We discussed several methods for determining the feasibility of a business idea in order to determine whether the idea was truly viable or simply looked good on the surface. To summarize, I stated that you should not place your entire financial future on the opinions of friends and family; instead, consult with knowledgeable business experts and conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis.
Let us take it a step further and discuss the process of developing a formal Feasibility Plan that will assist you in determining the true feasibility of your large business idea.
A feasibility plan is precisely that: a written plan created with the express purpose of validating the viability of a business idea. Some refer to it as a “Go/No Go” plan, because the results of a well-constructed feasibility study will indicate whether the idea has a chance of success (which is a Go) or should be abandoned (which is a No Go).
Many entrepreneurs would prefer to have their front teeth extracted without anesthetic than spend the time and effort necessary to create a feasibility plan; frequently out of fear of what it will reveal.
The last thing an entrepreneur wants to hear is that their business idea will fail, so they put on blinders and refuse to test it using real-world data.
Every idea is a good one in an entrepreneur’s mind, every hit is a home run, and every story ends with the hero sipping Mai Tais and lighting cigars with hundred dollar bills. Nobody wants the story to end differently, and many would rather bury their heads in the sand and hope for the best than test their ideas prior to execution. Believe me. I have been there, done that, obtained the T-shirt, and settled the tab. This is not a prudent course of action.
By creating a detailed feasibility plan, you will be forced to remove your rose-colored glasses and examine the idea objectively and completely. It will assist you in defining your market, identifying potential customers, partners, and competitors, identifying opportunities, and alerting you to potential threats.
Establishing a business without first determining its viability is akin to teaching your children to swim by throwing them into a lake. It may be entertaining to try with your sister’s children, but not with your own… Simply put, this is not a good idea.
A feasibility study is similar to writing a mini-business plan. The end result should be a formal document that includes an executive summary, a product or service strategy, a marketing strategy, a pricing and profitability strategy, and a plan for further action. Consider each section in turn.
The Executive Summary is the first section of the plan and summarizes the plan’s major points. The Executive Summary should include a concise but comprehensive description of the concept, an overview of the products or services to be offered, the target market and customer segment, startup costs, and pricing and profitability. Maintain a one-page Executive Summary. I have seen Executive Summaries that were pages and pages long. Limit each topic to one or two concise paragraphs and go into greater detail in the plan’s individual sections.
Plan for Products and Services
This section contains information about the product or service that the business will provide. The purpose of the feasibility plan is not only to determine whether the idea is viable or not, but also to get you thinking critically about the idea from all angles. What is the product’s or service’s purpose? How far along is the idea in its development? What are the product’s or service’s limitations? Is intellectual property at stake? Are there any applicable government regulations or product liability concerns? Are there future expansion or spin-off opportunities?
The marketing plan is a critical section of the feasibility report because it is where you define your market, customer, and competition. You will need to conduct market research to gather the data necessary to develop a viable marketing strategy. Simply consulting the Yellow Pages to determine which similar businesses are listed is insufficient. You must have a firm grasp on the market’s size, growth potential, and trends. You should identify all possible sources of competition (direct and indirect) and detail the advantages and disadvantages of your idea in comparison to competitors. Additionally, you should profile your target customer and explain why the customer would purchase from you rather than someone else.
Profitability and Pricing
The pricing and profitability section should include details on how the price of your product or service was determined, as well as the expected profit margin. Many entrepreneurs are unsure of how to price their product. Some employ what I refer to as the “Shrek Method,” in which the price is extracted from their ear (see the movie, get the joke). There are numerous methods for determining pricing, but that is a subject for another column. Once you have pricing data, include it in this section along with information about projected sales, cost of goods sold, gross margins, operating expense estimates, start-up costs, and capital expenditures, among other things. Many ideas are abandoned at the pricing stage because the entrepreneur discovers that the cost of delivering the goods is simply too high and the profit margins are simply too low to justify execution.
This final section of the feasibility plan outlines the steps necessary to carry out the plan if a “Go” decision is reached. Do you require capital to cover startup costs? If so, how much will be spent and where will the funds come from? Is a location to be considered, as well as equipment to be purchased? What role will you play in the business’s operation? Is there a business plan in place at your place of employment? Are there licenses that must be obtained or legal tasks such as corporation formation that must be completed? Are there opportunities to form partnerships or recruit key team members?
Finally, do not be afraid of the feasibility plan’s outcome. If the feasibility plan reveals that your idea was a dud, a “No Go,” it is preferable to know this before investing thousands of hours and tens of thousands of dollars executing an idea that would have been better off bouncing around inside your head.
While writing a feasibility study is inconvenient, so is losing your home due to a failed business venture.
Allow sufficient time to complete the plan. If it helps, feel free to curse me as you go, but remember to thank me at the end.
Here’s to your continued success!