A feasibility study is an important tool to test feasibility for a startup. It defines and tests conditions that influence feasibility of a startup. A feasibility study encompasses marketing, technical and financial components. For the lean startups, a feasibility study focuses on developing and validating the business concept (problem-solution fit), product-market fit and business model for scalability. For the marketing study, it will define market concept, strategy and execution metrics. The technical study will describe options of developing and delivering the right business values. The financial study will test viability of business and project financials. For entrepreneurial businesses, the feasibility study will mostly focus on answering key questions, which are related to business concept, customer validation and business model. In this articles, i will list key questions and guiding outlines that will be required for answering through a feasibility study.
Q1: Who is the targeted customer segments?
Information on customer segments will include:
- Category of customer segments as (business-consumer) and/or (business-business).
- Personal information( age, gender, location,..).
- Educational information.
- Professional information (their profession/job).
- Job aims ((what they are most trying to achieve in their life relevant to your business idea and can be classified as professional, social and emotional).
- Pains (undesired outcomes in doing jobs, obstacles and risk of failure).
- Gains ( Required, expected, desired and unexpected).
- Priorities (customer’s priority of listing for the jobs, pains, gains).
- Requirements to buy your product (design, function, price,…).
- Motivation and fear factors.
- Hobbies & interests.
- What makes them special and identifiable.
- Others relevant information to their decision to buy your product/service.
Q2: What is the target market?
A full description of the target market (or launching market) will be made including, main players & their market shares, existing products & services, selling prices, competition structures, market size, market growth, weaknesses, strengths and key issues for further consideration.
Q3: What is the problem?
The problem will be clearly defined including, what is the pressing problem that your invention (or product) will intend to solve? How the existing problem has been handled so far? Who are the main competitors or suppliers? What are the shortfalls with current suppliers? Why do you think that this problem is a pressing one for the target customers? Does this intended problem affect a large group of people and why? It is advised using the 5-whys techniques to dig the problem and better understand it. As for the problem testing, the study must show evidences on customers’ acceptance to the defined problem. Testing must show evidences that such problem is severe, affecting large group of people and require an urgent and quick solution.
Q4: What is the solution?
The study will explain how the project business will solve the pressing problem? What are the solution options, recommendations and justifications. For testing the solution, it is advised to transform the solution idea into a visible object such as, a sketch or a prototype, where stakeholders will have easy understanding and access.
Q5: What is the evidence for Problem-Solution fit?
The study will show evidences collected from the market validating the problem-solution fit. Test findings will be judged on its reliability and consistency prior to acceptance.
Q6: What is the unique value proposition?
Explanation will be made on why the project business can provide customers with a unique solution that other businesses (competitors) cannot do. Also, explanation will show details on why customers buy your product and not other products and what makes the project’s offering special and hard to imitate. The feasibility study will show the benefits of the project product and how it turns into value that a customer gets out of using the product. The study must show in quantitative way how project’s product benefit the customer as on to make him better, faster and cheaper. By doing this exercise, you will be able to easily convince customers to buy your product. This exercise will also helpful to further develop the product to better fit the needs of the customers.
Q7: What is the product’s specifications?
A full description of the product’s specification will be made including, benefits, functions, design, etc. It is advised that a product’s specification is transformed into a visible object such as, brochure, prototype, web landing page, enabling stakeholders to access and view. As for product testing, a prototype will be arranged and tested including, market test (customer validity) and scientific or laboratory test. The study must show reliable and consistent evidences for testing and approving the product by potential customers.
Q8: What is the evidence for product-market fit?
The study will show information with evidences on how the product’s offering (incl. specifications, value propositions, commercial offering, channel distribution) will be fit for the target market and requirements of the customer segments. The study must show reliable and consistent evidences that a large group of potential customers will buy it.
Q9: What is the distribution channels?
The study must provide full information on how to distribute and sell the project’s product or service to the target customers. Testing various distribution options will made with recommendation and justifications. Is it going to be through agents, distributors, direct or mixed. The key considerations for choosing the right channels are those related to the best suitable channels that fit the target customers, level of knowledge in the target market, dedication of sales, cost of distributions and others.
Q10: What is the revenue streams and plan for selling?
A full description on revenue streams and selling plans will be made including, how to sell the product (transactional or recurring), what is the pricing type of the product (license fees, leasing, product price,..etc), offered credit facilities, cash flow projections, selling plan, marketing plan & budget, sales projections and others. The study must show details on how to sell (capture values), monetize values and generate healthy cash flows. This section is strongly connected with viability of the project.
Q11: What is the competitive positioning?
