The Natural Enterprise: Feasibility Testing Your New Business Concept

TheNaturalEnterpriseSo you’ve started a new business, maybe even a Natural Enterprise. You’ve done your homework, and found a need with a solid business case that you think you and your partners can fill better than potential competitors. And you’ve been careful to avoid the landmines. The customers you tried out the idea on are enthusiastic, and maybe even are doing some viral marketing for you already. You’ve found a way to organically finance the business launch, so you keep total control over decisions and don’t need to get stressed about money. And most importantly, you’ve found the right partners to start the business with, rather than trying to go it alone, and your partners have skills that complement yours and cover all the bases, and they’re people you know you’ll love working with.

If so, there’s just one more step before you launch the business: The Feasibility Test. This article explains what that’s all about.

The feasibility test will allow you to prove your business concept quickly and inexpensively, and will allow you to rapidly prototype your concept with ‘pathfinder’ customers (those who see more value than others in your concept, and are on the leading edge of thinking about their own industry), and, when you fail to get it perfect the first time, will enable you to ‘fail fast and cheaply’ and learn a lot quickly from your mistakes.

There are no hard and fast rules for feasibility tests — they depend on the size and nature of the business. Generally however, they take you through three steps: viability testing (validation), piloting (prototyping and experimentation), and scaling (gearing up to full production of your product or services).

In the course of these three steps, you will be attempting to answer ‘yes’ to all of the following questions:

  1. Have you determined, to a detailed level, exactly what capabilities your team must have (the eight capacities in the green box above right, plus any technical capabilities specific to your business)? Once you have done that, have you ensured that your team members between them have all these capabilities, and that their capabilities do not overlap so significantly that one or more of them is redundant? Redundant skills are costly and often lead to infighting. Skill gaps are worse. Your team members may consist of (a) inside partners (who will share in the success of your enterprise), (b) outside partners (who will generally charge you a flat amount regardless of success), and (c) alliance partners, organizations that will jointly do some of the work of the new business with you, according to your joint venture agreement.
  2. During the period from now to launch (assuming launch will be late) do you and your partners have the time, the passion, the energy and the financial wherewithal to do the vital, mostly unpaid work of launching the business? 
  3. Is the chemistry of the partners good, do all the partners respect and trust each other, are they all deeply committed to what you’re doing together, and do they all love the idea of working with the rest of you?
  4. Is your idea sufficiently new or different that you can pretty much rule out the risk of some established competitor or vendor of a substitute product or service, outracing you and cannibalizing your market before you’ve begun? This doesn’t mean you should charge ahead recklessly to be ‘first to market’ (‘first mover advantage’ is a myth: Apple and other successful companies pride themselves on being ‘second movers’). In any case you should have done a lot of research already that will make it difficult for other small companies to catch up, while larger companies are unlikely to go after your niche unless doing so is low-risk and very profitable. There’s no point being secretive about your idea. If the need was that overwhelming and the means of filling it that simple, someone else would already have done it. Good ideas are cheap. Taking a good idea through all the steps to commercialization is very difficult for anyone, including potential competitors, to do successfully. If you’ve done your homework, you should already know this — chances are you tossed out several good ideas before you hit on the one you are now pursuing.
  5. Do you know precisely (a) which vendors the supplies you need will be purchased from, and in what quantities and at what prices they will be able to provide them to you, (b) what capital assets (premises, equipment etc.) you will need, and what they’ll cost, and (c) what financing you will need until the business gets into a positive cash flow position, and whether you will be getting it all from organic sources (and you have ironclad assurances from those sources) or whether you will have to get short-term loans from sympathetic financial institutions (ideally those that are nearby and entrepreneurial themselves, like credit unions)?
  6. Have you checked to ensure your business satisfies all relevant regulations — zoning, licensing, trade regulations, intellectual property laws etc.?
  7. Have you ensured that your business will not have adverse social, environmental or ethical impacts in the eyes of partners (that includes ’employees’), suppliers, customers, and communities in which you do business? A big corporation with an army of lawyers can Wal-Mart or bribe its way through such impacts — you can’t, and you shouldn’t anyway. In the long run unethical business is bad business.
  8. Did your homework prove definitively that there is a significant identified need for your product or service, and that those who need it recognize that need, want it and can afford it?
  9. Have you decided exactly how you’re going to sell and distribute your product or service? The best ideas don’t need a lot of marketing, but they do need a customer-responsive system that will accept and process orders correctly and effectively and deliver them promptly. We all know of great products that failed because the first customers got poor service or late delivery, and quickly spread the news of their dissatisfaction to the whole market.
  10. Have you done enough testing, using rapid prototyping, parallel experiments, ‘taste tests’ with prototypes, and pilot programs, to ensure both the technical feasibility of producing the product or providing the service even when you scale up to full capacity, and that your final product or service offering lives up to the customer expectations that you raised when you did your research. The whole viability of your idea was based on what you promised when you did your research — you cannot offer your customers any less than that. It’s better to underpromise during research, even if that brings the viability of the idea into question, than to overpromise and not be able to deliver.
  11. Have you run parallel experiments with several alternative ‘versions’ of your product or service, with different customers, both to gauge how different types of customers will react to your offering in the market, and to fine tune the details of your offering before you decide which ‘versions’ to take to market.
  12. And finally, just before you ink all the contracts that will bind you and your partners to this business for awhile, did you and your partners take a final look at the financial forecasts to ensure they are still plausible and conservative, and do you and your partners still have the same passion and commitment to the business you did when you began your research.

I have met entrepreneurs who went through all of the above steps, and at the end of them had lost their enthusiasm for the idea, but still went ahead because they had invested so much time and energy that they didn’t want it to go for nothing. Life is too short for that. As I’ve said before, if the work you’re doing, or planning to do, is not at the intersection of What you love, What’s needed and What you’re good at, it’s time to quit. Even if it’s before you start.

If you have done your research and you can answer ‘yes’ to all of the above questions, you’re miles ahead of most entrepreneurs, and you’ll have dramatically increased the probability that your enterprise will be low-stress, beholden to no one but you and your partners, financially successful, and a place wherepeople love to work. And damn, could we ever use some more of those.

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2 Responses to The Natural Enterprise: Feasibility Testing Your New Business Concept

  1. Meg says:

    This is actually incredibly relevant to what I do — when I’m working on docs for small business software, you come into contact with a lot of people who are just starting out.So many people start with what they want to do and how they feel about it instead of discovering a need, generating a positive and accessible solution, and then realizing the ingredients that solution requires. Really nice synopsis, Dave.

  2. Dave Pollard says:

    Thanks, Meg. It’s true, isn’t it — we think that just because we’re really interested in something, that if we make it the rest of the world will want to buy it. What is so amazing about the Internet is that it makes it much easier to do advance research at almost no cost except your time and energy. What is dangerous is that sometimes people think ‘online’ research is all they need to do — when the most valuable (and shoe-leather-wearing) research is face-to-face conversations with potential customers.

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