A feasibility study will assist an individual entrepreneur, new start-up business, or an existing business to investigate the viability of a new product or service targeting new or existing customers and markets. The objective of the study is to provide the necessary information to enable the promoter to reach firm conclusions regarding the project’s viability and set out investor ready plans and financials associated with embracing this opportunity.
What is a Feasibility Study?
This page addresses ‘What is a Feasibility Study’ by discussing five areas:
#.1 Why undertake a Feasibility Study?
#.1 Why undertake a Feasibility Study?
Most businesses want to grow. Growth can be achieved by:
– Selling the current product range to new customers in either new sectors or geographic markets.
– Developing new products for existing customers.
– Developing new product offerings for new markets (startup situation).
– Buying a Business (to include a franchise model).
Growth strategies may require working with new strategic partners, engaging in technology transfer and/or licensing. The goal of achieving growth can be both rewarding and challenging. However, it will inevitably increase the level of risk for a business.
Within this context, business planning of new business opportunities is critical. A feasibility study can be an invaluable tool to assist management teams to embrace new business opportunities. As the name implies, a feasibility study is an analysis of the viability of an idea. A feasible business opportunity is generally understood to be one where the business will generate adequate cash-flow, profits and returns for investors within a defined time period.
#.2 What is a successful Feasibility Study?
The feasibility study focuses on helping answer the essential question of “should we proceed with the proposed business idea?” All activities of the study are directed toward helping answer this question before proceeding with the full scale development of new product or service offering. Most importantly the business should learn from customers and other market experts such that the business opportunity can be leveraged to full advantage. A successful feasibility study answers questions – it may not give you the answers you wanted or expected. Determining early that a business idea will not work saves time, money and heartache later.
#.3 Feasibility Study Process
While every feasibility study is different a process can be utilised to provide direction and guidance. The key is to create a plan – the key to the plan is engagement with customers. Critical to successful feasibility study completion is talking openly and honestly to potential customers and other market experts and listening to their feedback. The feedback must then be documented in a report that comprehensively analyses all the relevant business issues. The Process must be both Systematic and Objective.
FIRST STEP IN FEASIBILITY PROCESS
The first step in the Feasibility Process is to create a one to two document outlining Terms of Reference for the Feasibility. This creates a roadmap by outlining the goals and objectives of the study. This can later form the basis of a project plan which can be supplemented with a Gantt Chart. See section 4 for ideas on what to include in your feasibility roadmap.
PRIMARY OBJECTIVE OF THE FEASIBILITY
Market Validation is defined as a systematic approach to probe, test and validate your market opportunity – before you invest significant money in product development. This is the prime objective of your feasibility study.
#.4 Outline Feasibility Study Format
There are four key areas or Stages in every Feasibility Study:
The first stage of the Feasibility is to determine if the product or service is technically possible to produce. The answer is usually Yes, that the product or service is technically possible to create. But technical analysis is important to undertake as it provides important information on key areas to include: functionality, operations, health & safety, regulations and identification of suppliers. All new products and services start as concepts – the key at this juncture is examination of legal and compliance issues to include insurance and intellectual property issues to include non-infringement.
The majority of startups are undertaken by people with technical skills. This can include Engineers, Scientists and providers of professional services such as Taxation, Information Technology, Beauty Experts or Counselors. Technical feasibility should ideally be undertaken internally. Strict monitoring should be undertaken if technical development is outsourced. While the Technical Phase is primarily a paper based exercise most businesses will need some form of prototype developed during the Feasibility. For software products to include those developed as Software as a Service (SaaS) the feasibility will generally include a Beta Programme. The Entrepreneur’s Guide to Customer Development emphasises the importance of getting a Minimum Viable Product (MVP) to market – that is a product with the fewest number of features that users are willing to pay for either with money or with feedback.
Most Startups fail not because they don’t manage to develop and deliver a product to the markt; they fail because they develop and deliver a product that no customers want or need.
Steve Gary Blank, The Four Steps to the Epiphany: Successful Strategies for Products that Win.
The Commercial Stage of the Feasibility is crucial to determining the needs of customers. The key for the business is identifying the burning problem faced by the business. Customer apathy is a major stumbling block for Salespeople to overcome. The feasibility needs to identify the major customer pain points.
