A feasibility study should be always completed before launching any major new business project, investment, or venture. It serves a critical function in independently evaluating a plan, taking a fresh look at the assumptions behind it, the risks it faces, and its chances of success. Here we outline five of the most common feasibility study mistakes made by entrepreneurs and business owners.
1) Ready Fire Aim
The first decision – whether or not to conduct a feasibility study – is often made without a great deal of thought. This in itself is a huge mistake. Generally the larger the upfront investment, the more complex the project, or the greater the potential consequences of failure, the more important it is to do a feasibility study. A small startup that requires minimal capital is one thing, but any venture that involves large investments, multiple stakeholders, or a long-term commitment requires a feasibility study. Not doing one in those circumstances could be considered malpractice.
When in doubt, the safest course of action is to do the feasibility study. The cost of not doing a feasibility study and failing is far, far higher than the cost of doing the study and deciding not to move forward with a project.
2) Don’t Do It Yourself
Bias is a funny thing. Designers, engineers, inventors, and business owners get attached to their own ideas. They discount problems, wish away concerns, and believe in themselves despite any evidence to the contrary. This is only natural. But it is also why outside investors, bankers, and others insist on getting an independent assessment. When the designer and the investor are one and the same person, the tendency is to try to cut costs by doing their own feasibility study. Often the result is completely useless.
Don’t do it yourself; hire an independent professional to do the feasibility study.
3) Project Definition
A feasibility study is only useful if it gives definitive answers to specific questions. “Can we build a resort here?” may be an interesting question, but it is NOT specific enough to justify investing in a feasibility study. Whereas, “Can we build a 30,000 to 50,000 square foot, eco-friendly resort for wealthy couples between the ages of 25 and 50?” is much closer. Before you do the feasibility study, make sure you narrow it down to a reasonable level of detail.
Typically a brief business or project plan is sufficient, but a one or two sentence description is not.
4) Too Fast
One reason for doing a feasibility study is to get an expert opinion on whether or not it makes sense to move forward with a project. The idea is to reduce risk and identify potential problems, threats, and opportunities that may only become clear after deeper research and analysis. The project cannot start until the feasibility study is completed. So time is a factor. But if the feasibility study is done too quickly, the odds of missing, or underestimating, one or more important factors is high. Yet many clients want to rush through the feasibility process so they can get on with their projects. This usually leads to failure.
5) Yes Men
Finally, don’t make the mistake of hiring a firm that tells you what you want to hear from the beginning. A negative finding often uncovers other possible directions that could potentially be much more profitable or successful.