POLICY

 

VALIDATE YOUR BUSINESS IDEA

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Conduct a 'feasibility study'

 

By ABAD ALI ASHRAF
Mar 21 - 27, 2005
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There is a famous saying 'a thousand slips between cup and lips'. It fits in well with thinking of a business idea and actually realizing it successfully. I believe everyone has the potential of thinking of a business idea but what is really required is the spirit of entrepreneurship behind that little spark to make it happen and suitable enterprise opportunities such as enhanced corporate culture and simple legal requirements from the government. Ideas of a professional service or producing a good need to be marketable or else it would end up being a charity work. There need to be potential customers for what goods you intend to produce or what professional services you plan to provide who would be willing to pay a certain price for your product and that price needs to be sufficient for you to make a profit in the long-run if not in the short-run.

You need to validate your business idea not only to convince potential investors but yourself also. You need to know that there is a big difference between a business idea and a marketable business idea. I may think of 'providing meals during voyages to moon'. A great catering idea! But unfortunately it is not marketable because there is no market yet of such voyages to moon or any other planet. This article provides a brief on how best to validate your business idea and suggests you set about to conduct a feasibility study yourself. There are many business consulting firms in Pakistan who would be glad to assist you for a hefty amount and it is often wise to take their assistance if you have the necessary capital. But when you only have a potential business idea with an empty pocket then you need potential funding from either a financial institution or an individual investor. In such cases, you cannot possibly afford to take external assistance but need to produce evidence of a potential business idea in some form and most common form is a 'feasibility study'. This article is not a step-by-step guideline for conducting a feasibility study rather it highlights the importance of conducting a feasibility study and explains what it is and how important it is not only for yourself but quite essential for your investor as well.

MATCHING YOUR BUSINESS IDEA WITH YOURSELF

At the start you are all alone with nothing but a business idea that you yourself don't know yet whether it is feasible or not let along convincing an investor. It is more difficult for a new business idea not currently practiced in the market but all the same it is not easy to enter an existing market either since it may be saturated or may not be feasible for what your specific qualifications and conditions. Feasibility is finding out what does a person do best and follows the saying, 'One should do what one can do best and outsource the rest'. When a lawyer thinks of providing professional services in biotechnology, it is not called a business idea rather insanity. The very first step even before conducting a 'feasibility study' is to match your business idea with your own capabilities, qualifications, and experiences if you plan to run the new business yourself, of course. This is most appropriate in sole proprietorship where the sole proprietor is fully in charge of day-to-day business conduct. You should be capable of meeting the technical requirements of the business and must be qualified with appropriate education and/or experience to follow through the required expertise in producing the new product and/or providing the newly conceptualized professional service. You also need to convince your potential investor that you do possess the necessary skills and education to materialize the new business successfully.

WHAT IS A FEASIBILITY STUDY?

A feasibility study is designed to provide an overview of the primary issues related to a business idea. The purpose is to identify any "make or break" issues that would prevent your business from being successful in the marketplace. In other words, a feasibility study determines whether the business idea makes sense. It validates the feasibility of an idea producing a 'feasibility report' that contains everything from the product or service description to financial feasibility using cost benefit analysis. You need to see how you can transform your concept from idea to marketplace and whether the market for the idea is large enough to allow you to make profits. It is the foundation of a business idea that allows you to validate whether the business idea you imagined is practically marketable successfully or not. One needs to possess the skills of system analysis and design techniques and understanding of marketing and/or budgeting process, facilitation skills, and good written and oral communication skills for successfully conducting a feasibility study and producing a 'feasibility report' on the basis of this study.

A feasibility study is different from a business plan in that it is conducted at the foremost. If the feasibility study indicates that a business idea is sound, then next step is a business plan. A business plan continues the analysis at a deeper and more complex level, building on the foundation created by the feasibility study.

CONDUCTING A FEASIBILITY STUDY

A feasibility study starts with the formulation of an initial idea or concept on which basis you plan to design your products. It describes the idea including your vision and mission of your new business. The new concept needs to be in line with your personal characteristics. It should be kept in mind that an idea may be feasible for one person and yet not feasible for another. It all depends on how best to take advantage of the idea based on your own skills, education and experiences. You are then required to figure out what kind of technology is needed to produce the particular product or service. Please note that these initial steps of idea formulation and technology determining are internal and you have yet to explore the market. But before hitting the market research you need to further solidify your idea into product design or service features. The design is based on your own ideas based on your own capabilities and understanding or availability of the technology you have.

 

 

So far you have formulated the idea, determined the technology and have decided on product design. Now you need to know what is happening in the external world or in the real market place. There may be similar products in which case you need to get external data on the market of these products from government sources, magazines, newspapers, statistical bulletin or in other words conduct secondary market research. In case you believe your idea is unique never before marketed or if marketed the results not publicly known or available in the secondary literature, then you need to conduct primary market research yourself.

Primary market research which includes deciding who will be your target customers, sampling some of them and asking them what they believe of the new product in terms of utility and how much would they be willing to pay for such a product or service. Market research is an essential ingredient but you don't always need to carry quantitative analysis rather you can benefit from focus groups whereby you call potential customers to a demonstration or an informal group discussion and allow them to express their opinions or view points. The next steps are to define marketing strategies and project timelines for the new product or service production to delivery. Projected/anticipated costs with an emphasis on converting all of the above into a CBA (Cost Benefit Analysis).

GENERAL CONTENTS

There are three major areas that should be covered by a feasibility study. These are: market issues, organizational/technical issues and the financial issues. Market issues ensure that a certain market does exist for the idea and organizational/technical areas highlight what form of an organization is the most suitable for the idea as well as what technology can be used. And finally, the idea is looked from the viewpoint of financial feasibility using cost benefit approach. However, following is a general outline of the contents of a feasibility study apart from any additional material as per the requirements of specific projects.

1. Scope
2. Market Analysis

* Domestic Market Profile
* Overseas Market Potential
* Target Market
* Overall Market Feasibility

3. Producer Survey and Supply Analysis

* Review & Analysis of Survey Results
* Supply Outlook

4. Organization & Technology Analysis

* Organizational Capacity Analysis
* Technology & Equipment Needs
* Operational Scenarios

5. Transportation and Processing Analysis

* Map of Producer Locations
* Supply Outlook

6. Financial Analysis

* Financial Summary and Feasibility
* Assumptions

7. Overall Feasibility Evaluation

* Summary and Conclusions
* Recommendations