Feasibility of the Business Idea

Is your business idea a good one?

There is no magic answer to this question. Experience has shown that some of the most bizzare ideas ,such as the concept of a personal computer have turned into successful businesses, while some have not.

It's important to look critically and impartially at your business idea when determining whether or not it's worth investing your time and money. It can be difficult to remain impartial about an idea you're passionate about, so talk to a business advisor to get a qualified and objective perspective.

While there are no guarantees that your business will succeed, a feasibility study will help you determine whether your idea will make a profit before you make a financial commitment.

It's important to remember that what is considered feasible may differ greatly from person to person depending on the return on investment they want and the risk they're willing to take on.

In your feasibility study you should analyse your business idea, market and competitive advantage as well as the financial feasibility of the business.

Analyse the business idea

In this first stage of your feasibility study you need to look objectively at the idea and determine its profitability. This objective analysis would include:

  • assessing the market size;
  • assessing the competitive advantage of your idea;
  • obtaining independent endorsement of the idea;
  • assessing capital requirements;
  • considering your management ability; and
  • finding out if anyone else has tried your business idea, and if they failed - why?

Market analysis

Once you have determined there is a market for the product or service you are planning to supply, you need to conduct some more research which should include the following:

  • Demand analysis: here you determine the type of demand that exists for your product or service (eg: consumer, distributor), and establish the size of the market and its growth capacity.
  • Supply analysis: look at the life cycle of the industry. Is it the right time for you to be entering it? Also study the way the industry is structured and think about how that will affect your business.
  • Relationship analysis: how do the various groups within the industry interact? What is the bargaining power of buyers and suppliers? Is there a threat of substitute products or new entrants?

Competitive advantage analysis

Now that you've established that your idea is a good one and that there is a market for what you are offering, you need to determine what makes your product or service special. Ask yourself these questions:

  • How is my product or service different to those offered by my competitors?
  • Why will customers purchase the product or service from me rather than my competitors?
  • Are there any barriers to me entering the market?
  • What makes my competitors successful?

Financial feasibility analysis

The final part of your study should address the financial feasibility of the business idea which involves the following:

  • preparing a sales forecast;
  • estimating start-up and working capital requirements;
  • estimating profitability; and
  • assessing financial viability.

What's next...

 

Related Information

Checklist to view:
Business Starters Checklist


Business guides to view:
Process Strategy
People Strategy

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