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Just-Enough Feasibility, Part 2

4 Questions...

In last week's post, I introduced you to four questions that will help you assess the feasibility of your ideas to start or grow your social enterprise:

  1. Will it make the right impact?

  2. Can we really do it?

  3. Will paying customers choose us?

  4. Will we be able to get and make the money we need?

4 Levels...

In this week's post, I'll take you through the four, increasingly-rigorous levels of assessment through which you can explore these questions:

  1. Judgement

  2. Screening

  3. Testing

  4. Formal Study

Some Guiding Principles...

I'm going to walk you through each of these levels. But first, a little general guidance.

Feasibility assessment is about getting a sense of the potential risks, requirements, and rewards of a given idea, such that you can make a decision about whether you want to explore that idea further (up to and including launching it). Requirements and rewards are fairly self-explanatory; a few words about risk might be helpful. The risk profile of an enterprise idea, whether that be launching an entirely new enterprise or just changing the pricing for an existing product, is the function of two things: the likelihood and consequences of failure.

Likelihood of failure is, in turn, a function of newness (how much you know about the product and/or market), complication (how many moving parts the idea has), complexity (how predictably those moving parts interact), and number of uncontrollable factors. So, a new, complicated, complex idea with several factors that are beyond your control will have a higher likelihood of failure than an idea that is familiar, simple, predictable, and subject to factors that are well within your control.

But that's only half of the risk equation; the other is consequence of failure. That new, complicated, complex idea might actually have a low overall risk profile if failing will have little or no negative impact on you or your community stakeholders. Conversely, the familiar, simple, predictable idea might actually be riskier because failing might expose you or your community to dire financial, social, or environmental consequences. So, you have to consider both factors.

Match your level of assessment with the risk profile of your idea - Stated another way, do as much feasibility assessment as required, but no more. Start with a level 1 (every idea warrants a level 1), then mostly likely proceed to a level 2 (all but the lowest-risk ideas require a level 2). As you move through the process, you will gain an emerging sense of the potential risk (requirements and rewards) of your idea, with each preceding level of assessment informing the next. Most ideas will require a level 3 assessment (testing), but only certain, higher-risk ideas will require a level 4 (full feasibility study). You will have a much better idea of whether a full feasibility study is warranted, and where you will need that study to focus, if you work through levels 1-3 first. The good news is that you can work through levels 1-3 on your own, gaining insight as you go, before you ever need to decide about a full study, which will likely require a significant commitment of time and money, and some outside technical assistance from a consultant like yours truly.

Now, on to the the four levels...

Level 1: Judgement

Okay - put your right hand on your heart, raise your left hand, and repeat after me:

"I will always ask and honestly answer the four feasibility questions for every new enterprise idea.

I will use my best judgement to answer these questions,

and will consult with at least one trusted colleague, to get a reality check on my answers.

Finally, I understand that, unless this is a very low risk idea, the outcome of a positive level 1 assessment will be a level 2 assessment."

You can lower your hands now...

Level 1 assessments can be done on your own (with that one other colleague - don't forget!) in a matter of minutes (even seconds), used as the basis for a conversation at a team meeting, or as guidance to select your initial short list of ideas in an opportunity identification process. Because this is just the first pass at an enterprise idea, you can relax the requirement to have evidence to back your answers and decisions up; go with your gut. This is just a quick but balanced way to make an early decision.

Level 2: Screening

Congratulations - You've made it to level 2! You used your judgement, guided by the four questions, to select a short list of ideas from your brainstorming activity. Or you used your judgement to determine that the "great opportunity" your board chair just called you about actually warrants further consideration. What now? Welcome to level 2: feasibility screening. It'll probably be easier if you have the "Enterprise Assessment" tool in front of you for reference, as I walk you through it. Download it here.

