(Excerpted from an article written by Arlene Soto)
While there are no guarantees any startup business will be successful, a good first step to determine if an idea makes sense before proceeding with an investment of time and resources is to do a venture feasibility study.
A venture feasibility study analyzes an idea from several perspectives: market opportunity, competition, resources available, resource gaps, financial viability, operational issues, intellectual property rights, development timeline, and technology needs. Consider a venture feasibility study as a start on a business plan if the idea looks profitable.
Determining the market opportunity is based on reasonable market research, both primary and secondary. Primary market research consists of interviewing or surveying potential customers on their preferences and ability to purchase. Secondary market research consists of gathering information that is already available regarding the target customer group, such as demographic data available through the the census. Are there enough customers willing to buy your products, often enough, at a profitable price that your business can pay all expenses and provide a decent living wage to owners? If not, the business idea is not feasible.
You often will be able to get grants or loans to help you finance the venture, but part of a venture feasibility study is to look at what financial resources are already available, in personal bank accounts, equity in a home, life insurance, family and friends, or from selling assets. Personal credit ratings and collateral are also important. Lenders make decisions based on a customer’s ability to repay the loan. A major cause of business failure is not having enough cash available to cover all startup costs and operate for at least a year. Ask yourself, “Am I willing to risk what I own to go into this business because the potential rewards are greater than the risks?”
A good first step in the feasibility determination is a SWOT analysis (strengths, weaknesses, opportunities, and threats). Look honestly at all the pros and cons for this type of business venture. Analyze ways to overcome weaknesses and threats. Your local business center is a good resource that can assist you further with your venture feasibility process.