How to test a new business idea: Part 2 of 2

Last week, I wrote about the basics of crafting a feasibility study to test a new business idea before investing too much time and money in it. This week, we look at what a feasibility plan might look like.

What does a feasibility plan look like?

There is no “set in stone” format for a feasibility plan. Good plans are on paper or digital – and some great plans have sketched out on the back of napkins (literally). Here are two suggested outlines of information you will need:

Outline #1:
1) State your idea in one to two sentences.
2) How is it different from others out there?
3) Where will you do business?
4) Who will be your direct customers? How many exist?
5) How will you market to your customers?
6) Who will sell your product/service? Will they work for you or someone else?
7) What is your pricing? How does it compare to competition?
8 ) How will you deliver to your customers?
9) What resources will you need to launch the business?

People: management team, contractors/freelancers, employees
Knowledge and expertise needed (and how you will get it)
Technology needed
Cash needed for the first two years

10) Financial projections:

1) What is your start up cost?
2)Year 1, 2, 3 projections (top line) of revenue, costs, profits and cash flows (do year 1 by month). Make these “worst case” scenarios.

Outline #2:
One sentence description of business idea
Describe the industry: how big is it today? Is it growing or declining? How competitive is  it?
Describe business opportunity for the idea: why your idea is compelling
Describe target market, size of target market & growth rate over the past five and next five years
Describe management team
Describe required resources
Describe start-up timeline/milestones, year one and year two
Financial recap: summary income statement projections for start-up; year one and year two
What are upside opportunities?

A special note about resources

Every entrepreneur is known to ask this: how can I get this free? Who do I know to ask? Check with people you know and trust to get good information.

When drafting up financial estimates, remember that you may not need the fancy office to get your idea off the ground – often the first step in the start-up phase is to test the idea in the market before committing to a large outlay in cash.

Final note:

The goal of this study is to find the “market proof” the idea will fly – and a rough idea of the valuation if you do decide to court investors.

-Published November 3rd, 2011

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