Last week we talked about a few of the ways to test the feasibility
of a business idea to help determine if the idea really had
merit or just looked good on the surface. To recap, I said
don't bet the farm on the opinions of friends and
family, consult with knowledgeable business experts, and conduct
a SWOT (Strengths, Weaknesses, Opportunities, and Threats)
Analysis. This week let's take it a step further and talk
about the creation of a formal Feasibility Plan which will
help you determine the true feasibility of your big business
idea.
A feasibility plan is just that: a written plan that is created
for the sole purpose of validating the feasibility of a business
idea. Some call it a "Go/No Go" plan, because the
results of a well-constructed feasibility plan will tell you
whether or not the idea has a chance for success (that's a
Go) or if this idea would be best left on the drawing board
(that's a No Go).
Many entrepreneurs would rather have their front teeth pulled
without anesthetic than go to the time and trouble of creating
a feasibility plan; often because they are afraid of what
it will reveal.
The last thing an entrepreneur (particularly one without prior
business experience) wants to hear is that their business
idea won't fly, so they put on blinders and resist testing
the idea using real world information.
In an entrepreneur's head every idea is a good one, every
hit is a home run, and every story ends with the hero sitting
on a beach drinking Mai Tai's and lighting cigars with hundred
dollar bills. No one wants to imagine the story ending any
other way and many would rather bury their heads in the sand
and hope for the best than to test out their ideas before
execution. Trust me. I've been there, done that, got the t-shirt
and paid the bill. Not a smart thing to do.
Writing a detailed feasibility plan will force you to take
off the rose colored glasses and look at the idea honestly
and entirely. It will help you define your market, identify
your customers, potential partners and competitors, recognize
opportunities and warn of potential threats.
Starting a business without testing its feasibility is like
teaching your kids to swim by chucking them in the lake. It
might be fun to try with your sister's kids, but not your
own just not a good idea.
Writing a feasibility plan is much like writing a mini-business
plan. The end result should be a formal document that includes
an executive summary, a product or service plan, a marketing
plan, a price and profitability plan, and a plan for further
action. Let's take a look at each section.
Executive Summary
The executive summary is the first section of the plan and
sums up the high points detailed throughout the remainder
of the plan. The executive summary should include a brief,
but thorough description of the idea, an overview of the products
or services to be offered, the target market and target customer,
startup costs, and pricing and profitability. Keep the executive
summary to one page. I have seen executive summaries that
rambled on for pages and pages. Keep each topic to one or
two tight paragraphs and go into further detail in the individual
sections of the plan.
Product and Service Plan
This section details the product or service the business will
offer. The point of the feasibility plan is not only to determine
the Go/No Go result, but to get you really thinking about
the idea from all angles. What is the purpose of the product
or service? What stage of development is the idea in? What
are the limitations of the product or service? Is there intellectual
property involved? Are there government regulations or product
liability issues to be considered? Are there opportunities
for future expansion or spin offs?
Marketing Plan
The marketing plan is one of the most important sections of
the feasibility plan because it is here that you identify
your market, your customer, and your competition. You will
need to do market research to gather the information required
to develop a realistic marketing plan. Just opening up the
Yellow Pages to see what similar businesses are listed is
not enough. You must have a clear handle on the size of your
market, growth potential, and trends. You should identify
all manner of competition (direct and indirect), and detail
the advantages and disadvantages that your idea has when compared to competitors.
You should also profile your target customer and tell why
the customer would buy from you and not someone else.
Pricing and Profitability
The pricing and profitability section should include information
on how the price of your product or service was determined
and the expected profitability. Many entrepreneurs have no
clue how to determine the price for their product. Some
use what I call the "Shrek Method," whereby the
price is pulled out of their ear (see the movie, get the joke).
There are a number of ways to determine pricing, but that's
another column. Once you have pricing data in hand, include
it in this section along with details on sales estimates,
costs of goods sold, gross margins, operating expense estimates,
start up costs, capital expenditures, etc. The pricing section
is where many ideas are abandoned because the entrepreneur
discovers that the cost to deliver the goods is just too high
and the profit margins just too low to merit execution.
Plan for Further Action
This final section of the feasibility plan simply details
the next steps in executing the plan if a "Go" decision
has been reached. Do you need capital for start up expenses?
If so, how much and where will it come from? Is there a location
to consider and equipment to be purchased? What role will you
play in the operation of the business? Is there a business
plan in work? Are there licenses that must be obtained or
legal tasks like forming a corporation to be taken care of?
Are there partnerships to be formed or key team members to
be recruited?
Finally, don't fear the outcome of the feasibility plan. If
the feasibility plan reveals that your idea was a dud, i.e.
a "No Go," it is better to know that before spending
thousands of hours and tens of thousands of dollars executing
an idea that would have been better off left bouncing around inside your
head.
Writing a feasibility plan is a pain in the neck, but so is
losing your house to a failed business venture.
Take the time to do the plan. If it helps, feel free to cuss
me while you're doing it, but remember to thank me when it's
over.
