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When is a good idea a viable business opportunity?




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We all have good ideas – but how do we know if they will make a viable business?

Converting good ideas into commercially successful products and services can be costly, timely and fraught with peril. Industry rule of thumb is that about half of all new ventures do not succeed. Some studies have the figure as high as 90%.

Feasibility studies are an objective process of validating the potential of a new business venture. They reduce the risk of failure by providing a framework to assess the real opportunity and value of the business idea. Part of the value of a feasibility study is having an outside person involved, who does not have an emotional attachment to the venture.

Feasibility studies are sometimes called Opportunity Assessments. They must, without bias, carefully look at the opportunity from all aspects of business. When we undertake a feasibility study we systematically work through the following:

1. What is the product or service?

It is difficult to assess the commercial potential of a product or service if you don’t have a clear idea of what it is you wish to take to market. A well scoped proposition will allow you to undertake a feasibly study with greater focus. For example, it is much harder to assess the opportunities for developing and launching a food product where the main ingredient is known but the final form is not.

2. Who might want it?

In a market assessment things to consider include:

  • Size of the market
  • Historic and current trade statistics for the market
  • Is the market growing or shrinking? What are the short, medium and long term forecasts for trade?
  • Opportunities for export as well as servicing the domestic market
  • What are the gaps in the market? Can your product or service fill these gaps?
3. Competitor analysis

Linked to market assessment, understanding your competitors will inform you on whether there is a place for you in the market. The marketplace may have many products and services similar to yours, but this might not be a problem if the market is large and you only need a small segment of it to be successful. However, to get more share of the market you need to understand the strengths and weaknesses of your competitors so, where possible, you can give your offering, including your business model, a point of difference.

4. Freedom to operate

This is sometimes overlooked by people until it is too late. It is important to understand any legal or regulatory restrictions you might have around trade. For instance, your idea might be patented already, or the country you are looking to trade in may have trade restrictions. Understanding this early will save you heartache later and considerable cost for legal proceedings that might eventuate.

5. Technical overview

How easy is your product to manufacture? Has it been made before by others? If not, does technology exist to allow you to produce it cost and time effectively? These are the sorts of questions you need to ask yourself and answer in this part of a feasibility study.

Additional questions might include:

  • Can existing production systems be improved?
  • How much will the technology cost to develop or purchase? Does this make the proposition cost prohibitive (see below)?
  • Where can the required technology be sourced from?
  • Who do we need to partner with?
  • Are there any regulatory considerations needed for the operation of equipment? How might this impact on the opportunity?
6. Business and operational models

Typically these are fully developed as part of a Business Plan, however it is useful early on to start considering how the business will be set up and how it will operate. Where will you position yourself in the supply/value chain? Who are your likely suppliers? How does the opportunity fit within your current business strategy and current operational models? Once again ask yourself “who do we need to partner with?” - Not only for technology but perhaps for investment, logistical support, route to market. You may not have the answers to these questions at this early stage but doing this as part of the Feasibility Study now will identify roadblocks that can be addressed, and roadblocks that are terminal.

7. Financial assessment

This is an important part of a feasibility study. There is no point in developing and launching your product if it can’t give you positive returns once in the market place. In this part of the assessment you need to consider:

  • Market price
  • Cost of production
  • Cost of distribution
  • Marketing costs
  • Overheads
  • Investment costs

We usually perform this assessment at a relatively high level to get a quick and early indication of the financial feasibility of the product or service. A more thorough financial assessment is done when the feasibility study transitions to a business case.

If you work through these seven aspects of feasibility when assessing the potential of your product, service or venture, at the end of the process you will have a fairly strong indication of whether the venture will succeed. From here the work really begins, as you transition it from an idea to a product on the market.

In the process of assessing the market you may find that your product idea doesn’t quite meet the market needs. This is absolutely okay and very common. You can refine your product idea as a result and continue with the feasibility study based on a revised description of the product.

Catalyst Ltd has worked with both new and well established companies on a number of feasibility studies. We specialise in assessing opportunities within the primary industry. Examples include insulation products from natural resources, potato flake production, and closed loop effluent recycling.

Please contact us if you have an idea that needs investigating further. We love this stuff and welcome the opportunity to work with New Zealand businesses to help make dreams come true.

 

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