Starting a Small Business: The Feasibility Analysis

1 MONTGUIDEE-13MT 9510 Human Resource DevelopmentHealthy local economies stemfrom the formation of new busi-nesses. Unfortunately, the successrates for Small businesses are typi-cally quite low. Depending onwhich statistics you believe, thechances of a new business surviv-ing for five years are between 30and 50 an entrepreneur, you cangreatly increase your chances forsuccess by analyzing your idea,your marketplace and your man-agement team before Feasibility AnalysisWhether you plan to expand anexisting business , acquire an exist-ing business or start your own newbusiness, this MontGuide willshow you how to perform a basiceconomic Feasibility Analysis : apreliminary evaluation of yourbusiness idea to see if it s performing your feasibilityanalysis, you will: Evaluate whether you andyour management team possessthe characteristics most commonto entrepreneurial success; Assess the market for yournew business idea.

2 Estimate the basic financialfeasibility of your business , in-cluding potential sales revenues,fixed and variable costs, andbreak-even figures; Identify the pitfalls many newsmall businesses encounter andstudy how you can avoid them; and Finally, make an informedchoice about whether or not youridea is still attractive and ofSuccessful EntrepreneursStudies show that the personali-ties and individual characteristicsof the entrepreneurs who start newbusinesses may be the most impor-tant factors of individual s managementskills have become so importantthat venture capitalists have begunto revise the way they look at po-tential new venture deals. Ratherthan betting on the horse ( ,the business idea and the businessplan), they are now much morelikely to bet on the jockey andlook for someone who has a his-tory of successful past entrepre-neurial efforts.

3 These investorshave come to realize that a goodbusiness plan does not necessarilymake a good business , but a goodentrepreneur can, whether thebusiness plan is optimal or management team or theone you will assemble is alsoextremely important. Compare thekey players in your potential busi-ness to the ideals described onpage 2 of this guide and see howmany of these characteristics theypossess. Obviously, no one willdisplay all of the qualities, but thisworksheet can still help you assessyour potential for success as a Small Business: The Feasibility Analysisby Michael D. Reilly, and Norman L. Millikin, of business , Montana State University-Bozeman2 Characteristics of Successful Entrepreneurs ChecklistCheck off the degree to which each characteristic on the list describes you and your management = Very much like me (us), S = Somewhat like me (us), N = Not like me (us) at entrepreneurs typically:Are decisive decision tend to make decisions early and instinctively and are often forced torely on their judgement and make decisions without complete information.

4 If youagonize over decisions, this is not taking entrepreneurs enjoy taking charge and following through to the are good at finishing projects, getting closure as well as grabbingthem from the to be master of their financial typically have less desire to get rich as to do their own thing andprove they are right. In fact, entrepreneurs usually make less money than theywould working for someone else. Their real income is psychic income, the satisfac-tion that comes from doing what they know is organized, independent and usually have few people to rely on. They must be able to perform allthe different parts of their business hard who start Small businesses usually work longer, harder and more stressfulhours than people who work for someone else, largely because entrepreneurs haveno one to fall back from a Small business or agricultural who have been involved in Small family businesses have a betterchance at success.

5 They are generally able to recognize the characteristics andsacrifices required by Small business people, and know what they are getting intofrom the take criticism and entrepreneur must be able to take criticism and rejection and bounce back with apositive aspect. If you turn off at the first sign of trouble, you are probably not thekind of person who will be successful in a Small specialized business ability from experience or who enter a business with which they are familiar, either by educationor experience, have a higher success determined and entrepreneurs typically go where angels fear to tread. They must be ableto successfully avoid nagging doubts and keep on keepin on. Can find people to shore-up weakness. Are good judges of talent and , an entrepreneur s major problems are people.

6 It is necessary to assemblea group of people who make up for the talents you see how all the parts fit the owner of a Small business , you have to wear many hats: finance, marketing,accounting, bookkeeping, human relations and more. It is necessary to see howthese different pieces fit together to form the entirety of the at your responses to thequestions on characteristics. If youcircled very much like me (us) for the majority, you probablyhave the skills to succeed in smallbusiness. If you circled not likeme at all for the majority of thesequalities, you may lack the charac-teristics needed for success in asmall characteristics and thoseof your team are only one part ofthe Feasibility Analysis of a smallbusiness. Your next step is to de-termine whether or not a marketexists for your business idea.

7 Market AssessmentAssessing the market size for anew business is a tricky but criticalpart of a Feasibility Analysis . For abusiness idea to work, you musthave enough customers willing tospend enough money on yourproduct or service to provide salesrevenue that covers your expensesand, hopefully, earns you a , determining howmany potential customers existmight be an essential part of dis-covering whether your businessidea is going to first thing consumers usu-ally do when they hear of a newproduct or service is compare it toexisting alternatives. Customerswill buy from a new business onlyif they perceive the value providedby that new business to be greaterthan the value provided by value is a compare what theythink they are going to get fromyour new business to what theythink they are getting from exist-ing businesses.

8 To attract them,you must convince them that youare providing something better,more convenient, healthier, moredurable, cheaper, or of a higherquality at the same price. In short,you must create a perception thatyou have a competitive advantage. This advantage can be basedon many different characteristics:location, a specific product line,technology or exclusive access tosome supplier. No matter what itis, there must be something aboutyour business that makes it dis-tinctive, different and competi-tively superior to the businessesyour customers will compare , determine whether or notyou can communicate your com-petitive advantage simply andbelievably to the marketplace. It isnot enough just to be better youhave to convince potential custom-ers that you are with a little market re-search, the process of discoveringwhat makes a specific marketwork.

9 Typical questions answeredin a preliminary market researchstudy might include: How many customers arethere? Who are they, and what arethey like? How many service or productproviders are there already? How does each compete? What do they say about eachother? How successful are they? What does it take to succeedin this business ?These are all questions thatmust be answered, or at least un-derstood, before launching a newbusiness venture. Know who youare competing against and whyyou can persuade customers tofrequent your business instead ofthose currently of the key success factorsin a Small business is having theresources to wait out the inertia ofyour customers. Customers arecreatures of habit and, therefore,unlikely to change their behaviorimmediately just because a newproduct or service enters the , it takes a long timefor people to become familiar andcomfortable enough with a newbusiness to patronize it.

10 In fact,many studies show that it takesthree years for a new Small busi-ness to break even and five yearsto begin making a profit. Mostbusiness plans, though, are consid-erably more optimistic. Some en-trepreneurs like to say, It took usfive years to become an overnightsuccess. Financial FeasibilityYour next step is to decidewhether your business is finan-cially , estimate the sales or rev-enue that your business will gener-ate. Use these three general prin-ciples: Don t count on people begin their marketsurvey by asking potential custom-ers, If I opened this business ,would you buy from me? Theresponses are then added to gener-ate an estimate of potential : It is much easier forconsumers to answer yes to ahypothetical question than it is toactually change their behavior andbuy a new product from a newbusiness.