The start of a new year brings thoughts of new beginnings. For some of us, that might mean thoughts of turning our ideas into businesses.
We’ve all had “Eureka!” moments when we come up with bright ideas for that proverbial better mousetrap. If only we could build it, the world would surely beat a path to our door to buy it. A sure thing!
In reality, new businesses are never sure things. In fact, most business ventures fail. And that usually means entrepreneurs go through tremendous hardship with little to show for it at the end, other than a hard-earned education in what not to do the next time.
Perhaps some of this hardship could be avoided if entrepreneurs spent more time analyzing the feasibility of their business concept before they took the leap. Indeed, we are often approached by fledgling entrepreneurs who want help performing a “feasibility analysis.”
But what exactly is a feasibility analysis? For entrepreneurs, it basically means carefully considering all of the factors that go into making a “go” vs. “no-go” decision. This might mean different things to different people, but here are a few factors that come to mind (some of these overlap):
- Knowledge & Experience. Do you have, or can you obtain, the knowledge and experience necessary to turn the idea into a successful business? If not, can you find and recruit co-foundersthat complement your strengths so that, together, you form a credible, well-rounded team? A project that might be feasible for Elon Musk or Richard Branson may be nearly impossible for all but a small handful of other people.
- Situational Feasibility. Some people have family obligations or other personal commitments that prevent them from committing the time and other resources needed to bring a new business to life.
- Legal Restrictions. Do you have the freedom to do what you want to do? Some people are bound by employment agreements that assign all innovations in their industry to their employer, even if they develop them on their own time. Others are bound by non-compete agreements.
- Technical Feasibility. Can your product (or service) even be built, given a finite investment? In other words, is it technically feasible? For many “simple” products, the answer is a near-certain yes. But in many other areas, the answer is less clear. For example, will you actually succeed in developing a pharmaceutical compound that works better than existing drugs? Can you develop a material that converts solar energy into electricity more cheaply than existing technologies? Can you develop software that will enable marketers to extract new insights from terabytes of data? And, if you CAN build it, will it be safe, reliable, usable, sustainable, maintainable, manufacturable, and affordable? These and other design, technical, and manufacturing challenges often require much more work than anybody can first anticipate.
- Market Feasibility. If you build it, will the market actually buy it? Many entrepreneurs make the mistake of building a product believing that everybody will want to buy the final product. But it’s exceedingly hard to predict what the public really wants. Fortune 500 companies spend billions each year on market research to predict how their new products might be received, and yet they still introduced flops like the Amazon Fire, the Microsoft Zune, New Coke, and the Ford Edsel. Failures like these become less likely if you get continuous customer feedback and iterate through the product development lifecycle (à la the Lean Startup methodology).
- Profit Margin Feasibility. Can your product be profitable enough, and will you be able to sell enough units? Your product must be able to provide an attractive ROI for the company’s owners, investors, and lenders. In some ways, this is a restatement of the previous two points.
- Competitive Feasibility 1. Does your product solve a problem better than competing solutions? Inventors often fall in love with their own creations, and they fail to see that existing products already meet the market’s need at least as well as their invention does.
- Competitive Feasibility 2. On a related note: if you manage to bring it to market, will we be able to stay ahead of copy-cat competitors? If you’ve identified a way to exploit a major new opportunity, you can bet competitors will pile in as soon as they see you raking in the cash. Can you develop any long-term competitive advantages – perhaps through network effects, customer lock-in, exclusive partnerships, or intellectual property strategy?
- Time-to-Market Feasibility. Do you have enough time to develop, manufacture, and distribute your product before it becomes obsolete? Product life cycles in many markets – such as technology, fashion, or media – are getting shorter and shorter. An existing company with hundreds of scientists and engineers can usually exploit a new opportunity much faster than a lone entrepreneur, especially in complex fields like materials science or biotechnology.
- Financial Feasibility. Do you have access to the capital required to build a successful business? Investors and lenders have finite resources, so your project needs to be more attractive to them than the countless other funding proposals they receive each week. To investors, the desirability of an investment opportunity is usually a combination of the management team, the market, the size of the opportunity, intellectual property, competitive advantages, market traction (e.g., the number of users or paying customers you’ve managed to attract), risks, location, and the amount of capital required. Lenders will take other factors such as personal guarantees and the availability of collateral into account.
- Regulatory Feasibility. Can you overcome any regulatory or legal hurdles? Some businesses face legal challenges, such as wine delivery or ride sharing services like Uber. Some – like healthcare, financial services, and telecommunications – operate in complex regulatory frameworks. Even smaller businesses like restaurants and medical marijuana dispensaries need to confront extensive municipal, state, and federal regulations.
As you can see, it takes a lot more than just “a great idea” to build a successful business. At the same time, you can’t let yourself get caught up in “analysis paralysis,” trying to think through all of the angles before you take your first step.
A useful feasibility analysis identifies where the greatest challenges lie so that you don’t forge ahead blindly. A strong management team will be energized by the prospect of facing and overcoming these challenges.
So do the feasibility analysis and be informed by it, but don’t let it be a roadblock on your path to turning your ideas into reality.