Taking some time to examine how your “idea” can be turned into an entrepreneurial opportunity is a crucial step which if skipped might cost you resources and time that yield no return for you or your investors. In simple terms, if someone asks you “How feasible is your idea?”, they want to know if you’ll be able to execute the idea without too much difficulty within the current external environment and the core competencies and capabilities you have.
Here’s a guideline of 4 core pillars you can use to compose your own study and decide if your idea is feasible:
1. Technical feasibility: Examining the technical feasibility of your idea allows you to determine if you can convert your idea into a working system. Often this needs to you thoroughly examine the core competencies and capabilities within your existing organization or startup that can bring the idea to life.
2. Economic feasibility: This step helps you understand if your business idea is viable economically and it usually comprises of a cost-benefit analysis. There are a number of financial valuation techniques you can use to look at how economically feasible your business idea is:
a. Net present value: NPV valuation is a method used to determine the current value of all future cash flows generated by a project (your idea), including the initial capital investment. If the NPV of your project is positive, then it means that your idea is a value-adding project.
b. Payback period: The payback period valuation technique measures the time needed to recover the project investment. If your idea will take a while before it generates cash inflows that are enough to either pay off your business loan and borrowing costs (if the financier is an entity like a bank), your idea will have greater risk. Depending on the potential funder’s risk appetite, your payback period may or may not make your project feasible.
3. Legal feasibility: Your project has to factor in certain by-laws in your area, international laws if you’ll have to engage in cross border transactions and legislations. If the laws are far too excessive, then your idea might not be as feasible.
4. Marketing feasibility: Sometimes, your idea may be in an industry that is so saturated to the point where you might just have to be a price taker when you enter the market. If you can’t adjust your fixed and variable costs to meet the prices of others in the industry, your idea might just not be worth turning into a business, let alone seek funding. In this section of the feasibility study, utilizing tools such as the Boston Consulting Group matrix, Porter’s 5 Industry Forces, competitor analysis and target market analysis will definitely help you see if your business idea can be positioned in the market and generate sales.
External funders, depending on their individual nature, ultimately want to channel money to businesses and ideas that add value, financially, societally and/or environmentally given recent trends. Also, determine what capital structure (sources of funding between equity or debt) will meet your business needs. For young tech startups, sometimes business loans won’t be the best sources of funding to look at because of how uncertain the success of your venture might be. In this case, consider pitching your idea (once your feasibility study is done of course) to a venture capitalist who is tech-savvy could be the best option.
Take the time to pick yours apart. It’ll save you a vast amount of time, money and will mitigate mistakes. You need some help with your feasibility study, contact us.