Is your idea feasible?

At this point, you have examined your personal motivation for business ownership and chosen an interesting possibility. Most likely, you are anxious to run to the bank, get a loan, and open your business. STOP! Before you pump your life savings and sign over the equity in your home into a small business, you want to know if it has a chance to succeed.

A common mistake made by many people is to blindly begin a business without evaluating whether it is feasible. A feasibility evaluation will allow you to make a more informed "go" or "no go" decision. A sampling of topics that should be honestly appraised includes:

• Is there really a demand for your product or service? Is that demand sufficient to start and grow the business?
• Have you researched market demand or have you just assumed that people need or want your product or service?
• Does your product or service satisfy an unfulfilled need?
• Will your product or service serve an existing market in which demand exceeds supply?
• Will your product or service be competitive based on its quality, selection, price or location?
• Do you know who your customers will be?
• Will your business be conveniently located for the people you plan to serve?
• Will there be adequate parking facilities for your customers?
• Do you understand how your business compares with your competitors?

Study the Market

Ultimately, your idea must fulfill a need for your buyers and must do so in a way that's somehow superior to the competition, however you define it. If you want to be sure that your idea will do these two crucial things, you need to know as much as you can about the following:

• Personal knowledge. Understanding the industry is vital to assessing the market for a product or service. Personal knowledge of the industry develops from having contacts in the business, personal experience and a general feel for the business.
• Competition. Who are your competitors? What are your competitors' strengths and weaknesses? What are your competitors planning to do next? What are your competitors' spending trends? A survey of the competition may be needed to determine if there is a niche or room in the market for another business. This can be done by observing competitors' businesses. How busy are they? What problems do the businesses seem to have? What type of customers do they have? Observation helps to determine the size of the market and problems businesses have in serving that market. It may be helpful to develop a Strengths-Weakness-Opportunity-Threats (SWOT) matrix to summarize this information.
• Customers. Do you know who your customers are? Do you understand why, how and when they will buy your products or services? It is critical in planning a business to interview potential customers and owners of similar businesses outside your planned market area. If your business will draw customers from a 25-mile radius, similar businesses in towns 60 miles away generally will not be competing for your customers. Business owners may be quite willing to discuss their businesses and to share advice. Often, they have insight and experience that can be invaluable to a new business owner. Also, after developing a profile of a typical customer, talking with a few people fitting that description will help identify needs of customers.
• Secondary research. Finding information that is already published, through searching the library or Internet, is necessary to quantify the market and to verify your findings from the above three steps. Obtaining outside validation that the market potential exists and is yet untapped or is capable of supporting your business is critical. How big is your market? Is it large enough to sustain your business and competition? What is the growth trend for the next five years? Once a market has been identified, what is the size of the actual market that you can compete in? The actual market segment that you can sell to may be a small fraction of the total market.

Research Tools

The following tools are designed to help with research at the library or on the Internet. This research should not be neglected nor should it be the sole source of information used in developing a business or marketing plan.

Local and university libraries contain publications which can provide much of the information entrepreneurs need. Materials that are not in your local library may be obtained through interlibrary loans. Check with the reference librarians. Most libraries also have Internet connections and the reference librarians can help you with on-line research.

Use the following list as your guide to doing secondary research on a specific business or industry.

• Identify the appropriate Standard Industrial Classification (SIC) code for your business. Four-digit numbers are assigned by the U. S. Government to specific lines of business. Since most government and industrial statistics are gathered and reported by SIC code, identification of the correct code for your business will enable you to locate important data. An SIC code manual is available at most libraries or can be found here.
• Check for the current periodical literature on the subject.
• Check the Small Business Sourcebook or the Encyclopedia of Business Information Sources to identify major books, trade journals, and organizations for specific business categories.
• Write or call the appropriate industry trade associations that are listed in the Encyclopedia of Associations.
• Write or call for a media kit from trade journals.
• Write or call franchisors for information on their franchised businesses.
• Obtain the financial ratios for the business category. Trade association financial studies, if available, usually provide the most detailed information. Three other popular sources include Robert Morris Associates Annual Statement Studies, Dun & Bradstreet's Business and Financial Ratio, and Financial Research Associate's Financial Studies of the Small Business.
• Examine census material such as income, age, and family size of populations in areas as small in size as zip codes in the Census of Population and Housing, Census of Retail Trade, Census of Service Industries, Census of Wholesale Trade, and Census of Manufacturers at The Department of the Census website.
• Search the Internet for information on your topic. Some search engines you may want to try are:
  
  • Google
  • Yahoo
  • Live Search, and
  • Ask

Once you've compeleted this step, you're ready to move onto Step 4.

Insight ~ Solutions ~ Success

                     

The Washington SBDC is a partnership with the U.S. Small Business Administration, Washington State University and other Washington Institutions of higher education and economic development organizations. Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the view of the SBA

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