Have you ever had a business idea so exciting that you wanted to launch it immediately?
Meet Luca, a passionate entrepreneur in Lagos State, Nigeria, who had a strong vision to launch a tech-enabled food delivery service that catered to busy professionals in high-traffic areas. With savings, loans from friends, and unwavering optimism, Luca launched his app, secured a fleet of motorcycles, and hired staff within six months. However, just six months after its launch, the business collapsed.
Why?
The business failed because Luca did not conduct a feasibility study before launching his idea. He never assessed whether there was sufficient demand in his target areas. Additionally, he did not research existing competitors or find out if customers preferred ordering through WhatsApp or other platforms already available. In summary, while Luca had a vision, he lacked a viable plan. Unfortunately, this is the harsh reality that many entrepreneurs face, but it is a situation that can be avoided.
For every entrepreneur with new business ideas, conducting a feasibility study is the bridge between dreaming and delivering, and yet, it is the step most entrepreneurs skip. In this article, we will examine what a feasibility study means and why it should be the critical first step before launching any new business idea.
Understanding Feasibility Study
A feasibility study is a vital research and planning tool that helps entrepreneurs assess whether a business idea or project can realistically succeed. It goes beyond the initial excitement of a concept and utilises data to evaluate its practicality, profitability, and sustainability.
The study examines various aspects, including market demand for products or services, technical infrastructure and production needs, legal and regulatory requirements, financial viability through cost estimates and funding needs, operational capabilities within the business, and competitive positioning regarding market share, pricing strategy, and unique selling propositions (USP).
A good feasibility study ensures that your business idea is not just innovative but also realistic, legal, environmentally sustainable, fundable, and profitable.
Why Conducting a Feasibility Study Is Important for Entrepreneurs
1. To Avoid Costly Mistakes: A recent report by CB Insights highlights that approximately 35% of startups fail due to a lack of market need for their product. This statistic reveals that many business failures can be attributed to inadequate research or the absence of thorough feasibility checks. By understanding market demand and conducting comprehensive analyses, entrepreneurs can mitigate the risk of launching products or services that do not meet the needs of potential customers.
2. Provides Clarity on Competition and Market Entry: Nigeria presents a dynamic yet highly competitive business landscape. Conducting a feasibility study provides entrepreneurs with valuable insights into entry strategies, market gaps, and saturation points. This analysis highlights potential first-mover advantages and flags overserved markets, enabling businesses to make informed decisions that can enhance their chances of success.
3. Investor-Ready Planning: In the eyes of investors, credibility and assurance are paramount. A well-executed feasibility study, completed with data-backed projections and thorough risk analysis, significantly strengthens an entrepreneur’s chances of securing funding. By presenting a solid foundation for their business model, entrepreneurs can instil confidence in potential investors, demonstrating that they are well-prepared to navigate the challenges of the market.
4. Smarter Resource Allocation: Conducting a feasibility study empowers entrepreneurs to allocate resources more strategically, avoiding the pitfalls of investing in untested ideas. By utilising the insights gained from this study, businesses can prioritise their spending, make necessary pivots, and enter the market with a well-informed strategy. This approach conserves capital and enhances the potential for successful outcomes in a competitive environment.
Steps to Conducting a Feasibility Study
Moving from your business vision or ideas to informed decision-making involves six (6) key steps:
Step 1: Market Research
The first step is to understand your market. This includes conducting surveys, focus groups, and secondary research to answer essential questions, such as:
- Who are your target customers?
- How big is the market?
- What are current trends, preferences, and price expectations?
For example, Nigeria’s food delivery market is growing but is still heavily informal. Without data on location-based demand, tech adoption, and customer behaviour, a delivery startup may misplace its services.
Step 2: Competitive Analysis
The next step involves evaluating both the number and the strength of your competitors in the market. A thorough analysis is essential for understanding the competitive landscape and identifying potential challenges or advantages your business might encounter. This evaluation provides answers to several key questions, including:
- How many competitors are currently operating in your industry?
- What are their market shares and strengths?
- What unique advantages do they possess that may affect your business?
- How aggressive are their marketing strategies?
- What are their weaknesses that your business could potentially exploit?
By answering these questions, you will gain valuable insights that can inform your strategic decisions and help you position your business more effectively within the market.
