Feasibility Study: 7 Questions You Must Answer Before Opening a Business

Feasibility study isn't formality you do for the bank. It's the step that separates people who open a business and close within two years from people who build a business that works. Here are the 7 questions you must answer.

Feasibility study for a new business requires answering 7 questions: 1) Who is the end customer and what's the specific need, 2) What is the realistic market size, 3) What's the pricing and gross margin, 4) What's the initial investment and expected negative cash flow, 5) Who are the competitors and how do we differentiate, 6) How will customers find us, 7) When do we reach break-even.

1. Who exactly is the customer?

Not 'women 25-65 in the US.' A real customer is: 'Self-employed family law attorney, 35-45 years old, two years in business, looking for case management software that saves 5 hours per week.' The more specific the persona - the easier to sell to.

If your difficulty describing the customer is 'everyone' - that's a sign you haven't thought enough.

2. What's the realistic market size?

Two numbers: TAM (total market) and SAM (serviceable addressable market). TAM of 'all US business owners' = 30 million. Your SAM might be 20,000 (specific business type, geography, willingness to pay). Multiply SAM by realistic share you can capture (1-3% in year one) - that's the ceiling.

If the number is below 100 customers - market too small. Above 10,000 - probably not specific enough.

3. What's the pricing and margin?

Two lessons not to miss. Average price per customer: check what competitors charge, what customers will pay, what value you create. Gross margin: what's left after direct cost of delivery. Business with 30% margin needs high volume. Business with 70% margin works at lower volume.

4. What's the initial investment and negative cash flow?

Two types of money you'll need. Initial investment: equipment, inventory, licenses, website - money out once. Negative cash flow: monthly loss until break-even - cash you need every month from start. Common mistake: calculating only initial investment. 6-12 months negative cash flow is the most common reason for closure.

5. Who are competitors and how do we differentiate?

3 things to know about every significant competitor: their offer and to whom. Their strengths (why customers choose them). Their weaknesses (where customers complain).

Your differentiation must be strong in one category: price, quality, niche specialty, service speed, or reputation. If you can't name yours - you don't have one.

6. How will customers find us?

3 main channels to test before opening. Organic channel (content, SEO, word of mouth) - slow but sustainable. Paid channel (Google, Meta, LinkedIn) - fast but expensive. Direct channel (personal, network, B2B) - requires ongoing effort.

Planning only one channel is risky. Planning 3 - stable.

7. When do we reach break-even?

Math: monthly fixed costs ÷ gross margin = required monthly revenue. Divide by billable hours/products and get the monthly target. If the number looks unreasonable in your market and channels - the business isn't viable. If it looks reachable after 6-9 months of building - there's a chance.

What if the answers are weak?

Don't open. Check the gaps, fix the model, and check again. Better to spend 3 more months on the model than burn two years on a business that won't work.