Friday, March 25, 2011


Are you considering an expansion project or the purchase of another business? Are you anxious to run to the bank, get a loan, and open your new division or buy that new business? STOP! Before you pump cash from your existing business into an expansion plan, you want to know if it has a chance to succeed.
A common mistake made by many people is to blindly grow their business thinking that increasing sales will result in increased profits. A feasibility evaluation will allow you to make a more informed "go" or "no go" decision. A sampling of topics that should be honestly appraised includes:

  •  Is there really a demand for the new product or service? Is that demand sufficient to fund growth or will the existing business be compromised by the drain on cash flow?
  • Have you researched market demand or have you just assumed that people need or want your product or service?
  • Does your product or service satisfy an unfulfilled need?
  • Will your product or service serve an existing market in which demand exceeds supply?
  •  Will your product or service be competitive based on its quality, selection, price or location?
  • Do you know who your customers will be?
  • Do you have the internal capacity, i.e. equipment, personnel, parking, to handle the growth?
  • Do you understand how your business compares with your competitors?
Study the Market

Ultimately, your idea must fulfill a need for your buyers and must do so in a way that's somehow superior to the competition, however you define it. If you want to be sure that your idea will do these two crucial things, you need to know as much as you can about the following:

  • Personal knowledge. Understanding the industry is vital to assessing the market for a product or service. Personal knowledge of the industry develops from having contacts in the business, personal experience and a general feel for the business.
  • Competition. Who are your competitors? What are your competitors’ strengths and weaknesses? What are your competitors planning to do next? What are your competitors’ spending trends? A survey of the competition may be needed to determine if there is a niche or room in the market for another business. This can be done by observing competitors' businesses. How busy are they? What problems do the businesses seem to have? What type of customers do they have? Observation helps to determine the size of the market and problems businesses have in serving that market. It may be helpful to develop a Strengths-Weakness-Opportunity-Threats (SWOT) matrix to summarize this information.
  • Customers. Do you know who your customers are? Do you understand why, how and when they will buy your products or services? Did you know that 80% of your business likely comes from 20% of your customers? What are the characteristics of those ‘most valuable customers’? Will they be interested in your new products/services?
  • Secondary research. Finding information that is already published, through searching the library or Internet, is necessary to quantify the market and to verify your findings from the above three steps. Obtaining outside validation that the market potential exists and is yet untapped or is capable of supporting your business is critical. How big is your market? Is it large enough to sustain your business and competition? What is the growth trend for the next five years? Once a market has been identified, what is the size of the actual market that you can compete in? The actual market segment that you can sell to may be a small fraction of the total market.
Determining the feasibility of your project is just as important for a pre-existing business as it is when you first start a business. If you fail to determine whether your project is feasible before making an investment, you may jeopardize the long-term health of the business that you have worked hard to create. Contact your local Small Business Development Center if you need assistance in this area.

Excerpts were taken from an SBDC publication and modified by Susan J. Hoosier, a SBDC Certified Business Advisor with the Longview Small Business Development Center, which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC) network. The WSBDC offer in-depth, confidential, and no-cost management advice to businesses within Washington State. To locate your local SBDC advisor please visit the SBDC web site www.wsbdc or if you or your business is close to the Longview WSBDC office you can contact Susan Hoosier at or 360-442-2946.

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