As you'll see in the Enterprise Assessment, the four questions become categories, each with their own, more specific questions. Then, for each of the 13 questions, you assign a 0-3 rating, again using your judgement, but now augmented with any readily-available information you might have. The highest score you can get is a 39 (a "3" rating for each of the 13 questions), but that's unlikely. Finally, use your total score as a guide to assign a "bottom line" rating. For new ideas (the focus of this post), the bottom line ratings include: fast track (move on it now), potential star (looks good, but needs more research), back burner (interesting, but not now), or dud (remove it from further consideration). For existing enterprises, the bottom line ratings include: grow, maintain, assess, and divest. You may be tempted to ask, "So, is a fast track idea one that has a score of 25 or higher?" or something like that. It doesn't work quite like that. While a higher score is generally better, you could have an idea with a score of 33: a "3" rating for every question but the first one, which gets a "0", rendering that idea a dud because it doesn't make the right impact. Moreover, it's quite common for "potential stars" to get a higher numeric score than "fast track" ideas; they often have a bigger potential impact, but can be riskier and require more research because of it.

While the level 2 assessment still relies heavily on your own judgement, it does force more discipline on the decision-making process by requiring numeric ratings of more specific questions. I would also strongly encourage you to bring any readily-available information you have to this rating process, and to work through it as a team effort. Whether you get the ratings exactly right is beside the point; what's important is the focused attention and shared understanding that the process triggers. And the level 2 assessment helps to flag issues of concern or missing information, which in turn can help to focus the next step of the process: testing.

Level 3: Testing

Wuh-hoo! Level 3!! Now things are getting interesting. By now, you will have an emerging, but likely strong and shared sense about your idea's potential risks, requirements, and rewards. You'll also have a good sense of where the rationale and evidence supporting your idea is strong and where it's weak. Time to put it to the test.

Now's a good time to introduce you to "The Lean Startup", a great book by Eric Ries. The core of the Lean Startup process is testing (build, measure, learn, repeat) your minimum viable product, or MVP, which Ries defines as "that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”

The language is very intentional:

  • "Minimum" = small enough that you can actually try it out with limited resources and time;

  • "Viable" = not so small that it isn't a valid test of the full-blown enterprise; and

  • "Product" = ideally, a real, saleable product. Failing that, at least a very compelling presentation of the product concept.

This is what level 3 assessment is all about, and something I've been advocating for for a long time. (If only I had written this down sooner...) Regardless of whether you rated your idea as a "Fast Track" or "Potential Star" in level 2, your next step is to test the minimum viable version of it, so that you can validate your assumptions and decide if and how you want to proceed. Now, how you do this will be greatly influenced by how you rated your idea in level 2.

In its purest form, a "fast track" idea may actually be a minimum viable product that can be test-marketed as is. In fact, it might involve simply tweaking some element of an existing enterprise's marketing mix (product, pricing, promotion, distribution) and testing it with your existing customers. At the other end of the spectrum, you may have a "potential star" - a brand new idea with a high-ish risk profile and a significant capital requirement. For this, you may need to come up with an MVP that's similar enough to the full deal to be a valid test, but that doesn't have the same risk profile or investment requirements. In the extreme case of a so-called "airline enterprise" (big risk, huge investment, hard to create an actual minimum product), your MVP might just be a really good slide deck that presents the enterprise concept to prospective customers.

The following table presents a few examples of actual minimum viable products for new enterprise ideas. You'll notice that, in each case, the MVP is something that could actually be sold to paying customers; this is the best, truest test of your idea.

It may not always be possible to test an actual product as your MVP, because you can't chunk down your enterprise in a way that will be truly reflective of what you're trying to do. With this in mind, the next table presents a comparison of using an actual product versus two "non-product", conceptual MVPs. (The "A" customers referenced in the table are representatives of those customers whom you would ideally want for your full-blown enterprise.)

Click here for 15 more MVP ideas. I'm confident that you'll come up with an MVP that works for your enterprise.

Testing your MVP is an iterative process - you may need to go around the cycle several times, testing and refining as you go, until you have answers to your feasibility questions. All the more reason to try to come up with an actual MVP product that you can sell, and make some money and impact with.

