Business Feasibility – A Journey Common To All Entrepreneurs
The following post is from Aakant Taurani MBA’17, co-founder of Runner’s Convoy, a fall 2016 hatchery business.
Many novice entrepreneurs wonder if they are on the right track when working on their business ideas. While guts and luck do play a big role in the success of new businesses, feasibility checks are among the most important things one must do in order to be confident in their actions and to make ensure the business is heading in the right direction.
But how can one check the feasibility of their idea? We are currently working on a business idea–providing feedback to race runners–and have just done the feasibility check. Below is what we have done. We hope it could help you figure out what you can do for your idea.
Feasibility Check: Is our idea valuable to the market?
Solution: Interview potential customers, and industry experts.
In the idea generation stage, we came up with different ideas to address different problems faced by runners. For example, one idea was to create a website sharing local running course information, the other idea was to connect runners directly with coaches, and our current idea, is to deliver advice to runners based on analyzing video footage of their races. During this stage, we felt that every idea sounded good, and we were at a loss on which idea to work on initially. In order to move our project forward, we decided to find potential customers (runners) and industry experts (coaches and race organizers) to learn about their experiences with running and after doing so, ask them for opinions on our ideas. In these interviews, they explained to us what they like and dislike about our ideas, what their concerns were and what could be changed or improved. With these valuable insights, we found that providing feedback to race runners is considered most valuable by both runners and race organizers and thus decided to work on this idea.
Feasibility Check: Is the business idea profitable?
Solution: Financial Forecasting.
After working on the idea for a while, we carefully designed the business model and figured out the market size. We had made significant progress on the project, but a big concern gradually caught our attention–was the business profitable? Fortunately, an assignment in the New Venture Creation (EPS7500) elective helped us. In the assignment, we were required to create a 5-year financial forecast of our business. To create the forecast, we had to thoroughly consider every possible source of revenue and costs based on real data, and not on assumptions. The result of the forecast shows that we would achieve a revenue of $100,000 and a net income of $5,000 in Year 1, growing upto $500,000 revenue and $90,000 net income in Year 5. While it’s not very high amount, it gave us an insight into the overall prospect of the business and helped us understand what we can do to improve the profitability, or, whether we should keep working on the idea. In our case, we decided keep working on the idea but refine the business model to ensure it can generate enough profit for us to expand the business.
Feasibility Check: Are there risks to our business?
Solution: Three risk memo.
Now that the business model was established, and the financial forecasting gave us confidence in launching the business, what should we do next? We got another hint from New Venture Creation, which was the Three Risk Memo. We learned that for any given business idea or existing business, there are some major risks that will hamper the success of the business. While it’s good for us to believe in that our business will be successful, we should find the major risks of our business and be prepared with solutions for mitigating the risks. We found major risks embedded in our business:
(1) the risk of failure in developing automated video identification and segmentation software;
(2) the risk of failure in developing automated video analysis software;
(3) the risk of unattractive value proposition for runners.
This first two risks are technology-risks. The technologies are critical to our business because, without the technology we would be able to analyze races with only up to 100 runners. However, if we developed the software, our capacity will be big enough to be deployed to major races with more than 10,000 runners, which are the key source of profits for our business. Thus, a failure in developing the technology would lead to a failure in realizing expected returns. To mitigate this risk we have allowed that our CTO would directly lead the development of the software, instead of outsourcing it, and we also added more development time to ensure the success of the technology development.
The third risk has to do with the business model. Even though our service initially appeals to some race organizers, we realize that if it is not attractive enough for runners to come back to participate in the race again, we would eventually lose the organizers’ interests. The solution is launch our business with a reputed race organizer. If our product succeeds with an industry leader in running races, we would be able to pitch our demonstrated success to all race organizers, thus ensuring that race organizers believe in our value proposition. Hence, we now plan to launch in Japan, because the organizer of one of the largest Japanese races is willing to collaborate on implementing our service.
In conclusion, a feasibility check sounds abstract and complicated but it’s actually quite simple. To begin with, one must ask themselves three questions: Do my potential users want my product/service? Will the business earn the required return? What kind of situations would have the biggest negative impact to the business and what mitigation strategies can be used? By answering these questions, and make necessary change to the business model, one can determine both, their current business actions and their targeted growth strategy.
Good luck with your business!