When entrepreneurs start their businesses, they put a lot of effort into it, taking chances and achieving something unique that amazes everyone. And, there is that one idea that they know will be the key to their success and outperform their competitors. The crux of the matter is getting that one business idea to the operational phase, which may be time-consuming and tricky, and may result in the failure of the whole idea.
No entrepreneur wants to fail after putting so much on the stake therefore, they undertake feasibility studies that offer an overview of the principal challenges associated with a business idea.
The goal is to uncover any make-or-break difficulties that might hinder your company from succeeding in the industry. So, what exactly is a feasibility study in the context of entrepreneurship?
What is the Feasibility Study in Entrepreneurship?
A feasibility study, as the name implies, is intended to assess whether your business venture is, in fact, feasible or practical.
It assists you in making a well-read decision regarding the feasibility of your entrepreneurial venture by analyzing your management team, examining the market for your ideas, determining financial feasibility, and recognizing possible dangers.
A feasibility study is mostly based on figures and can be significantly more detailed than a business plan.
It ultimately assesses the viability of an idea, a project, or a new venture.
A feasibility study may serve as the foundation for a business plan, which details the procedures required to get a concept from conceptualization to reality.
A feasibility study enables a business to address where and how it will operate, its competition, any roadblocks, and the capital required to get started.
The business plan then gives a framework for carrying out and executing the entrepreneurial ambition.
Importance of Feasible study in Entrepreneurship
Before investing in a firm, potential investors, industrialists, bankers, suppliers, and others should do a feasibility study to ensure that it is technically, fiscally, socially, economically, legally, and commercially sound.
It is believed that just one out of every fifty company ideas is financially successful.
As a result, doing a company feasibility study is an excellent strategy to avoid wasting more money or resources.
If the outgrowths of the study show that an idea is feasible, the next natural step is to proceed with the comprehensive Business idea.
A comprehensive and viability study gives a wealth of data that is also required for the Business plan. A good market study, for example, is required to establish the viability of a company plan.
This data serves as the foundation for the market part of the Business Plan.
A feasibility study should provide reliable data to back up its suggestions.
The feasibility study serves as an investigative tool for determining a new business’s potential, viability, or practicability.
Some essential aspects of a feasibility study include:
- It is an effective method for analyzing the chances of a new business venture’s success or failure.
- It may also be used when incorporating new products or ideas into the business mix.
- A feasibility study encompasses all of the steps required to assess if a company proposal is likely to succeed.
- It is a step-by-step procedure that allows you to consider the benefits and drawbacks of each stage before proceeding with the process.
- It delivers outcomes for crucial decisions such as pushing on with the concept, refining it, or abandoning it entirely.
A feasibility study also identifies alternatives and solutions that would not have been discovered otherwise.
As a result, it is vital to undertake this study before committing company resources, time, and money to a business idea that may not operate since anticipated and leading to further investment to fix earlier mistakes.
Components of Feasibility Study in Entrepreneurship
Organizational Feasibility Study
The goal of organizational feasibility is to evaluate management’s ability and the availability of resources to bring a product or concept to market.
The organization should assess its management team’s abilities in areas of interest and execution.
Typical managerial prowess metrics include evaluating the founders’ passion for the business idea, and their industry competence, educational background, and professional experience.
Founders should be honest with themselves about how they rate these areas.
The term resource sufficiency refers to the non-financial resources that an enterprise will require to succeed, and that is used to determine if an entrepreneur has a sufficient number of such resources.
The corporation should critically rank its capabilities in six to twelve categories of essential non -financial resources, such as office space availability, labor pool quality, feasibility of getting intellectual property protections (if applicable), willingness of high-quality personnel to join the firm, and chances of developing advantageous strategic alliances.
If the investigation indicates that crucial resources are in short supply, the endeavor may be inadequate to proceed as anticipated.
Financial Feasibility Study
A feasibility study determines the financial attractiveness of a particular business proposal.
Any task is impossible to carry out without monetary resources.
It involves estimating all of the expenses that will be involved in the project’s lifespan, from the start of the project through the operational costs in the later phases.
The initial money is one of the most crucial charges.
The research entails determining the capital necessary to establish a firm. Following this, the potential sources of generating this cash are reviewed.
The return on investment is another critical metric (ROI).
The extent to which activity generates monetary gains is developed.
The probable future cash flows are computed.
It also includes the payback period, which indicates how long it will take for the investment to pay for itself.
As a result, all of these numbers are condensed into a single document.
A feasibility study determines the economic advantages that are reaped by the firm. It contributes to determining the extent to which the economic benefits of the notion outweigh the financial drawbacks.
