Tips and Tricks on Researching Your Business’s Feasibility
Starting a business begins with an idea. The idea may be related to an individual’s passion or an opportunity due to current events. Having a unique idea is the most important part of starting a project. However, individuals must assess if the idea is feasible in terms of operations and profitability. To do this, experienced entrepreneurs perform a feasibility study before investing capital and resources to start a project. Individuals with business ideas may not know what this process is and how to properly conduct it. This article will provide tips and tricks on how to research an idea’s feasibility.
What is a Feasibility Study?
To properly plan for a project, individuals must first perform a feasibility analysis to identify the feasibility of their ideas. This analytical process is what entrepreneurs refer to as a feasibility study. The process involves extensive market research as well as determining the capability of the entrepreneurs. A feasibility study should answer questions such as:
Is the business viable in the current market condition?
How difficult is the start-up process?
Do the individuals involved have the necessary ability to start the project?
Will the project be profitable in the long term?
Performing a feasibility study should be a priority for individuals seeking to start a business. It will provide information on whether entrepreneurs should proceed with a project or modify their ideas. When doing the analysis, individuals can utilize various marketing strategies such as Porter’s Five Forces, SWOT analysis, and PESTLE analysis.
Differences Between a Feasibility Study and Business Plan
Entrepreneurs will have to create a feasibility study and a business plan before they can start with their projects. However, new entrepreneurs may get the idea that the two processes are identical. This is quite common since individuals perform both processes at the beginning of the project. Understanding the differences between the two is necessary to make the start-up process clearer and manageable.
As stated above, entrepreneurs conduct a feasibility study to assess the feasibility of a project. This is the first step in starting a project as it will tell the individuals if they should proceed with their ideas. A business plan is a thorough strategy that discusses business operations. It is an extensive plan that involves detailing every aspect of an organization such as company details, market analysis, products, marketing strategies, and financial growth projections. An entrepreneur will only write a business plan after they have assessed that idea is viable.
Tips for Researching a Business’s Feasibility
An individual writing their first feasibility study may be unsure of where and how to start. Some entrepreneurs only perform a quick feasibility study that involves little research and then they proceed with their business plan. Others do extensive research and analysis that could take multiple months. They will only create a business plan once they know that the project will be profitable and feasible. Below are some tips and tricks that entrepreneurs can use for their feasibility studies.
Tip 1. Identify Strengths and Opportunities
Identifying the idea’s strengths and opportunities is a good way to start a feasibility study. Individuals must assess their advantages over their competitors as well as opportunities in the industry. An individual’s idea may often come from the opportunities they saw in a particular market or a strength that they possess. Entrepreneurs can use a SWOT analysis to help identify their strengths and opportunities.
A project’s unique strengths are contributing factors to its feasibility. For example, an IT expert that is at the top of the field may be looking to start his own cybersecurity firm. The fact that the IT expert is at the top of his field is a strength that no other competitor possesses. This indicates that the business is feasible since they have a top expert to oversee the whole operation.
Opportunities are another indicator of a business’s feasibility. Opportunities are market events or trends that can positively affect the flow of company operations. Individuals should identify these factors and analyze how they can use them to their advantage. For example, the pandemic has caused more employees to enter a work-from-home setup . This increased the demand for laptops, computers, and other peripheral devices. This opportunity makes an online electronic shop feasible as it indicates a large market and demand.
Tip 2. Identify Weaknesses and Threats
A SWOT analysis also includes identifying a business’s weaknesses and threats. These are factors that can negatively affect a company’s feasibility. Weaknesses are internal limitations such as high capital cost, lack of manpower, and insufficient experience in the industry. Threats are negative external factors like strong competitors, limited numbers of suppliers, bad climate, and changing market behavior.
A business’s weaknesses and threats that entrepreneurs cannot address will affect its feasibility. A SWOT analysis includes assessing these factors and creating a plan that will address any limitations. If individuals identify a weakness that they cannot control nor workaround on, the company may suffer in the long term which will indicate that it is not viable.
