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. 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.

Introducing the Feasibility Analysis Framework

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 if there is anything that prevents you from moving forward or if you still want to do so. 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 and fine-tune your concept - so that you have the highest potential for success when you launch your business.

Today, you can often seek financing on the strength of a sound feasibility study alone. Certainly, in the case of Internet businesses, speed is of the essence, so many Internet companies get first-round financing on proof of concept alone and then complete their business plans before they go for bigger dollars in the form of venture capital. The following sections look at the components of a thorough feasibility study.

Executive summary

The executive summary is probably the most important part of a feasibility analysis because, in about 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're offering. This proof comes from the customer discovery fieldwork you do with customers to find out what they think of your concept and how much demand there is. (Find out more about customer discovery later in this chapter.) The second factor critical to your audience is how you expect to make money from your concept - that is, your "business model." (We drill down on this in Chapter 3 of Book 1.) The final key piece to emphasize is your description of the 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.

If you're creating an Internet 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 engage with 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 minimal viable product or market quality prototype.

Business concept

In this first part of the feasibility analysis, answer the following questions:

• What is the business?
• Who is the customer?
• What is the "business model"?
• What is the value proposition?
• How will you make money from your business?
• How will the benefits be delivered?

It's important to be able to state your business concept in a couple of clear, concise, and direct sentences that include all of the components of the concept. This is what is often called an "elevator pitch," because it's short enough to be given on an elevator ride. That means you have a few seconds to capture your listener's attention, so you better be able to get it all out quickly and confidently (we hope your audience for the pitch is on the top floor of a high rise). If you're preparing a feasibility analysis for investors, you need to 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:

HomePortfolio offers customers seeking home design products an easy online platform featuring more than 700,000 products from 100,000 retailers. With searchable style tags, customers will save time finding and saving products they like in their own portfolio that they can also share with others.

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. It's always a good idea to identify more than one source of revenue for your company.

One-product businesses have a more difficult time becoming successful than multi-product/service companies. You don't want to put all your eggs into one basket, and you want to give your customers choices so they'll keep coming back.

Industry analysis

Testing whether the industry in which you will be operating will support your concept is an important part of any feasibility analysis. An industry is a grouping of businesses that interact in the same environment as part of a value chain or distribution channel that delivers your product to customers. Here, you want to describe what the industry looks like, whether it's growing or not, where the opportunities are, who the opinion leaders are, and whether the industry readily adopts new technologies. You also want to see if there are other smaller, newer companies in the industry, so you have a chance to enter, and you want to understand where the industry is going in the future.

Don't forget that one way to identify a great opportunity is to study the industry first. Find out how to do an industry analysis later in this chapter.

Market/customer analysis

A business lives in an industry, but it competes in markets. For the market analysis, you perform customer discovery - you learn everything you can about who will buy your product or service. The goal is to find the "first customer," who is a person who has the major problem that your business is going to solve. If you correctly identified a compelling problem, you're halfway there. Now, if that problem is one that others have not addressed, you have found yourself a niche in the market - that is, a corner of the market that is not being served. That means you have a chance to make it yours and dominate that market.

In this part of the analysis, you will also look at what your potential customer wants by way of benefits and what the demand for your product/service might be. How many of those customers are there and how many will buy from you? You should also consider a variety of different distribution channels to deliver the benefit to the customer in the way they want it delivered. Find out more about market analysis later in this chapter.

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. In this part of the analysis, you want to consider the qualifications, expertise, and experience of your founding team.

If you are planning to do this as a solo entrepreneur, we urge you to reconsider. Most successful startups are done by teams, and the reason is that today's business environment is so complex and so fast-paced that no one person has all the skills, time, and resources to do everything themself.

Having said that, you can find lots of ways to make up for skills and people you lack. This is not to say that you can't start a business by yourself. You certainly can. But it probably should be a business that doesn't require professional investment capital, as investors typically don't favor solo startups.

Product/service development analysis

Whether you're planning to offer a product or a service or both (and that's often 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 building a product from raw materials and perhaps going through the patent process, or developing a plan for implementing a service concept. Identify tasks and lay out a timeline for completion.

Financial analysis

Once you know you have a market and a team, it's finally time to consider money. (You probably thought we were never going to get to it!) In this part of the feasibility analysis, you want to figure out how much money you need to start the business and carry it to a positive cash flow, meaning you're bringing in more cash than you're spending. This section of your feasibility analysis, by the way, is where you briefly describe your "business model" (see Chapter 3 in Book 1 for...