The study will evaluate the competition structure at the target market and define the target competitive positioning. It’s importance derived from the fact that competitive positioning will be based on the competitive advantages that the project will be able to develop and pursue. To chart the competitive position, the study will need to define top two competitive bases or advantages( i.e. price and quality) and define the project’s level of offering for these two basis. These competitive basis are varied depends on the nature of the product, competition structure, customer priorities and others. The study must show reliable and consistent evidences on how well the project’s product meets the target customer’s top priorities. It will also explain how well the target customer’s top priorities are being met by the existing products in comparison with project’s product. The study will analyze whether the market opportunity chosen (product) fits well with both project’s cores and customer’ priorities. The study will chart the competitive positioning and show how the project’s product in comparison with other competitors will meet the customer’s top priorities.
Q12: What are the resources and plan for acquisition?
The study will explain resources required to create and operate the business. Resources are assets, human, money and intangible assets (patent,IP). The study will estimate the resources required and how to acquire them. The study will also explain partnership requirements, justifications and how to acquire them. Resource requirements will be estimated in terms of money to test the project’s operating cost, capital cost and viability.
Q13: What is the cost structure?
The study will explain the production cost (in terms of variables or fixed costs) to produce the set products. The study will also estimate the operating and capital costs and funding options. Projections of costs will be illustrated and funds. It will also estimate the cost of a product produced (£/ product), projection of production cost, classification of costs (variables and fixed), evaluate funding options, recommendation of funding option and justifications.
Q14: How to develop and capture the values?
The study will explain ways to create, deliver and capture the business value of the project including, getting enough funds, managing team, launching the business, executing marketing and sales strategy, developing customers, selling, generating cash flows and managing operations.
Q15: How to develop, retain and grow customers?
The study will explain how to launch the product, get the new customers, retain and grow them. The study should define key assumptions and strategies on how to achieve all of the customer relation deliverables. The key strategies to develop customers are increasing awareness, loyalty and growing customers. It will also describe tactics for each customer development strategy and metrics for control.
Q16: What is the investment cost of the project and how to fund it?
The study will estimate the investment cost of the project, including working capital and fixed assets, ways for funding, recommendation of funding and justifications.
Q17: How do you validate the business model?
- Identify key assumptions: Assumptions defined on the business model above will be the key subjects for validation. In addition to the identifying the assumptions, a criteria for approving the testing of each assumption should be roughly identified.
- Identify your next 10-20 customers: Identify at least 10 potential customers who fit the customer profile. Contact them to validate their similarity to your customer profile and evidence their willingness to buy your product. You will also interview them based on a set of questions & assumptions, collect their answers and to validate the assumptions of the business model.
- Test key assumptions: Decide on potential customers to interview and test your key assumptions. Set a plan for testing, conduct a test, collect information and analyze them. Based on evidencing information collected from the potential customers, assumptions can be validated and business model can be refined.
- Refine the business model: Upon the outcomes of the action 3 above, the assumptions of the business model will be removed and replaced with another set, modified and refined.
Q18: What is the Minimum Viable Business Product MVBP?
The study will provide information on the assumptions for developing a MVBP and test it before commercialization. The MVP should be defined, prototyped, tested and made it ready for the commercialization. The study must provide full information on MVBP and produce a full prototype showing the product’s specification, benefits and uses.
Q19: What is the financial projections?
The study must show the assumptions of the financial projection and figures for minimum 10 years term. Financial projection will include income statement, balance sheet and cash flow statements. The reliability and consistency of projections will be the basis for judging and acceptance.
Q20: What is the evidence of viability?
Financial viability tests will be carried out including, calculating the net present value NPV, internal rate of return IRR, payback period, financial ratio analysis and others. The reliability and consistency of viability will be the basis for judging and acceptance.
Q21: What is the implementation plan?
After successful completion of the stages: problem-solution fit, product-market fit and business model testing, the study will show the implementation plan, including:
- Manage team work: Form the founding team and distribute responsibilities and authorities. This also includes hiring key head counts required to successfully deliver the creation of business stage. This also includes appointing board of directors to advise the management of the business for the next levels.
- license and formalize the business: including the licensing, article of association and any other legal requirements to formalize and create the business. This also includes acquiring an office to manage the business.
- Raise seed funds: including evaluating the business and estimating the capital for the next phase. This includes approaching angel networks, venture capital and other sources to raise seed fund against the investment cost.
- Identify and communicate the business: including the vision, mission, goals, high-level strategy and the company & product market positioning.
- Arrange the business governance: where policies, procedures, work instructions and forms, including who and what to do to carry out the business activities are well defined.
- Articulate the business strategy: where mission, vision and strategic directions are well defined. Also strategic objectives, action plan and control are clearly defined.
- Business planning: Targets and actions plan and control are well defined over a period of one year.
- Budgeting: the budget required to carry on the activities of the business over a one year time will be arranged. It will also describe the funding options.
- Launch the business: including setting up a plan for launching the business and control of execution.
- Pilot commercialization: include acquiring the storage and production factory facilities or outsource production and pilot commercialization.
Call for Action:
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Prepared by Munther Al Dawood
Enterprise Development Services