Chapter 1

Your Business in Context

IN THIS CHAPTER

Analyzing the feasibility of your business idea

Figuring out your industry

Doing research on your industry

Determining where you fit in

Targeting a new product for the market

This chapter starts at the very beginning, looking at how to step back and see a potential start-up business in the context within which it operates. If you’ve already started your business and are committed to it, or if you know exactly what kind of business you want to run and nothing will change your mind, or if your idea is to start rather small, with a modest idea that doesn’t require finding much funding to get you going, you can skip this chapter. Good luck to you.

But it could be to your advantage to stick around anyway, because the fact is, not every business is a good idea at the time and place where it is born. You could save yourself some heartache by examining the external factors that will affect your business whether you like it or not. If you choose the right business at the right time and the right place, your chances of success are much higher.

Every successful business operates inside an environment that affects everything it does. The environment includes the industry in which the business operates, the market the business serves, the state of the economy, and the various people and businesses the business interacts with. Your business doesn’t exist in a vacuum. Now, more than ever before, understanding your industry is a critical component of your business venture’s success.

If you position your company well inside a growing, healthy industry, you have a better chance of building a successful venture. By contrast, if your business niche is a weak position in a hostile, mature industry, your fledgling business may be doomed. Conducting a feasibility analysis can be a good way to get a clear picture of the landscape. The first section of this chapter provides an overview of this process.

Getting an Overview of Feasibility Analysis

A feasibility analysis consists of a series of tests that you conduct as you discover more and more about your opportunity. After each test, you ask yourself whether you still want to go forward. Is there anything here that prevents you from going forward with this business? Feasibility is a process of discovery, and during that process you will probably modify your original concept several times until you get it right. That’s the real value of feasibility — the way that it helps you refine your concept so that you have the highest potential for success when you launch your business.

Today, you can often go for financing on the strength of a feasibility study alone. Certainly in the case of Internet businesses, speed is of the essence. Many an online business has gotten first-round financing on its proof of concept alone and then done a business plan before going for bigger dollars in the form of venture capital. But even if your business is a traditional one, feasibility can help you avoid big early mistakes.

Executive summary

The executive summary is probably the most important piece of a feasibility analysis because, in two pages, it presents the most important and persuasive points from every test you did during your analysis. An effective executive summary captures the reader’s attention immediately with the excitement of the concept. It doesn’t let the reader get away; it draws the reader deeper and deeper into the concept as it proves your claim that the concept is feasible and will be a market success.

The most important information to emphasize in the executive summary is your proof that customers want what you have to offer. This proof comes from the primary research you do with the customers to find out what they think of your concept and how much demand there is. The other key piece to emphasize is your description of your founding team. Even the greatest ideas can’t happen without a great team, and investors put a lot of stock in a founding team’s expertise and experience.

For an online business, you may want to prepare what’s called a proof of concept. This is essentially a one-page statement of why your concept will work, emphasizing what you have done to prove that customers will come to your site. That may be in the form of showing hits to your beta site or a list of customers signed up and ready to go when the site is finished. Similarly, if you’re developing a new product, your proof of concept is your market-quality prototype.

Business concept

In this first part of the body of your feasibility analysis, you are developing your business concept. Essentially you are answering these questions:

• What is the business?
• Who is the customer?
• What is the value proposition?
• How will the benefit be delivered?

Make sure you can state your business concept in a few clear, concise, and direct sentences that include all four of the components of the concept. This is what is often called your elevator pitch — a conversation that begins when the elevator door closes and ends when the door opens at your floor. That means you have only a few seconds to capture your listener’s attention, so you better be able to get it all out quickly and confidently. If you’re preparing a feasibility analysis that will be shown to investors, you should state your business concept right up front in the concept section. Then you can elaborate on each point as a follow-up. Here’s an example:

Rural Power Tools is in the power equipment business, providing contractors and developers solutions to power needs in remote areas through rental equipment outlets.

As you find out more about your business concept, you’ll also want to consider the various spin-off products and services you may be able to offer.

One-product businesses often have a more difficult time becoming successful than multi-product/service companies. You don’t want to put all your eggs into one basket if you can help it, and you want to give your customer choices.

Industry analysis

Testing whether or not the industry in which you will be operating will support your concept is an important part of any feasibility analysis. Here you look at the status of your industry, identify trends and patterns of change, and look at who the players in terms of competitors may be. Also, don’t forget that one way to find a great opportunity is to study an industry first. More details on how to do an industry analysis are covered in the later section “Researching an Industry.”

Market/customer analysis

Here you will be testing your customer. Ideally, inside your industry, you find a market segment appropriate to your business. Then you identify a niche that is not being served so that you have an entry strategy with the lowest barriers possible and the highest probability of success. In this part of the analysis, you also look at what your potential customer wants and what the demand for your product/service is. You will also consider a variety of different distribution channels to deliver the benefit to the customer. To find out more, see the later section “Defining Your Market Niche.”

Genesis or founding team analysis

Investors look very carefully at the founding team because even the best concept won’t happen without a team that can execute it. In this part of the analysis, you want to consider the qualifications, expertise, and experience of your founding team, even if that consists of only yourself. Be aware that today’s business environment is so complex and fast-paced that no one person has all the skills, time, and resources to do everything him- or herself.

Product/service development analysis

Whether you’re planning to offer a product or a service or both (and that’s usually the case), it’s going to take some planning. Consider which tasks must be accomplished to prepare the product or service for market, whether that is developing a product from raw materials and going through the patent process or developing a plan for implementing a service concept. Identify these preparatory tasks and figure out a realistic timeline for completion of them. Put that timeline in your analysis.

Financial analysis

In this part of the feasibility analysis, you figure out how much money you need to start the business and carry it to a positive cash flow. You also distinguish among the types of money, which will be important in defining your financial strategy. You can find out more about finding funding in Chapter 2 of Book 2.

Feasibility decision

After you have gone through all the various tests that comprise the feasibility analysis, you are ready to make a decision about going forward. Of course, throughout the process of doing the tests, you may have decided to stop — because of something you found out from analysis of the industry, market, product/service, and so forth. But if you’re still on the mission, now’s the time to define the conditions under which you go forward.

Timeline to launch

You always need to end a feasibility analysis with an action plan so that you’re sure that at least something will happen....