Wade Armstrong: Entrepreneurial Tool #1: Feasibility Analysis

Entrepreneurial Tool #1: Feasibility Analysis

Posted Sunday February 5, 2006 in Entrepreneurship

The first thing many entrepreneurs do when they finally figure out that business they’ll go into is shout out their pride to the world; other entrepreneurs run off and patent their big idea; and, occasionally, an intrepid soul will just jump forward and get incorporated. Rarely, however, does an entrepreneur really dig down into the question: can this idea, in that mean, scary world out there, work? Compared to quitting your job and putting a card table and folding chair out in the garage and calling it corporate headquarters, asking that question, and analyzing and understanding the results — carrying out what’s known as a feasibility analysis — is both a prudent and a potentially very profitable step one.

I carried out my first feasibility analysis last year. I had this brilliant idea, all of the smart people around me told me it was a stunningly disruptive concept, the masses in general told me they wanted my idea, the people who made products that worked with my idea told me that my idea should be in the market, heck, I was ready to drop everything and make billions with my brilliant idea.

You may ask why I’m writing this blog, rather than getting rich off of my idea. Well, a thorough feasibility analysis, one in which I dug deep and asked a bunch of tough questions, told me that my idea, brilliant as it was, wouldn’t actually make money (at least, not yet). So, instead, I’m working on other ideas and planning for a future starting other successful businesses. Sure, I’m not pursuing one dream, but I am setting myself up to pursue other dreams, and that seems like a great payoff for doing a little up-front research.

What is a Feasibility Analysis?

“Feasibility analysis” is a big, complicated name for “figuring out if we can do any part of this, and, oh yeah, can we make any money doing it.” This kind of analysis is a multi-step process that involves teasing out the assumptions that underlie your business idea and figuring out if those assumptions are accurate, what external and internal variables can affect those assumptions, and under what circumstances you can make money off of your brilliant idea. There are several distinct steps to a feasibility analysis:

At the end of the process, you’ll have a thorough report that spells out all of your assumptions and knowledge about your product or service, market, team, and industry, a solid idea of whether or not you can proceed with your project, and, best of all, a document you can refer to later to help inform your strategy, understand the decisions you made in the past, and maybe even talk someone into giving you a little money.

In my next entry, I’ll look into step one, which is a convenient, quick Excel spreadsheet that lets you see a big mistake coming before you make it — or gets your spirits up when you see some shockingly encouraging numbers at a very early stage of your entrepreneurial journey.

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