Why is it important to have a feasibility analysis?

We know that entrepreneurs usually do not like to look at numbers.

They don’t like the fact that they have to deal with such dull things as estimating revenues, figuring costs, what is going to have to be invested, where is money coming from. Their product or service is going to be just awesome and there is still plenty to be done until it can be launched. Ohh… and of course: they just got some great feedback from their friends and family and in that presentation they made a couple of weeks ago, quite a few people complimented the idea.

But there are several reasons for an entrepreneur to use some of hers or his time on the feasibility analysis.

Ponder about what you will sell

When you start estimating numbers one of the first questions that needs to be answered is how much will it sell?

That simple question will force you to think of what your target audience is, how many individuals (or companies in B2B) can be accounted for and are for how much are they willing to buy. By doing so, you most likely will start to realize the there are some changes that must be done to your initial idea.

Learn the risks

You will have to combine revenues, costs, investment and financing. While considering the best estimates for each input you will also become aware of the risks that are inherent to each item and how mitigate them. That means you will be more prepared for the future.

Is it worth it?

Without a feasibility analysis you will never have the capacity to understand if your project is viable. People do not like to lose money and if that is your case, it is better to have a proper understanding of how the project may fair in the end.

The check of the business plan

The feasibility analysis is the reflex of everything else on a business plan. There are plenty business plan models, templates and processes. But there is one thing that must be common to every business plan: it has to make sense. The feasibility analysis is how you can assess if the considerations of the business plan are adequate. Simple example: If the strategy for a new cloth store is to set establishment in hip zone, the rent costs will be higher than in less busier zones. Hence the feasibility analysis must reflect that.

Stakeholders

If you are looking for investors, banks or partnerships then you better have a strong case about what your project is going to be. And while initially you may not get some sharp questions about the financials of your project, inevitably those questions will come. And when they do come, you should be able to answer them well otherwise your chances will be significantly lower.

 

So let’s do it!

Even if it is not the most interesting thing that you will have to do for your project, even if you feel unease with financials or accounting, go ahead and carry out a feasibility analysis of your project. It will help have a better understanding of the future.

By the way, doing it does not have be that difficult… CASFLO APP makes it much easier to do feasibility analysis and whenever you feel unsure about something you can always check the learning center for help!

Entrepreneurship and startups

Before entering the post’s subject, we would like to share what is our intent with this blog. As the first post, it marks the launching of our new app. The blog is not meant to convey a strict education perspective as the Learning Center, but more of a combination between what is our opinion, built on our professional experience, with technicalities of business planning. Of course, some of the information that you will be seeing here will naturally have its correspondence with some of the content of the Learning Center.

Since CASFLO APP was constructed for business plan development and this is the first post, it came to us that the natural thing would be to start by the concepts of entrepreneurship and startups.

Are all entrepreneurship ventures a startup?

Are all startups an entrepreneurship project?

Are these the same concept that people just discretionally?

The answer is: although these are related concepts, they are not quite the same.

An entrepreneurship project can be defined as the act of creating any type of business venture (whether for profit or not) by an individual or group of individuals. We will leave out of this definition the new businesses created by already existing organizations, as it can be mostly taken as an extension of the current business under the company’s standing strategy. So, the concept of entrepreneurship applies to John who opened his local coffee shop, to Amanda who decided to start her HR consulting business with a former colleague, or to Christian who teamed with some college friends to develop a new social media app and is currently in a startup incubator.

The bottom line is: no matter how large your venture is. It is an entrepreneurship project.

We all listen to someone talking about startups and most of us would recognize a startup as a business that is starting, so one would be understandably taken to think that a startup is simply just the same as entrepreneurship. But in fact, it is a special form of entrepreneurship, one that usually fulfills these characteristics:

  • It is based on a new technology or on an innovative use of technology. In simple terms: the technology has not been used in such manner.
  • Startup projects usually imply new range of services or products or a disruptive business model within an already existing service or product industry. In simple terms: at the moment no potential competitor holds the exact same features.
  • Because it is based on new use of technology and on a new business model, there is no certainty that the market will embrace the product or service. Although, in most cases it is highly believed that the public will accept the product. In simple terms: the market response is unknown.
  • The development chronogram can be quite long. Many startups are launched just as an idea of something that can be or when the needed technology has not be fully developed yet. It is common to observe a long timeline since the startup’s first stone is deployed until it enters a “business as usual” standard.
  • Due to a usually intricate technological development, the amount of cash that will have to be invested before the first unit of service or product is sold can be quite substantial and well beyond the financial capacity of the startup founders. In most situations, even a bank loan would not be a feasible solution.

Most of startups feature all these characteristics.

It is now easier to understand the differences between entrepreneurship and startups: all startups are an entrepreneurial project, but not all entrepreneurial projects are startups. Looking back at the previous examples: John’s coffee shop and Amanda’s consulting business are simple entrepreneurship projects. Christian’s company is a startup.

The reason why it is important to distinguish between these concepts is the fact that they have different implementation requirements.

Simple projects should focus on understanding the market they are about to enter, research the major competitors, study the viability of the business with detail and sketch a comprehensive plan of implementation; one that clearly sets out the complete financing, investment and human resources needs.

Startup projects should focus on creating a good base for future progresses. The first analysis and business plans versions tend to be quite different from what will be executed. Early hypothesis are diffuse and meant to be tested, just like the minimal viable product (MVP) is commonly used to test the market adherence and functionalities. In startups, the business plan is always a “work in progress”. As the project advances, the team will be more able to have a better understanding of the relevant variables that will be dealing in the future.

Since there is more predictability in simple projects than in startups (at least in what concerns to the early stages of startup projects), if you are preparing a business plan for a simple project you should be as detailed as possible, as you will have a better grasp of the real prospects for your project or company. More, the business plan is also an instrument that you should you use to compare to implementation. The better the plan, the better the comparison.

In a startup project you should use a model that gives you enough flexibility to change it quickly and efficiently. In most cases, the project ends ups changing substantially from the early thoughts and many different scenarios end up being tested. Hence it is good to have the adjustability factor on your side, which means that you do not need an extensive detail in the early stages, just an instrument that will help you understand if the route you are taking is correct or not.