For example, the pandemic has made going outside dangerous which caused people to stay indoors. This means that the feasibility of establishments like walk-in restaurants and bars is less than what they were before the outbreak. A feasibility study may conclude that the threat of the unknown duration of the pandemic makes these establishments not viable for the near future.
Tip 3. Research about Competitors
Competitive rivalry is one aspect of Porter’s Five Forces strategy. Using this strategy can be helpful in a feasibility study since it focuses on important factors in a competitive business environment. Individuals should research their potential competitors during the study. They should find information about their competitors’ products, services, popularity, and networks. Studying competitors will allow individuals to see how the current industry operates and which trends are common among other companies.
Individuals should look at how many top competitors are in a particular market. From this, they should assess if a new business entering the industry can compete with these top competitors. If there are too many top competitors, entering an industry may not be viable since consumers are already loyal to trusted brands. Entrepreneurs must note this in their feasibility study and decide how the factor may affect the company.
If entrepreneurs assess that it is viable to enter an industry, they should then identify the threats of new entrants. The threat of new entry is another aspect of Porter’s Five Forces strategy. It is simply an assessment of how easy it is for new businesses to enter and succeed in a particular industry. A high threat of new entry may indicate more competitors in the future which could make it difficult to retain the loyalty of customers. An individual must decide in their feasibility study if the threat of new entry makes their business viable or not.
Tip 4. Look for Potential Suppliers
Every business will need to purchase raw materials from suppliers. This is an essential part of any operation and should be a priority during a feasibility study. Entrepreneurs should look for potential suppliers in the industry . They can do this after researching competitors and finding out where they purchase their materials. They should look at different suppliers and assess which one fits their budget and quality standards.
If entrepreneurs learn that they have limited options for suppliers and all of them are expensive, this can indicate that an idea may not be viable. The raw material costs may be too high which could make the business less profitable. There may also be cases where certain materials are only available in specific countries which can make it difficult to acquire. In the feasibility study, entrepreneurs should consider looking for an alternative supplier to have a backup strategy during periods where their primary supplier is unavailable.
Tip 4. Assess the Buying Power of the Market
Buyer power is another aspect of Porter’s Five Forces. It is the financial capability of the target market. Entrepreneurs must take into account buyer power when assessing the feasibility of a business. Similar to suppliers, individuals can find information on buyer power by examining the prices of existing competitors. A business can only increase a price based on how much the market is willing to pay for a product or service. Buyer power will affect the overall status of the business and is integral in a feasibility study.
Price is one of the most important factors in the marketing mix and feasibility study as it will affect the product, promotion, and place. A new company will often base its prices on the buying power of the majority of the market. This can lead to low prices and profitability in the first few months or years of the business. However, as the business receives frequent customers, it can then begin to increase its prices to a more comfortable range.
When assessing a business’s feasibility based on buying power, entrepreneurs must analyze if their prices are enough for maintaining company expenses. New businesses will have to follow the buying power of the market. If their projected company expenses are high and buyer power is low, this may indicate that the idea is not viable. However, it is important to note that most businesses will earn their investment back after few years of operations. So entrepreneurs should assess if they can survive despite a low buyer power.
Tip 5. Determine the Uniqueness of a Product or Service
The threat of substitution is one of Porter’s Five Forces. This aspect mainly focuses on the uniqueness of a product or service. The threat of substitution refers to the idea that customers may find alternatives or substitutes for a business’s product and service. In a feasibility study, entrepreneurs must ensure that their business idea is unique and customers cannot simply substitute it for cheaper services.
In a feasibility study, the substitute does not only refer to competitors’ products and services but also other practical methods. For example, a delivery service may charge their clients $10 to take a package to a destination. However, some clients may find out that taking two taxi rides can save them $5. This could lead some individuals to prefer taking a taxi and delivering the product themselves than spending an additional $5.
