Phase I: Preliminary Viability Assessment

Objective

The Objective of Phase I is to get an initial sense of the BUSINESS viability of your idea. You may have a great idea, but it may ultimately not be a viable business.

Why is this important?  

Because a good idea may not necessarily translate into a good business idea!

Many people spend hours working at their business and make NO MONEY. They realize that they could have made a lot more money by just keeping their full time jobs.

We call this a “trading 4 quarters for a loonie” type of business, ie: one that the business owner spends all of their revenues on expenses and comes up with nothing at the end of the day.  

Phase 1 has 3 Steps:

1. Clearly define the WHO, WHAT, HOW and WHY?.
   
   
2. Do some Preliminary Market Research to get a sense both the demand for your product or service & a sense of the competition, if any.
   
   
3. Do some Basic Math around the concept to get a very preliminary feel for the numbers.

Think of Phase I as an Executive Summary of your business. It should be 2 to 3 pages long & can be used later to:

• Form part of your business plan
• To discuss your business idea with an accountant, lawyer or business advisor
• For bank financing
• For prospective investors  

We recommend you do not rush through this viability phase as you may miss a critical or key issue.

Step 1 - The WHO, WHAT, HOW & WHY

On a sheet of paper (or two) outline  - as concisely as possible – the following:

• WHO is going to buy your product or service. Be as specific as possible. The more specific you are, the more focused the rest of your planning will be.
  
  
• WHAT will your product or service be? Also be as specific as possible, so if you are going to be providing business consulting services, write out exactly what type of information you are going to provide people.
  
  
• HOW are they going to buy your product?  Online, retail, wholesale? These are just your initial thoughts as a possible way you sell your goods or services. This may change over time or once you have completed some market research.
  
  
• WHY would someone buy your goods or services? Think in terms of what problem your product or service solves.

A well known accounting professor used to make his students visualize that they were wearing T-Shirts with the word "WHY?" printed on them. He was trying to get his students into an engaging state of mind. 

So when working through this section, think in terms of WHY? Why would someone buy your product or service? Why at that price? Why retail? etc.

This section of the Viability Assessment is much like the strength of the foundation in a home. One needs a strong foundation on which to build and support a house. Likewise, the stronger and the more detailed this part of your planning, the better your startup will be.

Step 2 -  Preliminary Market Reasearch

Is their demand for your product or service and if so, who is the competition already in the market place.

Do some market research online, by speaking to friends and family or pehaps speak to a colleaugues to determine if there any other people or businesses selling this product or providing these services?

{NOTE: there is a decision tree in Mistake # 2 in the 7Common Mistakes Report that walks you through this concept}.

If the answer is YES – the question you need to ask yourself is how will your business be different?

Common theme's of ways that businesses differentiate themselves includes:

• Price

• Quality of service

• Location

If the answer to your preliminary market research is NO (there are no other buiness providing your product or idea) and what you have is really a brand new concept or idea, then you need to focus on doing lots of ADDITIONAL market research to determine:

>  Is it NO because its just not a viable business? OR

>  Is it that it’s a new idea or concept?

Sometimes your idea has been thought of already, but has not been brought to market becasue its just not a viabile business idea.

If you feel strongly that this is a new concept or idea that is a viable business, then we recommend you:

Approach your idea with some SCEPTICISM, especially if it requires a large investment of money and time.

Think of it in terms of "guilty until proven innocent" - ie: why will your idea work? why will people buy it? Why willl they pay the amount that you are planning to sell the good or service for?

Also, be FLEXIBLE  both in your thinking AND in the business model you are developing. You need to be open to change in that you will likely encounter issues as your idea develops that will shape many of these factors.

Starting a business is a combination of both art & science. Its an art from the perspective that it utilizes intuition, creativity, perserverance and dedication but at the same time, the math or basic business components (such as Sales, Expenses, Overheads, etc) are all very real and "are what they are!".  

Step 3 - Back of the Napkin Math

The objective of this section is to do some "back of a napkin” basic math to get a very preliminary sense of economic feasibility of your business idea.

You need to get an overall or high level feel of the numbers so you have some financial context within to make some preliminary or big picture decisions. 

We will work on a more detailed financial projection in Phase II  

 Here is an example of what you could do:

Let’s say you want to start a bookkeeping service and you have determined that the average price bookkeepers charge is $40 per hour. You can do a rough calculation that says if you charge out for 35 hours per week by $40 per hour, that’s $1,400 per week.

Assume you work say 45 weeks of a year (after allowance for vacation, marketing etc) – that’s approximately $63,000 per annum, before operating costs. Of course it will take you some time to develop sufficient clients to bill 35 hours per week consistently, so you need to factor that in your calculations as well.

You could then compare this to your current job to get a sense of the financial implications of your decision.

Other things to consider

• Begin assembling an informal advisory group that you can use to ask questions and test some of your ideas and concepts.
  
  
• Are there any legal barriers to entry such as a patent, existing business name registration, web domain name if important. 
  
  
• Be very careful in choosing people for this group. You want people with proven business track records!
  
  
• Your advisory group could come from friends, relatives and possible work colleagues (or see some other options – see Possible Advisors below).
  
  
• Did you identify any critical roadblocks that you perceive would prohibit you from proceeding any further with your idea? If so, consider asking your advisory board or professional advisor (see Possible Advisors below) as often it could be just a matter of tweaking one part of your strategy that could really make a big difference.
  
  
• Start to think about your skills and core competencies. Would you hire yourself for some of the roles you may need to play?
  
  
• If you feel your idea/concept is unique you may want to consider having a lawyer prepare a Non-Disclosure Agreement (known as an “NDA” – see Glossary of Business Terms) which people would sign BEFORE you discuss your concept with them.
  
  
• Be aware that some people may sign an NDA but not adhere to it. So use your common sense/intuition. If you meet with someone who has signed the NDA but you get the sense that they may not be trustworthy, we recommend you do not discuss your concept with them.
  
  
• Also start thinking about how much money you may need to spend while you are researching your idea ie: The StartUp Budget  (typically done in Phases I & II). These types of costs could include business plan, incorporation costs, NDA’s (and are more detailed in some of the later Phases). 
  
  
• These costs vary depending on both your skill set and type of business concept. As a very general guide, consider that you may spend in the approximately $5,000 in Phases of I & II.
  
  
• Consider if you have the temperament, focus and discipline to be self employed. We recommend you speak to other entrepreneurs about their experiences with starting a business. This will give you a clearer idea of the emotional drain of starting a business. Consider reading “The E Myth” – see Recommended Readings.

Possible Advisors

Given the historical high failure rate for start-up businesses, we strongly recommend you seek professional guidance in Phase 1.

Consider retaining a professional for an hour or so to get some independent and objective business advice.

Your advisors could include:

• Lawyers
• Accountants
• Business consultants

We recommend you review our Glossary of Business Terms to help you decide the different types of accountants.

Conclusion

At the end of PHASE I, you should have some preliminary insight as to whether you may have a viable business concept (or not). More specifically:

• You need to be able to clearly articulate why your concept appears viable.
  
  
• Based on your “back of a napkin” math, your concept appears to be financially viable and you feel it’s worth exploring further.  

IF YOU DO NOT HAVE ANY FORMAL BUSINESS TRAINING, we cannot over emphasize the importance of seeking input from a professional business advisor before proceeding to the next phase.

Moving forward

So, if you have been through all of the above and you feeling confident about your concept, it’s time to move to Phase II – the Pilot and Percolate.

Let’s go!