So you have a startup idea? That’s great!
But tell me one thing: how will you determine whether or not that startup idea is worth pursuing?
Simple answer: Conduct a feasibility study.
Well, in this post, I’m going to give you a full fledge guide on conducting a feasibility study for your startup.
So let’s start off by learning what exactly a feasibility study is.
- What is a feasibility study?
- Importance and benefits of a feasibility study
- Types of feasibility study
- How to conduct a feasibility study for a startup (step-by-step guide)
- Feasibility study tips
What is a feasibility study?
See, before going for an idea, you need to make sure it is worth pursuing. A feasibility study, in simple explanation, does this job for you.
It checks the potential of an idea and determines how far it can take your business.
What all it analyzes? Well, it analyzes all the aspects related to your idea including the demand for it, financial power, competitors, and so on.
In short, it tells you whether the benefits of your idea outweigh the challenges. If yes, go for it. If not, stop right there.
Importance and benefits of a feasibility study
Ok… I know what a feasibility study is and what it does, but is it really that important? Well, my friend, it is.
Not sure why? Here are some of the reasons why a feasibility study is important.
1. Identify potential risks
Risk is the biggest risk for your business. That’s why you must always keep an eye on all the risks coming with your idea.
Not sure how to do it? Conduct a feasibility study.
A feasibility study tells you what all risks and challenges your idea brings and how to avoid them.
It helps you learn about all the major aspects of your market including its demand and the target audience. It also gives an update about the competitors and if something about them can be a potential threat.
Not just this, but you can also analyze the financial risks of your idea. You learn about the cost, expenses, and also the chances of making losses with this idea.
2. Securing funding
Tell me one thing, would you ever invest in an idea you are not confident about? Of course not. Likewise, your investors would not invest in your idea if you don’t prove to them that your idea is worth investing in. Got it.
But for showing them the potential of your idea, you need to first yourself understand your idea. To do that, simply conduct a feasibility study.
Your study will tell you about the demand, competition, risks, opportunities, and all other relevant information about your idea. This will help you easily secure funding from your investors.
3. Helps in decision-making
At every stage of your business, you must make sure that the decision you take is the right one. Your feasibility study will help you do that.
Firstly, you will get a detailed overview of the market, demand, customers, potentials, competitors, and so on, about the idea.
Next, you will get information on all the costs included with your idea such as marketing expenses, starting costs, etc.
Finally, you will also understand the daily operations of your idea.
All of this will help you make effective decisions.
4. Evaluate the idea
Making sure you have chosen the right idea is important. That’s why you need a feasibility study.
The feasibility study will tell you everything about your idea and help you evaluate its effectiveness. You can:
- Identify potential risks and challenges it brings
- Tell you who the competitors are
- Give you information on the market demand
- Inform you about the operations it requires
- Insights into your target audience
- Tell you how financially viable your idea is
All of this information, in total, will help you evaluate the effectiveness of your idea.
5. Refine the business plan
You can indeed make mistakes while creating a business plan, but you don’t need to repeat those mistakes. You can easily identify them and make changes to your plan.
How can you identify them? By conducting a feasibility study.
Your study will tell you things about your idea that you didn’t know before. This can include anything such as new competitors, falling demand, etc.
Not just the negative things, but it will also tell you about the positive things coming to your business such as the growing customer base, unmet gap, etc.
You will also get a proper idea of the financial viability of your idea, which will help you make changes to your projections.
Types of feasibility study
Well, not just one, but there are several types of feasibility studies your startup can conduct. Let’s learn about each one separately.
1. Technical feasibility
See, in this world of technology, you need to always make sure if your idea is technically feasible or not. That’s what technical feasibility is here for.
In this, the study analyzes your idea and informs you about the technology and resources needed to put your idea into action.
To begin this study you’ll first have to decide upon the goal of your idea. Once done, next, you’ll need to determine the technology needed to achieve them.
What next? Well, you’ll then need to analyze if the technology needed for your idea can be easily acquired. Your idea must not include any technology that is too difficult to access as it’ll only harm your business.
The results of this study will help you decide whether to proceed with your idea or not.
2. Economic feasibility
Well, money is everything, right? Somewhat true. That’s why you must always make sure your idea is economically strong.
How can you do that? Perform economic feasibility.
You can start this study by analyzing all the costs associated with your idea such as labor costs, marketing expenses, launching expenses, materials, overhead, etc. Once you’ve determined all the potential expenses, your next job will be to figure out if your idea can generate an income higher than your expenses.
In short, the goal of this kind of feasibility study is to check if your idea is financially viable.
3. Legal feasibility
So this one is an analysis of the legal feasibility of an idea.
Your only goal here is to identify and mitigate potential legal issues that you will encounter as you develop your business idea.
These legal studies are usually conducted by legal professionals such as attorneys or paralegals. It can be anything from analyzing rules and regulations to reviewing contracts.
Thus, legal feasibility analysis helps companies identify regulatory hurdles and take effective action to overcome them.
4. Operational feasibility
Well, you can guess it by the name – this one is all about the operations of a business. It figures out whether the proposed idea is actually doable for the company.
In this, you take your idea and check if the required skills, infrastructure, and resources are available to the business.
All you have to do is look at all the factors and evaluate if your idea can be executed or not. It can be anything such as the company’s budget, available technology, etc.
This, in short, helps you choose the idea that is actually possible for your business.
How to conduct a feasibility study for a startup (step-by-step guide)
- What is a feasibility study – Check
- Why is a feasibility study important – Check
- What are the types of feasibility studies – check
Cool! Now it’s time to learn the “how”.
