Undertaking a new venture is high risk.  A singificant portion of businesses fail to achieve better than breakeven in their first few years of operation, and a significant portion also fail.  The factors that can go wrong are wide and varied, as are the things which need to go right.
Demand assessment and feasibility studies are the vital first stage of any new business.  They are an important filter on business ideas to assess whether they are really viable, or just a great idea. 

The demand assessment answers such questions as:

  • Is there demand for my product?
  • How is this demand manifested?
  • Are there specific niches which are not fulfilled?
  • Are there specific areas which are the best locations for your product?
  • Are there ones there ones that should be avoided?
  • How can I tweak my idea to make it viable and create demand?

The feasibility study answers such questions as:

  • What is the minimum fixed cost to set up and operate the business?
  • What turnover is required to cover these costs?  What is my breakeven point?
  • Are there things I can change to make this project or business viable?
  • How fine am I cutting this?  Will this succeed through being a sensible thing to do, or only through sheer creativity and determination?

Case study 1 - hotel resort

A regional development authority wanted to encourage local tourism and economic development.  It was aware that the local hotels in the area were often operating at or close to full occupancy rates, and thought that a tourist friendly hotel may do the trick, but was unsure whether a hotel was viable, and if so, what size might be justified.

We undertook a desktop review of local occupancy data and spoke with local operators to determine underlying demand and seasonality.  We then assessed this against relevant benchmarks to determine occupancy levels required to make the project viable.

Our analysis showed that high occupancy rates were actually driven by short term business demand by short contractors working in the region rather than by tourism, and although a project could be viable, it would require significant outbound marketing to get sufficient demand, rather relying on pass through traffic and pent up demand.   In other words, there wasn’t sufficient demand to get a chain interested in establishing the hotel at this stage.

As a result of this study, the authority was able to refocus its efforts on developing tourist demand, rather than pushing forward and losing money on an underutilised facility.  Since that time, the area has boomed, and several hotel operators have established hotels in response to the demand.

Case study 2 - interpretative centre

A local government authority and industry group believed that there was an opportunity to establish an industrial interpretive centre as a tourist attraction and as an education centre.  They were unsure on whether this was viable.

Using appropriate construction benchmarks, we provide a baseline costing for construction.  We benchmarked the idea with comparable centres elsewhere in Australia, and did research with relevant potential sources of custom.  Our analysis showed that while the concept had some niche appeal, the level of paying customers was unlikely to go very far towards covering costs of operation, let alone paying off the costs of the asset.

We did however determine that the centre could be viable if operating as a cooperative between the local council and the industry groups in the area.  By outsourcing some of the PR and training aspects of each of the companies to the centre, the industry groups could get greater engagement for lower cost, therefore making the centre viable.

Although the cooperative approach was interesting, it wasn’t considered a sustainable or politically agreeable solution.  The council went on to pursue other options for the site.  The site is now a speedway.