How does a startup or early-stage venture ensure that its business model is able to withstand the intensive scrutiny of an outside investor or funder? The simple solution is to pre-analyze every facet of your business model before you pitch to investors or funders. Hence, while it may be tempting to hit the ground running and get things going, it is imperative that you slow down and turn the lens inward before starting up.
But herein we find another challenge—internal analyses are for the most part, perceived as being biased towards the startup or early-stage venture. For many funding decision-makers an internal analysis is akin to asking a five-year-old to evaluate his or her behavior over the last year right before the holidays—it’s just not very objective.
Due to this inherent perceived bias, it is common in some sectors for an outside party to conduct a feasibility study before a project moves forward. In the simplest of terms, a feasibility study is an analysis and evaluation of a proposed project to determine the degree to which it is: technically feasible; feasible within the estimated cost; and likely to be profitable or financially viable. As an example, a museum seeking capital to build a new addition will conduct a feasibility study before they begin their fundraising efforts. Having the feasibility study sends a message to potential donors that: a) the campaign to raise the funding has a high likelihood of being successful; and b) that the expanded museum will be financially viable.
For the most part, feasibility studies are most often used to validate projects that require significant capital and resource investments. They are often used to support capital campaigns for construction projects (e.g., museums, schools, universities, etc.) or projects in industries such as energy, renewable energy, telecommunications and more.
But more recently, a hybrid of the feasibility study—a Business Model Validation Analysis—is being used by startups and early stage ventures to demonstrate the validity of their business models to investors or other funders. A Business Model Validation Analysis is similar to a Feasibility Study in that it can provide in-depth, unaffiliated third-party confirmation that a startup or early stage venture has a high likelihood of being financially successful and providing the investors with the desired return on investment (ROI). The key difference between the two is that Feasibility Studies are most often used to validate individual, capital-intensive projects, whereas Business Model Validation Analyses are more focused on evaluating startups and early stage ventures.