The output of the Commercial Assessment is a profile of the ideal customer. For solutions aimed at the Business to Business (B2B) market the profile will include a clear description of type of company by size, region, sector and include information on product usage patterns, purchasing process and key decision makers. Demographics and psychographic profile information will be available for products aimed at end consumers. It will be important to identify the needs of end users and purchasers if different e.g. parents buying for their children.
The Commercial stage includes a rigorous analysis of the market. This will provide information on market sizes and key trends. It is important that the feasibility report contains qualitative and quantitative data. It is amazing the amount of information that is available on niche markets. It is important to record references and to ensure that information sources are reputable (the Enterprise Agencies are a good source of market reports).
So what exactly does Commercial Feasibility involve?
1. Customer Engagement
Postal surveys, online questionnaires, focus groups, in-depth interviews with potential customers, Beta programmes all form part of Customer Engagement.
At this stage it is paramount that you know what you are offering. You need to be able to clearly communicate the offer. This is why a prototype can be very useful. A useful trick is to also explain what your product doesn’t do. At the early stages potential customers will be asking lots of questions but over time you will learn what to say so that people will understand what you are talking about. This ensures that you can get direct feedback on a particular offering. With this feedback you can take action. An interesting approach is the Unfocus Group which requires you to discuss the general problem area with customers without presenting your solution – this helps to identify the real problem that must be solved. This helps to combat a key issue with market research – the bias that you bring to the table, the product is your pride and joy and you hear what you want to hear from customers.
It will also be important to interview Market Experts.
2. Competitive Analysis
Attending Industry Events is a fantastic opportunity to meet customers and also to review the competition. You may not be able to justify the cost of taking a stand but how about shooting a YouTube Video so that you can play it on your iPad to interested stakeholders.
A comprehensive competitor and industry analysis as it pertains to your proposed solution is a key component of the feasibility study report.
The four stage model can be iterative – customer feedback may lead to further techncial refinement. The commercial stage may unearth new problems that add to the strength or differentiation of your solution.
The first two stages have answered the questions: Can I make it? and Can I sell it? The Financial Feasibility answers the question; If I can make it and sell it, can I do so at a price and cost level that justifies the investment and make a profit?
The feasibility study should scrutinise several business models and clearly identify assumptions in the area of pricing, revenues and costs such that detailed financial projections can be developed. In essence a Business Model describes how a business makes money. It requires accurate information on production and other costs to include personnel, marketing promotion and Sales. The dynamics of the business model are hugely influenced by route to market issues – how the product or service will be distributed to customers and the margins that apply.
The value of financial projections can not be underestimated in the business planning process. Breakeven analysis will also prove useful as part of the Feasibility Study.
The first three stages have answered the What and How and Why questions so now we need to address Who issues.
A. Outline the relevant track record of key personnel in terms of background, experience, skills, costs, and current roles.
#.5 Feasibility Report
A Feasbility Study Report for a startup generally takes the form of a Business Plan. It will include a specific appendix outlining the activity undertaken and the findings of the Feasibility Study.
If the Feasibility Study is grant aided a particular format may be expected – if your application stated that you were going to do say 10 activities then the report can legitimately address each of these activities along with a section on conclusions and recommendations. Also if your Feasibility Study is grant aided you will need to pay particular attention to eligible expenditure guidelines – this page contains details of expenditure headings accepted by the County & City Enterprise Boards in Ireland (as per beginning 2012).
The following two critical sections of the Business Plan will be influenced hugely by the findings of the feasibility study:
Critical Risk Factors
The Feasibility Study should identify critical risks faced by the enterprise currently and into the future. These can be presented as a SWOT analysis. The Business Plan can then address how each risk is mitigated.
The business plan should detail the major milestones in the life of the new business. It is important to keep the milestones schedule consistent with financial and personnel requirements.
If after undertaking your feasibility study you can easily write these two sections of the business plan, the study will have been worthwhile!
Contact me to get a quote for assisting you to complete a Feasibility Study application or for assistance with planning and/or undertaking the study and writing the final report.