Step 3: Technical & Operational Feasibility
The third step involves assessing whether your team and infrastructure can effectively deliver the product or service. This includes considering the following questions:
- Do you need specific applications, machinery, or tools to develop and deliver your product or service?
- Does your team possess the necessary skills and expertise to handle development, production, and support?
- Are your suppliers capable of meeting demand in terms of quality, quantity and timeline?
This step is essential for startups that rely on technology, logistics, or specialised production. A comprehensive assessment at this stage can help identify potential pitfalls and streamline your path to the market.
Step 4: Financial Feasibility
The next step is to assess the financial viability of your business idea by using realistic and informed assumptions. This analysis will help you understand the financial landscape and ensure that your project is grounded in economic reality. Using basic financial models or pro forma statements as tools, this analysis estimates the following key components:
- Startup Costs: This includes expenses for equipment, staff, licenses, and technology.
- Operating Costs: It considers ongoing expenditures such as rent, logistics, and salaries.
- Revenue Projections: This estimates potential income based on market analysis.
- Break-even Point and Profitability Timeline: It determines when the business will cover its costs and start generating profit.
Step 5: Legal and Regulatory Feasibility
The fifth step involves understanding the policies and laws that affect your business type. In this phase, consider the following questions:
- Is your type of business regulated?
- Do you need approvals from NAFDAC, SON, or FCCPC?
- Are there any zoning or environmental restrictions you should be aware of?
Being informed about these factors will help protect you from government closures or legal penalties.
Step 6: Risk Analysis and Mitigation Plan
The final step involves analysing the business risks and developing a mitigation plan. Every business idea comes with its own set of risks, including political instability, currency fluctuations, technological failures, and supply chain disruptions. A feasibility study helps identify these risks and proposes backup plans or alternatives. It considers important questions such as:
- What could go wrong?
- What is your mitigation plan?
What Luca Should Have Done
Let’s revisit Luca, our entrepreneur from the introduction. His food delivery startup failed not because the idea lacked merit, but because he did not take the time to validate it. Here is what Luca should have done:
1. Conduct Market Research: He should have surveyed working-class professionals in areas such as Ikeja, Victoria Island, and Lekki in Lagos State, Nigeria, to gather insights into the following:
- Are they open to using food delivery apps?
- How frequently do they order food?
- What price range do they prefer?
2. Perform Competitive Analysis: He would have discovered that established players such as Jumia Food, Chowdeck, Glovo, and independent vendors are already dominating the market. This insight could have guided him in creating a unique offering, such as focusing on bulk lunch orders for office groups or providing healthier meal options.
3. Assess Technical Feasibility: Instead of developing a costly proprietary app in haste, Luca could have partnered with existing logistics platforms to lower initial costs.
4. Evaluate Financial Feasibility: The feasibility study would have indicated that his available capital could not support high operating costs without prompt revenue generation. This insight would inform him to adopt a lean approach from the outset or to seek funding at an early stage.
5. Check Legal Requirements: He would have recognised that logistics operations in Lagos State, Nigeria, frequently necessitate obtaining regulatory approvals, particularly concerning branded motorcycles. Additionally, the feasibility study would highlight the necessity of food handling certifications from NAFDAC or relevant environmental health agencies.
6. Analyse Risks: Lagos State, Nigeria, is well-known for its traffic and delivery delays. A risk management plan may have encouraged Luca to conduct a pilot test in a smaller area before launching citywide.
With just 6 to 8 weeks of feasibility work, Luca could have pivoted, refined his idea, or scaled more intelligently, thereby avoiding emotional and financial loss.
Conclusion
Starting a business without conducting a feasibility study is like constructing a house without assessing the ground’s stability. While passion is important, thorough preparation is crucial for success. A comprehensive feasibility study can transform your vision into a viable, bankable opportunity, safeguarding your resources and charting a clear path forward.
At Phillips Consulting Limited (pcl.), we are dedicated to supporting entrepreneurs and business owners by providing expert feasibility studies tailored to your specific industry and location. Whether you are launching a small venture or scaling a larger enterprise, we empower you to move confidently from vision to viability.
Contact us today at enquiry@phillipsconsulting.net to take the first critical step in turning your business idea into a successful reality.
Written by:
Mercy Akindele
Analyst