In this section, I’ll guide you on exactly how you can conduct a feasibility study.
Conducting a feasibility study can feel daunting if you don’t know how to do it. But why worry? Now I’m going to give you a step-by-step guide on how you can conduct one. Let’s go.
Step 1: Conduct a preliminary analysis
Well, you have to be a little careful in this first step of your feasibility study. why? This is because this step is all about answering questions about your idea.
To start, ask yourself: Does my idea solve a real problem? Because you don’t need an idea that doesn’t solve any of the audience’s problems. Beyond this, you will also need to research how your idea is sought after (its demand). This will help you assess the potential of your idea.
Next, look at your plan and see if you can find all the resources you need for your idea.
Also, try to see if your idea can pay all your expenses and make a profit.
This way you will have a rough overview of your ideas and possibilities.
Step 2: Estimate the income of your idea
Then, in this step, you prepare the estimated income statement for your idea.
Don’t know how to do it? Let’s learn.
Start looking at all the similar businesses in your industry and see how much they make. This will give you an idea of how much money your business can make.
Once you’ve done this, try to decide how much money you’ll need to reach your income goal. You can also calculate the total cost of implementing your idea.
Step 3: Market research
Well, now all you have to do is: do market research and understand your industry. sweet.
Start by identifying your target market. This gives you an accurate picture describing who your customers are and what they want. In addition to this, try to understand your customer demographics, interests, and behaviors. This helps you understand your customers better.
Once you have done this, next you need to look at what is required. Look, you don’t have to follow an idea without any demand, do you? That’s why you need to make sure there is enough demand for your idea.
Then, identify your competitors and better understand them, their strategies, and their revenues. This gives you an idea of how much money you can expect to make.
Finally, try to study the market as a whole, including its size, share, and potential expansion.
Step 4: Plan business organization and operations
I see you’ve completed your market research.. well, that’s great or if not, these market research tools can help you with it. So what next? Now it’s time to plan.
This step is all about creating a business plan and deciding what it needs to run.
You can start by deciding upon the exact plan and route your business will take for its operations. Then, try to analyze the resources needed to make this happen. It can be anything such as workforce, equipment, technology, etc.
Once you’re done doing this, check if your idea is possible to execute. Not only in terms of operations but also from legal and economic points of view.
Finally, prepare an analysis that explains how much expenses, investments, and operating costs it’ll need.
Step 5: Preparing financial statements
Do I have to prepare a financial statement before I start my business? Yes, of course, you will need to. But don’t worry, you don’t need a finance degree to do this. All you need is some understanding of how to create financial statements and some knowledge of your own business.
First, consider all the expenses you will incur when starting your business. This can be anything like equipment costs, facilities, marketing costs, and more.
Then, calculate your income.
Also, include all the assets and liabilities of your business. Assets can be anything like land, buildings, or machinery you own in your business. Liabilities can include bad debts, depreciation, etc.
Step 6: Review and analysis
Well, congratulations! All your major steps of a feasibility study are completed. Now we come to the last two steps, and this one is all about reviewing and analyzing.
Reviewing what? Well, it’s about reviewing the data you got from the steps mentioned above. Got it? Nice.
See, one thing to remember when reviewing data is to always be objective. Don’t ever let your emotions or biases dictate the data. Just put them in the back seat and look at your data from a logical point of view.
By this, you can easily identify the risks of your idea and check if it is practically possible.
Step 7: Make a decision
Pheww… Now the last one.
What is it about? Well, the final step of your study is all about the “yes or no” thing.
This means that, now, it’s time you decide whether you’ll go after this idea or not.
I know, it’s tough to take a decision when you’ve already given so much to an idea. But hey, you don’t need to do something that won’t give you any results. So just calm your emotions down and try to look at the bigger picture, and ask yourself: is it worth pursuing? If the answer comes as a “yes”, well, go for it… But if the answer comes as a “no”, you’ll need to stop right there.
Feasibility study tips
The step-by-step guide was fun, now let’s get some additional tips for conducting an effective feasibility study.
1. Define your goals
Yup, this is always going to be the first tip for conducting a feasibility study. Why? It is simply because when you know what you need to achieve, you run in the right direction.
2. Analyze the competition
Competitors can also be used for the benefit of your business.
Don’t know how? Let me explain.
See, when you analyze what your competitors are doing you get to understand what works best and what does not. You also understand how you can make use of certain strategies to move ahead. All of this helps you improve your business.
3. Understand your customers
Customers are the center point of your business. So it won’t work if you don’t understand them.
Start performing research and learning about their needs, preferences, and buying habits, to improve your offerings.
4. Conduct a SWOT analysis
Yeah, you can also do a SWOT analysis for your idea.
It stands for:
- S – Strengths
- W – Weaknesses
- O – Opportunities
- T – Threats
5. Develop a plan of action
As soon as you complete your study, create a plan of action. Decide what you are going to do next.
What is the purpose of a feasibility study?
The major purpose of conducting a feasibility study is to examine all the aspects of a proposed idea and get to a conclusion on whether or not to pursue it.
What are the disadvantages of a feasibility study?
Here are some of the disadvantages of a feasibility study:
It can be costly
May take a lot of time to complete
Outdated analysis may not be reliable
What are the major parts of the feasibility study?
The major components of feasibility study are:
So this was the complete guide on how to conduct a feasibility study for a startup including everything else you need to know about it.
Now that you’ve got a full understanding of a feasibility study, it’s time for you to take a step and conduct one for your startup.
Just remember to be objective while making decisions and you’ll be on the right way to your startup’s success.