Tip 6. Perform a PESTLE Analysis
A PESTLE analysis is a business strategy that can be helpful in a feasibility study. PESTLE is an acronym for political, economic, sociological, technological, legal, and environmental factors that can affect a business or organization. Entrepreneurs can use PESTLE analysis along with SWOT analysis and Porter’s Five Forces to conduct a thorough feasibility study. However, using one or two of these strategies should be enough to assess a business’s feasibility.
The first part of the analysis is the political factor. This is the overall political environment where entrepreneurs will establish the business. Industry policies, regulations, restrictions, and political situations will affect a project’s feasibility. Some rules may prevent individuals to acquire raw materials or sell a certain product. Violating political policies may make it impossible to start a business. Also, changes in political leadership may affect consumer behavior, business operations, and the overall feasibility.
Economic factors include inflation, unemployment rates, stock market condition, average salaries, and taxes. Economic condition will have an integral effect on businesses and can provide threats as well as opportunities. Individuals should assess both local and international economic conditions when doing a feasibility study. They should try to identify opportunities that can benefit their business. Also, a drastically poor economic condition may make certain business ideas not viable due to various reasons.
Social factors are market behavior, workforce behavior, culture, population, age, and public health. These are factors that relate to the condition of the population and how they may respond to the business. Analyzing social factors will help entrepreneurs gain an insight into the buying behavior of consumers which is integral to a business’s feasibility. They should try to focus on studying their key demographics and potential employees. This will provide them information on what to expect in the industry.
Technology is another factor that the PESTLE analysis will touch. Technological factors include all advances in technology from a new social media platform to production machinery. Entrepreneurs must be aware of current technological innovations and how they can affect the feasibility of their business. An example of this is how the internet replaced cable television and made cable providers irrelevant.
Legal factors are legislation regarding employment, organizational taxes, health and safety requirements, and regulations on raw materials. This factor differs from the political factor as it focuses more on laws that affect the industry. A business’s feasibility greatly depends on its legality and adherence to ethics. A business involving illegal substances is not viable as it will result in the authorities arresting the owner. Additionally, individuals must assess if they can consistently pay taxes and maintain safety regulations in the workplace. These factors cost money and will remain as expenses for the duration of the project.
Environmental factors refer to how a business can affect the natural environment as well as how emergencies may affect an organization. Individuals must assess if their business will contribute to global warming and pollution. If so, they may need to create necessary strategies to help minimize their damage to the environment. Also, entrepreneurs should be aware of emergencies such as pandemics, typhoons, and other calamities that may affect a business’s operation. A feasibility study must include an analysis of natural events that have short-term and long-term effects on a project.
Tip 7. Determine Your Financial Capacity
One of the most important aspects of a business is the starting capital. Entrepreneurs looking to establish a company must have enough finances to cover the cost of operations. This means that an individual will have to spend a considerable sum of money before they can begin earning through their products and services. However, they can consider taking bank loans or looking for investors that can finance their project.
In a feasibility study, individuals should take note of their financial capacity and use it to determine the project’s feasibility. They should calculate the production cost, utility expenses, employee salaries, taxes, and other fees. They must assess if their current financial capacity can cover most of these as well as their personal expenses.
Tip 8. Determine Your Allotted Time and Energy
Aside from finances, individuals must determine the time and energy that they can allot to the company. These factors may seem insignificant but greatly contributes to the success of a project. Entrepreneurs who have day jobs will have to manage their time and energy effectively to avoid burnout and perform efficiently. Starting a company will take a lot of time and energy which are limited resources that an individual can spend in a day. A feasibility study may conclude that a project is viable, however, a company may not succeed if an entrepreneur fails to take into account the time and energy factors.
Entrepreneurs can utilize these various tips and strategies to create a clear feasibility study. Strategies like Porter’s Five Forces, SWOT analysis, and PESTLE analysis are just some of the principles that can help assess a project’s feasibility. Starting a company is not an easy task but having a plan and knowing that the project is feasible can help boost the confidence of entrepreneurs.
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