feasibility analysis feasibility analysis

plan competitions and by subjecting the idea, the potential market, the capabilities of
himself and his initial management team, and the financial aspects of the business to panels
of discriminating judges. 1
In this chapter, we’ll discuss the importance of feasibility analysis and look at its four
key areas: product/service feasibility, industry/market feasibility, organizational feasibility,
and financial feasibility. Failure to conduct a feasibility analysis can result in disappointing
outcomes, as illustrated in this chapter’s “What Went Wrong?” feature (which
deals with satellite phones as a product offering).
CHAPTER 3 • FEASIBILITY ANALYSIS 71
Feasibility Analysis
Feasibility analysis is the process of determining if a business idea is viable. As a preliminary
evaluation of a business idea, a feasibility analysis is completed to determine if an
idea is worth pursuing and to screen ideas before spending resources on them. It follows
the opportunity recognition stage but comes before the development of a business plan,
as illustrated in Figure 3.1. When a business idea is deemed unworkable, it should be
dropped or rethought. If it is rethought and a slightly different version of the original idea
emerges, the new idea should be subjected to the same level of feasibility analysis as the
original idea.
Although the sequence pictured in Figure 3.1 makes perfect sense, statistics
show that the majority of entrepreneurs do not follow this pattern before launching
their ventures. 2 Several studies have investigated why this is the case. The consensus
of the research is that entrepreneurs tend to underestimate the amount of competition
there will be in the marketplace and tend to overestimate their personal chances
for success. 3
Once a business idea is determined to be feasible, much work remains to be done
to completely flesh out the idea when preparing to write the business plan and launch
the venture. In Table 3.1 we show you the chapters of this book in which the various
components of a feasibility analysis are discussed. A positive feasibility analysis gives
a green light to an entrepreneur to further pursue a business idea. Each area of the
feasibility analysis must then be completely explored in anticipation of launching the
new venture.
A business idea developed by Trakus, Inc. provides an example of the importance
of conducting a feasibility analysis. Unlike Iridium, Trakus effectively used feasibility
analysis to determine that a business idea wasn’t feasible before spending a lot of time and
effort on it. Let’s investigate this matter a bit more.
1. Explain what a feasibility
analysis is and why it’s
important.
2. Discuss the proper time to
complete a feasibility analysis
when developing an
entrepreneurial venture.
FIGURE 3.1
Role of Feasibility Analysis in Developing Successful Business Ideas
Proposed business
venture
Spending the time and
resources necessary
to move forward with
the business idea
depends on...
Product/service
feasibility
Industry/market
feasibility
Organizational
feasibility
Financial
feasibility
Yes in all
four areas
No in one
or more
areas
Proceed with
business plan
Drop or
rethink
business idea