The feasibility study and why you should conduct one before launching your startup

Much like a mathematical equation, entrepreneurs seek to eliminate the unknowns to ensure that their business idea has a place in the market. Beyond using indicators like the runway, one of the formulas that entrepreneurs often incorporate are feasibility studies, that is, assessing a project, plan or system to find out whether it is technically and financially feasible and to understand the viability of the business model. In short, these studies determine if the project is feasible at the estimated cost.

There are several reasons that entrepreneurs conduct feasibility studies:

1. Launching a new project. A feasibility study makes it possible to determine the reasons for pursuing or rejecting a project as well as identify expected costs and benefits.
2. Opening a new line of business or service. It provides the opportunity to evaluate the resources and technology required to develop a new solution, as well as help to identify potential obstacles or competitors offering similar solutions.
3. Acquisition of another company. It helps the managers of high-growth companies obtain valuable information and understand the risk of the investment.

Conducting a feasibility study

There are four major types of feasibility that are important to understand before embarking on one of these studies:

• Technical feasibility. Analyses equipment and software, as well as the qualified team needed to operate it properly.
• Financial feasibility. Involves an estimate of the cost of the project and its expected return on investment.
• Market feasibility. This is a market analysis that focuses on the product or service, as well as consumer demand.
• Operational feasibility. Creates a draft of the business structure and management team required to operate.

Elements of a good feasibility study

There are several factors to consider when it comes to developing a successful feasibility study.

• Market size. To examine the startup’s scope of action.
• Resources required. To specify the jobs that will need to be filled, as well as property and vehicles.
• Technological considerations. To gather the technological resources that will be needed to develop and implement the high-growth startup’s business idea.
• Cost and revenue structure. To establish the systems related to the project’s finances and accounting.
• Stakeholder mapping. To establish whether it is feasible to develop a relationship with or collaborate with them.

A feasibility study, step by step

Keeping the type of feasibility study required and its different elements in mind, there are several steps that startups can follow to conduct a feasibility study:

1. Prepare a preliminary analysis

This involves drawing up a specific outline of the services the startup plans to offer, detailing their unique features and the market they will serve. Two questions can help shape this outline:

• Is the product or service going to meet an unmet demand?
• Can it compete with other solutions either on price, design or availability?

It is also useful in this first step to clarify any obstacles that the high-growth company is going to encounter and which may influence its evolution. Itis difficult to move forward with the project if, for example, the required capital is not likely to be available or there are risk factors that may prevent the service from seeing optimal sales.

2. Conduct a market study

This is a critical step when conducting a feasibility study, since it will make it possible to understand the size of the business and come up with a realistic projection of revenues and sales.

There are several variables to consider:

• The region and what the population trends are, as well as their demographic characteristics, so that you can develop solutions tailored to their demands.
• The solutions that the competition has developed and their strengths and weaknesses.
• Market volume to forecast market share.

3. Write a business case

To capture the reasoning for a new strategy based on commercial needs and the benefits that a company will reap by taking advantage of an opportunity, a business case should be written that covers the results of the market study. The entrepreneur can use this document to create a cost and sales structure that will calculate the minimum amount of investment needed, helping entrepreneurs understand if it will be possible to cover costs.

4. Design the startup’s organizational structure and operations

It is at this point that the technical feasibility and costs of the project start-up and operation, as well as the fixed investments, are determined. The following aspects should be kept in mind when drawing up a detailed plan:

• Equipment
• Marketing methods.

5. Examine and analyse all data

This involves running cross-checks. It is useful to review the projected income statement and compare it with the expected return on investment, as well as consider whether significant changes in the market are likely to occur that could alter forecasts.

6. Implement decisions

After following the above steps, the entrepreneur will have a complete picture with indicators as to whether the project should be pursued. If the study reveals that it is possible to obtain the minimum expected ROI and that there is potential for development, then the project is feasible.

When it comes to looking to the future, conducting this type of analysis provides startups with an excellent opportunity to confirm that their solution will find a place in the market and that it has the potential to evolve and expand to other regions. In short, it gives startups a broader vision to ensure that their proposal is a success.