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Apr 26, 2011 - 2 minute read - Comments - business model

Evaluate Your Business Idea

People come up with ideas for new businesses every day. How does one judge whether an idea has merit or not? Should the business be pursued or should the idea be tossed on the scrap heap of bad ideas? Here is a process you can follow to find out.

A feasibility study is used to test a business concept. It takes into account the strengths, weakness, opportunities and threats (SWOT) of the proposed business’s environment and the resources it has at hand to try to evaluate the business’s chances of success.

The first step is to come up with a hypothetical business model that you can test based on the research and analysis you conduct in the feasibility study. I recommend following the Business Model Generation method.

Next, you would conduct research designed to inform the analysis needed to test the assumptions you made in the business model. This may involve talking to potential customers, gathering information on your market and competitors, and getting quotes on all costs involved, among other things.

Once you have information in hand, you can start your analysis. In general, for a feasibility study, I would conduct the following analysis:

Environmental Analysis

  • trend analysis
  • industry analysis
  • internal analysis (an assessment of your skills vs what the business requires)
  • market profile analysis

Financial Analysis

  • analysis of similar firms in the industry
  • projected market share
  • break even analysis
  • proforma analysis
  • ROI projections
  • margins

If you complete the analysis described above, you should be in a good position to make a decision about whether or not to proceed.

If you decide to proceed, you would then create a business plan to describe the day to day operations of your business. Much of the analysis done in the feasibility study stage will be brought into the business plan so it should be relatively easy to create.

A feasibility study is a lot of work and it is difficult to do well, but it is a step than should not be skipped for a business with a new business model. The risks are just too high. It’s better to find out that a business doesn’t work in the feasibility study stage rather than after you’ve invested your hard earned money. While “No, don’t do this” might not be what you want to hear, consider it a set back. There are plenty more ideas in the world. Take what you’ve learned, pick another idea, and take another shot at it.