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When you don’t need a business plan… yet

When you don’t need a business plan... yet

Idea stage entrepreneurs are told by many sources that they need a business plan. When they ask for loans, banks tell them this. When they seek advice, mentors or advisors ask to see their plan. And certainly when they speak with many companies or individuals who write business plans for a living, they will hear the same.

However, there are situations where writing a business plan is simply premature and can be a waste of time and money. It may be more appropriate to start by taking a hard look at the key financials, market or the intended business, and your own situation. This is what business planners refer to as a feasibility study or feasibility analysis.

For example, a new client I recently spoke with told me of her need for a business plan. Upon deeper examination, I found that she felt uncertain about some of the fundamental elements of her idea. Questions remained such as: “Is there a sufficient potential market of people to sell to?”, “Will suppliers provide products at a price that makes the business model work?”, and “Will key partners be interested in signing on?”

The fact is that most of these questions can and should be answered before a full business plan is created. The entrepreneur can save a great deal of money by doing this legwork early on. The strategy is then fine-tuned based on the answers. Sometimes he or she will realize that the idea should be scrapped altogether!

A feasibility study is a way of asking “Does this business idea really make sense?” before creating an investor-grade or loan-ready business plan for it. Most feasibility studies for small businesses require at least three components, each answering the following questions:

  1. Market feasibility: Is there a true need in the market for the solution the business will provide? Is there room for the business to create a competitive advantage against the existing competitors and substitutes?
  2. Financial feasibility: Can the product or service be produced at a price that covers costs and allows for sufficient profit? Can the business be launched for an amount of capital which can reasonably be raised and recouped?
  3. Personal feasibility: What time commitment must the entrepreneur put in to get the business off the ground (or even planned successfully)? What skills or experience does the entrepreneur lack? Can these be lacking skills made up for by bringing on a partner, employee or consultant?

To study market feasibility requires some preliminary market research and competitor research, as well as consultation on the differentiation strategy for the business. A carefully written, presentation-quality report is not needed at this time as it is only the entrepreneur and his partners that must be convinced at this point. The work can and should be carried out by the entrepreneur and consultant as a team for the best results.

To study financial feasibility requires basic financial modeling with rough, top-down estimates and some research on some large, actual costs. It does not require a full set of financial statements yet. However, this work lays the groundwork for those statements to be developed later on.

And to look at personal feasibility, the entrepreneur needs to think clearly about his own strengths and weaknesses. The entrepreneur must be objective about himself and a trusted advisor can be a great benefit to him in this process.

If you are at a loss as to how you should study these three areas, a consultant can set you on the right path or partner with you in the process. When you get these questions out of the way first, the business plan you eventually create will be more compelling and less expensive than it would have been otherwise.

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Author(s) (other articles by )
Original Publication DateJanuary 8, 2010
Related categoriesBusiness Plans, Strategy

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  • This is an excellent post on putting first things first. The SBA lists many ways for a business to fail see But, “Hope springs eternal in the human breast” (Alexander Pope). For me, your point about the trusted advisor is the key. A trusted advisor adds more value during the feasibility stage than during the planning stage.

  • John Browning

    Dear Akira:
    As you are probably aware, you referred me to Jimmy Lewin. We have had several conversations, and I will
    be in a position to bring you on board shortly.
    In the meantime, I am very impressed with the way I
    have been treated. Sure, each of us think our project is the greatest and should be put in the forefront, but
    thank you, and Jimmy, for taking the time and affording
    me the patience to help see me through.

    John Browning

  • This situation arises frequently in my practice and this article offers sound advice for directing these idea-stage entrepreneurs towards preliminary investigations. It is worthy of note that clients often resist redirection in this way. They may feel strongly that they are ready for a full business plan (especially after hearing that from others a number of times). Many are struggling to get started and have been convinced that (1) an influx of capital is really what they want and need, and (2) writing a business plan is the central task in obtaining funding. Even though a feasibility study would cost less and take less time, prospects may balk for a variety of reasons. To help prospects understand the value in a feasibility study, consultants need to listen to the client’s concerns, then acknowledge and address them. The Free Management Library offers a manual on start-up feasibility with many useful links. See, Snipping out and customizing the applicable sections is handy.