How to Conduct Feasibility Studies
September 16, 2013
You have an idea for a business… now what?
If you’re like me, you’re coming up with a new business idea every other day. But which one of these ideas are worth pursuing? We know that most startups fail, but when the light bulb turns on, we can’t deny ourselves the chance to launch the next great innovation that could really make a difference. So, how do you know if it’s a feasible idea? Maybe it’s a bright idea, but is it a viable business opportunity?
The only way to determine if your ideas can potentially be profitable as a business and is worth pursuing further is to conduct feasibility studies. Before you write a business plan and before you invest substantial time, money and resources into developing the idea into a business, you should conduct a feasibility analysis. What is a feasibility study? A feasibility study will tell you if the idea has potential, it will start to outline the financial requirements, market opportunities and challenges, and human and technological needs to successfully launch the business.
Feasibility Study Checklist
The guide below is a typical feasibility study example. Depending on the nature of the business, you might need to look at other factors besides the ones listed below, but generally feasibility studies follow this outline. By asking yourself the questions in each section, you should be able to determine if you have a viable business opportunity that’s worth pursuing further.
1. Market Analysis
Is there a market for the product or service you want to sell?
This section of the feasibility study should help you determine the size of your market, if there is one, and give you more information on your target customer as well as your competitors. Who are your competitors? Who are your customers? How will you reach them? Why will they care?
Identifying the differentiating factor between what you intend to offer and what already exists on the market is key to determining feasibility. Maybe there are a lot of other companies offering a similar product, but you are going to make your product better, more effective and less costly.
Define exactly what will make your business unique.
2. Operational Analysis
Can the business operate efficiently?
Whether it’s selling a service through a website or a tangible good at a local retail store, every successful business has operational processes in place to keep it running efficiently. If you plan to start selling organic dog treats to every pet boutique in your city, where will the treats be produced? Who will supply the ingredients? Who will deliver the treats to the stores? What is the internal process from when the customer makes a purchase to when their order is fulfilled?
This section is the framework for the daily activities of the business and should outline your business processes in practical terms. As important as the product and people are, the process is necessary to maintain a profitable business. An established process will ultimately guide your employees and help make sure that the business can survive even when you’re not there.
Outline a system to provide a finished product to the customer.
3. Team Analysis
Do you have the right people on board to successfully launch the business?
Consider the industry and type of business you’re getting into, and the areas of technical and professional expertise your company will need to be successful. Maybe you have an idea, but you need a software developer. Will you outsource, or find a business partner?
Most ideas never make it as a business because they don’t have the right management team. Great products don’t build great companies, people do. If there are gaps in the executive team, fill them with competent people who have the right skills to contribute value to your business.
Build a superstar team.
4. Financial Analysis
Is the startup cost worth the expected return?
This section will break down all the important financial components of considering a new business including the startup capital required, how long it will take to become profitable, and what the expected return will be. What are the startup costs involved? What is the break even point? How long will it take to achieve a positive cash flow?
Part of finding financial data is estimating, but it’s important to set goals because investors will want to see projections. The critical part here is figuring out how much cash you will need to get started and the projected return on investment. An acceptable ROI will vary by business, industry and individual.
Estimate costs and set goals.
5. Industry Analysis
Does the business have potential for future growth?
From a more macroeconomic perspective, this section should evaluate whether the business and its vision is on top of a future trend, or if it might be catching the tail-end of a once-hot-but-now-fizzling industry. Who are your direct competitors and how are they doing? Is there an existing demand for what you intend to supply? Is there a growing demand indicating a future for this market? If so, will your business have something unique that will enable you to take market share from your competitors? Or, are you creating a new submarket where consumers will need to be educated?
This part of the feasibility analysis should indicate just how much potential the business has in the long run. New solutions and innovation are always at the forefront of a growing economy.
Solve a current problem or need.
Now that you’ve asked yourself these questions and evaluated the feasibility of your business idea, what have you decided? Will you go on to develop a business plan and test your concept? I hope so!