Alan Thomson of Rochester University estimates that only one out of 50 businesses is commercially viable. To determine whether an organization can remain competitive in the market, it must determine if its business model is financially and organizationally feasible. Indeed, these standards will determine a business’s success in unveiling new products, undertaking new projects and acquiring companies. Despite the similarities between being financially and organizationally feasible, these concepts differ in several respects.
Organizational feasibility pertains to a company’s realistic ability to handle an undertaking. What determines organizational feasibility includes the management team’s set of skills, competency and available resources. Scott Andrews Shane, author of the book “Entrepreneurship: A Process Perspective,” notes that one example of a limitation is the management team’s unfamiliarity with the industry: not knowing the best location to start the company, ignorance of production methods and lack of financial skills are just a few impediments. Overcoming these obstacles and requires assembling a management team with a diverse set of complementary skills.
Financial feasibility has to do with a business’s capability to raise capital and maintain a stable cash flow. In some cases, the company may have imperfect information and must make projections based on estimates. Bruce Barringer explains in his book “The Truth about Starting a Business” that assessing financial feasibility is accomplished in two ways. The first is by estimating the cost of starting the business by formulating a preliminary budget. The second is by comparing the potential business venture’s financial picture with that of an established business.
Organizational feasibility requires gaining intangible assets such as skills and know-how, whereas financial feasibility is almost exclusively related to the acquisition of asset-based resources including cash. It is not uncommon for a businesses use cash to achieve organizational feasibility; paying for a strategic management seminar is an example. Indeed, achieving the necessary know-how to run a business is an easier undertaking if the business is financially feasible. Likewise, becoming financially feasible is a much simpler task if the management team is already knowledgeable about the product and its related industry.
Both financial and organizational feasibility are required to launch a business. Thus, one type is not more important than the other. In addition to these two sectors, a company also gauges market feasibility and contingency plans. Having a clear picture of these issues allows the business to present its ideas to investors for financing, identify and overcome potential obstacles and gain the necessary skills or financing to proceed.