a timeline to development with project milestones, and beautifully crafted tokenomics. Their technical development team will be true professionals, and all they need is the funding to get their project underway. The problem, inevitably, is that the U.S. Securities & Exchange Commission (SEC) has ruled that every project that launches a token prior to having completed its development is engaged in a securities offering. This is a serious obstacle to business development because, to comply with regulations regarding the public offering of securities, my client would have to first register their token on a public securities exchange like NASDAQ or the NYSE. The reality is, the cost to do this simply too prohibitive. If my client had that kind of money, they would use it to fund their own project development.
In the case of my financial technology (fintech) clients, the regulations governing their industry have become so hostile that it’s generally advisable not to launch new businesses in the U.S. Moreover, given increasing pressure from U.S. regulators, other jursidictions are also passing regulatory frameworks that provide strict standards for adherence, e.g., the Bahamas DARE Act. Nonetheless, unlike the U.S., a variety of foreign jurisdictions do offer a reasonably accessible path to compliance for those who would innovate within the industry, and without breaking the bank. For this reason, I find I am increasingly advising my clients to start up their startup somewhere else.
Notably, the increase in regulatory oversight is not restricted to the crypto-industry. Rather, during the 20+ years of my career, I have seen a tsunami of regulations implemented across a spectrum of industries with a chilling impact on entrepreneurialism. For example, years ago when I lived in Naples, someone called the authorities on a little girl selling lemonade from her driveway in my gated community to complain that she didn’t have a food and beverage license. Accordingly, the city shut her down. In many states, the timeless art of ethnic hair braiding can cost upwards of $10,000 for obligatory classes and licensing. And in N.J., teenage boys who shoveled snow from their neighbor’s driveways for a fee were fined for not having a business license.
So, how can you know early on whether your business is ripe for a regulatory raid?
Well, there’s a test for that.
Elite business schools and startup accelerators like Y-Combinator and Tech Stars teach that a PESTEL analysis is an essential tool for any entrepreneur looking to understand the broader landscape in which their business will operate. This strategic tool dissects the external environment into six key elements: Political, Economic, Social, Technological, Environmental, and Legal factors. The following is a breakdown of each element with examples relevant to my sector - fintech:
Political: This element examines how government actions and political realities can influence your business. For fintech startups, this could involve understanding the stance of various governments on digital currencies or financial technologies. For instance, while some countries like Japan have embraced cryptocurrencies, others like China have imposed strict regulations or outright bans.
Economic: Economic factors include aspects like inflation rates, interest rates, and economic growth patterns. In fintech, the economic climate can significantly impact investment in technology and consumer trust in new financial platforms. The 2008 financial crisis, for example, led to increased skepticism towards traditional banks and a surge in alternative financial services.
Social: This encompasses the cultural and demographic aspects of your business environment. In fintech, this might involve considering the increasing consumer preference for mobile banking solutions or the growing awareness of blockchain technology among the general public. Social trends can heavily dictate the adoption rate of new technologies.
Technological: Technology is a critical element, especially in industries like fintech. This factor assesses the pace of technological change, advancements in your field, and the lifecycle of current technologies. The rise of blockchain, for example, has revolutionized how transactions can be conducted, offering more secure and transparent processes.
Environmental: Although fintech may seem distant from environmental concerns, this element is increasingly relevant. Considerations might include the energy consumption of large data centers or blockchain mining operations. The growing emphasis on sustainable practices could influence investor and consumer decisions.
Legal: Legal factors are particularly pertinent for fintech firms. This includes understanding and complying with various regulations, like the SEC’s stance on tokens as securities. The evolving legal landscape can present both challenges and opportunities for businesses looking to innovate in regulated spaces.
In summary, conducting a PESTEL analysis enables you to forecast how these external factors might influence your business and it helps you to craft a more resilient and adaptable strategy. For fintech startups, this is crucial in navigating the complex and often turbulent waters of regulatory and technological change. As an attorney specializing in corporate and securities transactions for emerging technology companies, I've seen firsthand how a thorough understanding of these elements can position a company for success, even in challenging environments like the U.S. Likewise, a thorough investigation and accounting for these elements can prepare you for regulatory storms that threaten the viability of your business plan. By taking the time to assess these elements early-on in your development, you’ll impress prospective investors that you care enough about their invesment to take the minimum steps to protect it.
Lesson 4: Run a Reality Check
The ever-changing landscape of regulations and technologies across industries, especially in fintech, underscores the importance of being both flexible and meticulous in planning. Understand that the path to success is not just about innovation, but also about navigating the complex web of external factors with wisdom and foresight.
I agree with much of what you are saying. I think we'll see more and more of America's youth opting for careers overseas:
https://mcbrideforbusiness.substack.com/p/will-americas-youth-start-going-oversees