At some point in the testing of your MVP, you will need to "call it":

  1. Go - This is a valid idea, a real opportunity, and we're ready to move forward with it - creating an investment-ready business plan to get launch financing, or (if you don't need external financing) actually moving forward into launch;

  2. More Research Required - This is still a great idea, but our testing has uncovered a few unknowns or risk factors that will require a formal feasibility study to address; or

  3. Don't Go - This enterprise idea isn't actually a "fast track" or a "potential star" - it's a "back burner" or "dud" idea, that doesn't warrant further consideration (now or ever).

If you got positive results in your testing, I strongly encourage you to find a way to choose the first option, turning your MVP up a notch or two and launching. For 25 years, my mantra has been, "Dream big, but start small, start now, and grow as you're able." It's easy to get seduced by the notion that a formal feasibility study will give you what you need to go forward with the fully-realised version of your enterprise, to leap-frog over all the messiness (and fun!) of incremental, organic growth. This is especially the case when you learn about a foundation or government program that will potentially fund that study.

There are at least two problems with that scenario. First, that program may only potentially fund your study. There are no guarantees. So, you run the risk of building your strategy around a gamble, and going down the grant rabbit-hole, when you perhaps could have launched a smaller version of your enterprise with the knowledge and resources you had at hand. The other problem is that trying to bypass a more incremental, start small / start now strategy is inherently risky, in that it is based on the (generally-flawed) notion that a study of how a big enterprise should work is better than actually going out into the market and selling real products to actual paying customers. From Ford, to Microsoft, to Facebook, they all started small. I would actually challenge you to show me a successful enterprise that started big out of the gate. And... off of my soap box...

This all said, it's possible that your testing will, in fact, uncover unknowns or other risk factors that will require further, likely technical study: engineering reports, export market analyses, etc. And, because you've used MVP testing to inform your decision, you will know what's actually required. (Please re-read that last sentence before you commit to a formal study.) So, on to the final level of assessment...

Level 4: Formal Feasibility Study

Right - so you've dutifully worked your way through feasibility assessment levels 1-3, and you've arrived at the conclusion that you need to do a formal study. This will likely require the technical assistance of an outside expert, a consultant like me who, because of their specialist expertise, will charge something generally north of $1000 per day for their services. So, here are a few tips to help you to do the right work, with the right consultant, at the right price:

  1. Use what you've learned to recruit the right consultant. The clearer you are about what you've learned and know, the better able you will be to go out and recruit a competent consultant who has the right expertise to help you fill in the gaps. Don't be shy about asking them if they've done this specific kind of work before, to get samples of their similar work, and references from their clients. A good consultant should have all that ready to go.

  2. Be very clear about what you already know and what you're looking to find out with the research. Take everything that you've learned from your previous feasibility assessment work, write it down, and be prepared to share it with your prospective consultant(s). The clearer and more complete you are about what you've learned and - especially - what you need to learn, the better you will be able to communicate and negotiate a focused, useful project with your consultant. You don't want to pay for work that you've already done, so be crystal clear. If, after sharing what you've learned with your prospective consultant, they come back with a boilerplate proposal, find a different consultant who's willing to actually work with you, not just sell you their standard "solution".

  3. Get the consultant to help you find and secure funding for your study. A good consultant will have detailed knowledge about all the funding sources for the kind of work they do. This is part of their value proposition, so put it on them. Depending on the work you need done, you may be able to get up to 75% of the cost of the research covered by a foundation or government agency. If it's there, use it, and get your consultant to help you with the funding application.

  4. Plan to work collaboratively with your consultant. Without exception, the best consulting work I've done has been with highly-engaged clients, who've done their homework, and who work collaboratively with me. Because of the expertise and experience you've gained working in your enterprise, and with all the feasibility assessment work you've already done (you've already done it, right?), you are in a position to play an absolutely critical role in the research. Not only will this save you money, it will also produce dramatically better research - results that are grounded in reality, and that are appropriate and actionable for you. The bible of consulting world, "Flawless Consulting" by Peter Block, is clear: collaborative consulting relationships are the best.

Okay - Get Out There...

Hopefully, you've found this valuable. Now, it's over to you, to roll up your sleeves and get into the work. As always, if you've got any questions, concerns, or other comments, please leave them in the "Comments" section below, or contact me directly at andyhorsnell@gmail.com or 902-300-9725.

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