Before launching their business, entrepreneurs analyse a host of variables to ensure that their project can scale up and succeed in the market. To this end, entrepreneurs often turn to solutions like a feasibility study, a step prior to giving the green light to the business concept that provides a clear picture of the project by analysing its technical and financial aspects.
Much like a mathematical equation, entrepreneurs seek to eliminate the unknowns to ensure that their business idea has a place in the market. Beyond using indicators like the runway, one of the formulas that entrepreneurs often incorporate are feasibility studies, that is, assessing a project, plan or system to find out whether it is technically and financially feasible and to understand the viability of the business model. In short, these studies determine if the project is feasible at the estimated cost.
There are several reasons that entrepreneurs conduct feasibility studies:
There are four major types of feasibility that are important to understand before embarking on one of these studies:
There are several factors to consider when it comes to developing a successful feasibility study.
Keeping the type of feasibility study required and its different elements in mind, there are several steps that startups can follow to conduct a feasibility study:
This involves drawing up a specific outline of the services the startup plans to offer, detailing their unique features and the market they will serve. Two questions can help shape this outline:
It is also useful in this first step to clarify any obstacles that the high-growth company is going to encounter and which may influence its evolution. Itis difficult to move forward with the project if, for example, the required capital is not likely to be available or there are risk factors that may prevent the service from seeing optimal sales.
This is a critical step when conducting a feasibility study, since it will make it possible to understand the size of the business and come up with a realistic projection of revenues and sales.
There are several variables to consider:
To capture the reasoning for a new strategy based on commercial needs and the benefits that a company will reap by taking advantage of an opportunity, a business case should be written that covers the results of the market study. The entrepreneur can use this document to create a cost and sales structure that will calculate the minimum amount of investment needed, helping entrepreneurs understand if it will be possible to cover costs.
It is at this point that the technical feasibility and costs of the project start-up and operation, as well as the fixed investments, are determined. The following aspects should be kept in mind when drawing up a detailed plan:
This involves running cross-checks. It is useful to review the projected income statement and compare it with the expected return on investment, as well as consider whether significant changes in the market are likely to occur that could alter forecasts.
After following the above steps, the entrepreneur will have a complete picture with indicators as to whether the project should be pursued. If the study reveals that it is possible to obtain the minimum expected ROI and that there is potential for development, then the project is feasible.
When it comes to looking to the future, conducting this type of analysis provides startups with an excellent opportunity to confirm that their solution will find a place in the market and that it has the potential to evolve and expand to other regions. In short, it gives startups a broader vision to ensure that their proposal is a success.