Three Questions You Must Answer

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As you study the feasibility of your new venture, it’s easy to lose sight of the big picture.  Fundamentally, starting and running a company is a straight-forward proposition—you have to sell something to somebody.  It’s a common mistake to over-think every detail of your startup, but the truth is that you only have to ask—and answer—three questions.

  1. What are you going to sell?
  2. To whom?
  3. Why will they buy?

Answer these three questions comprehensively and you’ll understand what you need to know about your startup—details of the product or service, the size and characteristics of the market, your value proposition, how the competition stacks up, and so on.  Ask these questions frequently to stay focused on what’s important.

Ass Out of U and ME

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Assumptions are elements of your proposed business that you believe to be true, but have not yet proven.  As Oscar Wilde said, “When you assume, you make an ass out of u and me.”  In essence, assumptions are leaps of faith.  They translate directly into risk, so the more assumptions you make, the riskier your startup.  Examples include things like the number of visitors to your website that you expect will convert into paying users, a customer’s average lifetime value, the length of the sales cycle, or even more “obvious” things like your price point.  When you first start, you will make (literally) hundreds of assumptions.  The point of a feasibility study is to convert enough assumptions into facts to demonstrate that you have a viable business opportunity.  Your risk tolerance will determine how many assumptions are “enough.”

When exploring any new business opportunity, enumerate as many assumptions as you can think of.  Put the list in order, from highest risk to lowest.  Then, start converting the make-or-break assumptions into facts as quickly as possible.

There will be assumptions that you can’t prove or disprove without launching, so learn as much as you can before launching.  If you find that your assumptions are solid, keep moving forward.  If not, don’t ignore the warning signs.  The next best thing to succeeding is failing fast, which allows you to converse your time and capital for a business that will work.

Is It Feasible?

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The point of a feasibility study is to determine whether or not you have a viable business.  Whether a formal report or back of the envelope estimate, feasibility is fundamental to analyzing new business opportunities.  While there is no standard feasibility framework, there are two basic stages to any feasibility study.

The first stage is to put together a quick and dirty plan that outlines important feasibility factors such as the business model, price points, gross margins, distribution, competition, and so on.  Realize that the plan doesn’t have to be a written business plan…it doesn’t even have to be written.  The point here is to explore, at a high level, whether the business has any potential. The second stage is to enumerate and test all key assumptions.  Since there’s so little information at the beginning, you will be forced to make hundreds of assumptions.  List these assumptions in order, with the most critical assumptions at the top.  The main purpose of the second stage is to convert the make-or-break assumptions to facts.  If you determine that the business is still feasible at the conclusion of this study, celebrate for a minute and then get back to work.  If not, don’t worry, most ideas won’t pass the scrutiny of an objective feasibility study.  At this point you can either adapt your idea based on the new information or think of another business and begin again.  Either way, get back to work.