Why You Should Conduct a Feasibility Study Before Starting Your Business

With diminishing formal opportunities in Kenya, many young people are increasingly turning to entrepreneurship. But the decision is not always easy. Most are conflicted about whether to monetize their passion, talent or explore realistic economic prospects in their localities. However, from my experience working at SMD Consulting Associates, I have realized that most businesses are founded on sheer instinct. Unfortunately, gut feelings are often not enough to establish a business. Although motivational speakers encourage us to dream, relying on inspirational slogans alone may result in you losing your hard-earned money. So, why should you conduct a feasibility study or market research before starting your business?

Indeed, starting one's own business can be exciting and frightening. This is because it involves a lot of risk and uncertainty. You can either succeed or fail. No one knows. But by conducting market research, you will boost your chances of success, at least. That’s why one of the essential steps most businesspeople skip in the pre-launch phase is conducting a feasibility study.

A feasibility study is a critical tool that helps entrepreneurs and business owners assess the viability and potential success of their business concept. As a marketing consultancy firm based in Nairobi, SMD Consulting Associates strongly advises clients to conduct a thorough feasibility study before embarking on any new business venture. A feasibility study is a critical tool that helps entrepreneurs and business owners assess the viability and potential success of their business concept. In this article, we will explore the reasons why a feasibility study is essential. We will also explore how it can lead to informed decision-making and long-term success.

1. Identify market opportunities and demand
A challenge we often encounter at the firm is clients who struggle to find customers for their business due to a lack of market opportunity and demand. Some ideas appear logical on paper until you decide to implement them and deal with their peculiar practicalities. Back in 2020, I came across a company whose core service was connecting professionals/consultants with customers, an ‘Uber for Kenyan professionals’. That sounds like an excellent idea, right?

Not quite. Platform business models usually appear easy but are difficult to implement. From experience and knowledge, I knew it would be tough. The company folded after one year on the market. Why? I’m not privy to the inner details, but I strongly believe the demand didn’t pick up even though the business idea appeared logical. They went big on marketing with billboards along major roads in Nairobi and aggressive digital campaigns. Unfortunately, in the end, they were unable to sustain the business. Before this, there was a platform for doctors who suffered the same fate, although it seemed like a bankable business idea. All missed insights into Kenyan consumer behaviours which they could have understood by conducting market research.

A feasibility study provides valuable insights into the market and its target audience. Through comprehensive market research, including industry analysis and competitor assessments, entrepreneurs can gauge demand for their product or service. Understanding the current market landscape allows businesses to identify potential gaps and growth opportunities. By doing so, they can tailor their offerings to meet the specific needs of their target market, increasing their chances of success.

2. Assess financial viability
There are those who start a business only to operate for a short time before closing shop suddenly. While you may be passionate about an idea, you must validate its financial viability before implementing it. At times, you may find that the market for your product or service is too small, such that it can’t generate adequate revenue to sustain the business. Sometimes, the cost of operations might be too high, leaving you with barely enough profits to make the investment worthwhile.

Therefore, taking the time to do market research and financial analysis can help ensure feasibility and profitability. It's better to have a plan and know the potential risks ahead of time than to realize later that the idea was not viable. The feasibility study will evaluate the initial investment required, projected revenue, operating costs, and potential return on investment (ROI). This analysis aids entrepreneurs understand whether their business idea is financially feasible in the long run. It also helps entrepreneurs understand whether they can generate profits and sustain growth. Armed with this knowledge, business owners can make informed decisions about funding, pricing, and financial planning.

3. Mitigating risks
Risks are inherent in every business. Consider an agribusiness. At face value, you can think that you will simply get a piece of land, farm, harvest and sell your produce. If you talk to farmers, nothing could be further from the truth. Farming has lots of risks that many people are unaware of, from pests and diseases to market fluctuations.

Another example is developing rental units. Most think real estate investment is all about putting up units and sitting back and collecting rental income. Easy-peasy. However, there are risks. For example, tenants may have challenges paying rent or the property may be damaged by fire or natural hazards.

You should conduct a feasibility study to identify risks early and develop mitigating strategies. By understanding potential challenges and obstacles, entrepreneurs can proactively address them, making their businesses more resilient and adaptable to changing market conditions.

Final Thoughts
Starting a business in Kenya is no longer a luxury, but a necessity. To succeed, aspiring entrepreneurs need to get things right from the start. Don’t cut corners, lest you lose your investment in the long run. Conducting a feasibility study before starting a business is a crucial step that should not be overlooked. At SMD Consulting Associates, we firmly believe that investing time and effort in this preliminary research is essential for success in today's competitive business landscape. From assessing market opportunities and demand to analysing financial viability and mitigating risks, a feasibility study provides invaluable information that informs business planning and decision-making.

As a marketing management consultancy firm based in Nairobi, we support our clients' entrepreneurial endeavours. We guide them through the process of conducting a comprehensive feasibility study. Armed with the insights and data gathered from the study, entrepreneurs can confidently pursue their business goals, build sustainable enterprises, and thrive in the marketplace. Remember, conducting a feasibility study is an investment in the future success of your business.

Stephen Osomba currently serves as the Lead Partner, Communication & Marketing at SMD Consulting Associates where he helps SME clients deliver value by adjusting the solutions to each company's mission, product, strategy, and industry.