Goldsmith Technology Commercialization Model
Step 6: Economic Feasibility
Once the technical feasibility and market studies are complete, it is time to determine Business Feasibility. The first purpose of this effort is to financially model the venture opportunity and achieve a break-even analysis. In other words, based upon the costs of goods sold, capital costs, and management and administration, how much revenue generated from units sold is required to break-even and over what period of time.
Once a break-even analysis is developed, the entrepreneurs can develop realistic financial projections for best case and worst case scenarios. These scenarios will be critical in strategic planning, milestone development and venture valuation analysis. The simple objective is to determine what level of revenue is required to satisfy the return on investment demanded by the founder and/or the investors.
Definition: The economic feasibility step of business development is that period during which a break-even financial model of the business venture is developed based on all costs associated with taking the product from idea to market and achieving sales sufficient to satisfy debt or investment requirements.
Objective: The objective of the economic feasibility is to develop a financial model of the business venture.
Product: The product of this step is a complete integration of the technical product information and the market study into one or more break-even financial models.
The business activities common to this step are those necessary to develop a conceptual plan for a business venture based upon one or more financial scenarios.
During the economic feasibility step, the following activities must be completed:
- Develop a financial analysis that identifies break-even scenarios based upon unit prices, volume of sales, and costs
- Determine whether the business opportunity presents sufficient profit margins to justify a business venture
- Assess the merits of licensing the opportunity compared to venturing
Milestones: A financial model accurately representing the business opportunity
Funding Sources: Personal finances, Friends and family
Business Information: Completion of the economic feasibility step will usually result in a go/no-go decision concerning the business venture, and if the decision is positive, identification of sources and uses of seed capital for the development phase.
Does the venture demonstrate a positive economic feasibility?
Have you developed a break-even financial analysis for the venture?
Does the venture offer financial returns that justify investment?
Have you compared the merits of licensing to venture?