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October 31, 2005
What To Include In A Feasibility Study? (Part 1)
Libing's thinking of setting up her own business in Beijing and she's currently doing a feasibility study. She was asking me what she needs to look out for and I thought this will be an interesting topic to discuss.
I've kept it general since I don't think she's ready to discuss her business specifically. Also the process is rather generic and would apply to most businesses.
A good way to start is to ask yourself the following questions in the order stated below:
1. Why do you want to set up this business?
This question is not about why you want to go into business. It's about why you want to set up this particular business. Did you identify a need that is currently unfulfilled or underserved? In answering this question, be as detailed and descriptive as possible. Your answer will reflect the business opportunity you have identified and perhaps also your sense of purpose in doing this business.
2. What is the profile of your customers?
What are the characteristics of your typical customer? You may be trying to reach out to more than one group of customers and for each group, try to describe the profile of your customers in as much details as possible.
What is the primary need of the customer that you are trying to fulfill with your business? Why are they coming to you? For example, a customer may visit a restaurant to fill his/her hunger. Another may buy a pair of Jimmy Choo to make herself feel good. So what is the need (or needs) you are fulfilling?
At this point, do a brainstorm. By trying to come up with all possible needs, you are actually identifying all potential target markets.
Do not confuse the customers' primary needs with their decision criteria. You may be in a great location, your prices may be low but that's not the primary reason they are coming to you. They must first have a need for what you are selling. And what is that need?
3. What are the current and future trends that have an impact on this business you are trying to set up?
Every business operates within a marketplace. And this marketplace is likely to be dynamic. Things are ever changing. What are the key market trends that will impact your business? These trends may represent opportunities or they may represent threats.
As much as possible, try to obtain reliable, accurate and updated third-party data on the market. Talk to people you know who are in the industry. Assumption is the mother of all fuck-ups. Making valid assumptions about the marketplace is crucial.
In answering the first two questions, you would have already made numerous assumptions. And this stage of the process will be to validate those assumptions. For example, you may think that the primary need you have identified is currently unfulfilled. But maybe it's just that you have not been looking hard enough. That need may already be fulfilled by existing market players. Or, you may realize that the need is unfulfilled but there's a good reason. Maybe the number of potential customers that have the need is extremely low or extremely costly to target.
Another objective of doing this market research is that it provides new insights. You may begin to think about new target markets; you may think up alternative channels to reach out to your customers.
In case you're overwhelmed by data, you may want to look under the following areas:
- Customers (e.g. market size, demographics, disposable income, consumer confidence, needs and wants, buying patterns)
- Competitors (e.g. existing market players, competitors' strengths & weaknesses, product/service offering, prices, existing sales channels, industry ratios)
- Business regulations (e.g. setting up a business entity, industry-specific regulations)
4. What are the key success factors?
Now is when we discuss about the customers' decision criteria. What are the key factors that matter to the customers when they are making their buying decision? Try to narrow down to three or four criteria that matter most to them. Is it location? Is it price? Is it the quality of the product/service? Is it the variety of choices?
Hopefully the data you compiled to answer Qn 3 will come in useful. The less you know about the market, the more you need to rely on third-party information instead of simply making your own assumptions.
These three to four criteria are what we call key success factors. The better you are at meeting these criteria, the higher your chances of success.
Answering these four questions will more or less cover the market feasibility. The next step is to look at the financial feasibility.
Frequently I get into conversations with people about starting a business and it's interesting that quite a number of people ask "What is so unique about your business idea?" and "What prevents the big boys or other new entrants from doing what you are doing?"
I can understand where they are coming from. They are valid questions but it doesn't mean that you need a unique business idea to be successful. And in today's business environment that is highly competitive (free market) and increasingly borderless, it may be extremely difficult to start a business that has high barriers to entry unless somehow you have the ability to gain access to some highly-regulated industries such as telecommunications and defence technology. If you have the access, you can chuck this feasibility study. Just do it!
Louis V. Gerstner, Jr., former CEO of IBM, said it very well in his insightful book Who Says Elephants Can't Dance?:
It is extremely difficult to develop a unique strategy for a company, and if the strategy is truly different from what others in the industry are doing, it is probably highly risky. The reason for this is that industries are defined and bounded by economic models, explicit customer expectations and competitive structures that are known to all and impossible to change in a short period of time.Thus, it is very hard to develop a unique strategy, and even harder, should you develop one, to keep it proprietary.
Gerstner's statement may seem rather dated in today's context when everyone's talking about disruptive technologies. But again, this is another cliche that people use without attaching much meaning to it. When people talk about 'disruptive technologies', are those technologies truly disruptive? And disruptive technologies are usually highly risky to develop in the first place which still makes his statement very valid. Haha...why am I so defensive?
The point is: It's all about execution. Your business success depends on your ability to execute your strategies faster and better than your competition.
Posted by loganw at October 31, 2005 04:24 PM
