One of the primary purposes is to determine whether to pursue a business.
You have an idea for a new product or service that seems like a winner. Jumping on the Internet, you spend the next couple of hours researching and don’t find anything else like it. You begin to contemplate the business model and how successful your idea will be. You are excited about the opportunities, but where do you go from here?
In a previous article, I outlined the process that we at the Illinois SBDC (Small Business Development Center) at Bradley University use to help startups commercialize a new innovation and develop a business model (see the June 2015 issue of iBi.) To aid in commercialization, we advise our clients through a stage-gate process. The stages include: Discovery, Feasibility, Development, Introduction and Growth. Each stage-gate focuses on assessing three elements of business development, including innovation, the potential market and the business opportunity. Last time, I outlined the Discovery Stage. Here, we will focus on the Feasibility Stage.
The Discovery Stage is about validating that an idea is novel and that prospective customers have a demonstrable need for the innovation. It’s about discovering competition and the barriers to bringing the idea to market, and assessing the requirements for starting a business. After addressing these issues, we focus on the feasibility of the innovation as a potential business.
The Feasibility Stage is about validating product-market fit, identifying competitive products and pricing, and clearly identifying who will buy the product, and the market size. Questions to address in this stage are: Does the innovation meet the requirements of the customer? Does the size of the market warrant a business opportunity? What are barriers to entering the market? The elements to address in the Feasibility Stage include product feasibility, market feasibility and economic feasibility.
Analyzing a product’s feasibility involves developing a working model of a product with the goal of demonstrating that it is technically possible. This step helps to confirm that the product works and identifies potential production barriers and engineering issues. Questions to be answered include:
- What safety factors need to be addressed?
- What are the regulatory issues?
- What is the feasibility of producing the product?
- What are the performance measurements for the product?
- What is the feedback from potential customers on the technical features of the product?
There are often methods for using off-the-shelf components, open-source software or even waste materials from other companies to produce a working model of an idea. We help clients identify potential means for building working models quickly and inexpensively, which might include introductions to faculty, engineering firms or other relevant professionals. We also provide instruction on how to get unbiased feedback on the technical features of their product from prospective clients.
The goal here is to identify the product-market fit, begin to identify a price range at which the target market is willing to purchase the product, and to clearly define a value proposition. Questions to address include:
- Does the product fit the customer’s expectations as learned in the Discovery Stage?
- Has the target market been clearly identified and quantified?
- Who is the competition?
- What are the product differentiators?
- What is needed for sustainable advantage?
- What are barriers to market entry?
As in the Discovery Stage, we utilize the Business Model Canvas, a template for developing or documenting business models, and concepts from The Lean Startup, a business development method based on lean manufacturing, to help clients answer these questions. Using licensed databases, established networks and professional experience, Illinois SBDC staff help clients identify methods and resources to identify competitors and potential distribution channel partners, and determine potential pricing strategies.
Once a client has an understanding of target markets, approximate costs and acceptable pricing, they can begin to analyze break-even points and project longer-term investment needs. To better understand the economic feasibility, we work with clients to begin putting together the financial model for a business. Questions to address in this element include:
- What is the estimated cost of producing the product?
- What is the price range a customer will pay for the product?
- Is a business economically feasible?
- Do the potential financial returns justify an investment?
- What are potential revenue models that might be implemented?
We can help by providing financial modeling tools and templates, as well as connecting clients with investors and bankers that can provide feedback on the business model, potential pitfalls and investment needs. We can also help develop an advisory team strategy and connect with potential advisors for an advisory board.
One of the primary purposes of the Feasibility Stage is to determine whether to pursue a business. If a client decides to pursue a business, then this development stage should set the groundwork for a business model and financial projections for the business. Should the client decide not to pursue the business, we consider that a success as well, since he or she has not spent hundreds of hours and a substantial amount of money on a business that has little chance of succeeding.
The Illinois SBDC at Bradley University is housed in the Turner Center for Entrepreneurship in the Foster College of Business. It offers a program of counseling and training to support the growth and success of area businesses, including startup assistance, financing, strategic planning, international trade, technology commercialization, government contracting and succession planning. iBi
Chad Stamper is director of technology commercialization at the Illinois SBDC at Bradley University, with more than 15 years of experience in bringing new products to market and launching companies.