An accurate comparison of all the expenditures to be spent and the benefits to be gained is performed.
It not only evaluates the project’s feasibility but also steers the firm toward avoiding an insufficient allocation of resources.
The idea’s believability is evaluated, and management obtains a detailed description of all the expenditures that will be incurred from project inception to completion.
The ultimate economic feasibility of the project is determined by balancing these costs against the possible benefits.
Market and Marketing Feasibility
Market feasibility is a crucial component of the feasibility study.
This section contains all of the information on the particular industry.
Important information such as the industry’s size, retail value, and trends are gathered.
The specific market is also examined, as is the future market potential.
A comprehensive evaluation is required to ensure the success of the firm.
The competitive landscape has also been prepared.
As a consequence, the company selects the best strategy for positioning itself regarding the competitors.
The product/service description is also defined.
All variations are reviewed and studied so that the most lucrative one may be implemented. A profile of possible clients is created, and the market size in terms of potential purchasers is estimated.
Previous data can be used to approximate sales projections. Different target audience locations are examined, and the best audience and site are selected.
Another important aspect is the support system necessary for the firm to run smoothly.
Variations in logistics options may be explored. It assists in determining the availability of resources in terms of labor, materials, and related technology.
The potential of the firm’s technological resources is estimated.
An evaluation of the technical team’s abilities is conducted.
Any flaws and potential solutions are investigated.
It also includes an assessment of critical systems, such as hardware, software, and technological needs for the whole system.
Each country’s legal ramifications are different.
Any legal constraints that may impede company operation must be taken into account.
This examination investigates all of the legal issues that may arise as a result of the planned enterprise.
All applicable legislation and protective acts are analyzed. A company may save a significant amount of time and effort by knowing about any locational limits that its firm may encounter owing to regulatory restrictions.
The different aspects of the business’s lifecycle are prepared and taken into account. The key milestones are identified, as well as the timetable for achieving them.
The different stages of business activity are estimated based on future projections.
All of the necessary activities, as well as their respective times of completion, are listed.
The feasibility study reveals all of the restrictions that the firm may experience as a consequence of the analysis.
These restrictions may include but are not limited to, monetary, technical, resource-related, technological, financial, marketing, logistical, legal, and environmental restraints.
An evaluation of these restrictions offers a clear picture of all the issue areas where the project may encounter difficulties in the future, including their primary causes.
The choice to proceed with the business is one of the primary objectives of the feasibility study.
Because all business-related issues are involved, a clear picture of the many elements is provided.
Because resources are finite, it is critical to ensure that they are used in the most effective way possible.
The best course of action should be taken since considerable resources are not only saved from being spent on unproductive efforts but are also invested in more profitable ones in the future. A company avoids losses by deciding to pursue a new initiative contingent on how the return is weighed against the investment.
A feasibility analysis also gives tangible arguments for avoiding the prospective company.
The research is an exploratory procedure that aids in the evaluation of numerous possibilities and their effects.
The go/no-go choice is one of the most important in business growth since decisions cannot be reversed and it is always best to take calculated ones rather than correcting incorrect ones afterward.
How to conduct Feasibility Study in Entrepreneurship
The feasibility study begins with the development of a company concept, which may be obtained from market research, family and friends, suggestion boxes, or brainstorming.
At this point, you can reduce the number of concepts and focus on the most feasible one.
Depending on your company’s culture, you can either throw away the extras or keep them for future reference.
You must design and imagine your company’s ultimate product, which comprises researching the target market, size, quality, color, and weight of the product.
You must acquire information regarding the quality of your goods, the amount that your target market might buy, and the price at which they might buy them.
The search for information should also include gathering information on the company location, societal conditions, and product restrictions.
A market survey is an efficient approach to obtaining information in which you collect information from a sample of the target market using techniques such as questionnaires, observing, or interviews.
Other sources of information for a feasibility evaluation include records, publications, and library research.
The technical phase allows you to establish whether it is technically feasible to produce your service or product.
It is a crucial stage in gathering vital knowledge on numerous aspects of your organization, such as supplier identification, functioning, health and safety, and legal difficulties.
According to Donncha Hughes, a business startup specialist, the successful execution of a technical feasibility stage necessitates that it be carried out from within the company.
When this task is delegated to an outside source, tight oversight is required.
Filing the Report
Once the viability of the company plan has been determined, submit the project report to the proper authorities, such as the board of directors or the CEO.
As an entrepreneur, you should gather study findings, produce a report, and speak with business specialists who can assist you examine it and approve or disapprove.
Your report should include specific recommendations for the operational strategy for your business idea.
Ascertain that the report is data-driven and includes a strategy for the successful execution of the business idea.