Over the past year and a half, we have been regularly engaging with start-up businesses and entrepreneurs from a wide variety of sectors, as well as organisations providing both funding and development support to start-ups. A common challenge faced by most start-ups is access to funding. This is often due to the fact that they do not have a proven track record and are unable to demonstrate that their business idea is viable, and are therefore viewed as ‘high risk’ by funders. This essentially creates a mismatch between funders and start-ups at the critical ‘seed stage’ of development. Understanding this, we specifically engaged with funders to gain some insight into how start-ups can access the funding that is available. What it essentially comes down to is both (a) having a solid business case and (b) being able to prove economic and financial viability.
In this blog we’ll address part a, essentially, understanding the term ‘business case’ and suggestions on how you can build a solid business case. In our next blog post, we’ll focus on part b, which unpacks how to determine market viability and how to leverage this to guide financial projections.
So what is a business case?
Simply put, do you have evidence to back up your idea? We all have ideas, but not all of us know how to step back and objectively assess our ideas to determine whether these will survive in a very competitive start-up environment. A business case is the first step at truly understanding whether an idea is worth pursuing or not, which is critical because it is going to require a lot of time and effort to take your idea through to implementation. A business case can be as simple as a one-page document that presents a clear and concise overview of your project idea and backs this up with some factual data and information. This will provide you with some evidence to start to test initial interest for your project idea.
The difference between a business case, feasibility study and business plan
A business case must not be confused with a feasibility study or a business plan. A feasibility study is usually undertaken after there is enough evidence, through some initial research, to support an idea or project and you can show you have a business case. It digs deeper to understand and assess the market and industry, analyse competitors, and measure potential market demand (i.e. economic viability), which then assists to determine financial viability. A business plan then draws from these critical findings and includes more administrative, institutional and operational requirements, and more accurate financial calculations. We are often contracted to just undertake the economic viability component of a feasibility study (i.e to determine potential market demand) for clients who have an idea and want to both be able to test their business case and have some additional evidence to support launching into a full-scale, and often multi-disciplinary feasibility study. Such specialist studies can be very costly (upwards of R50,000 for a market demand assessment and R100,000 for an economic feasibility study) and as such, start-ups often end up hitting a wall at this point. However, before spending a cent on such studies, you can do some basic research to first determine if you have an idea worth investing in by building a business case.
How to develop a business case
So, what can you do to show that you have a business case? We are huge fans of the lean canvas model and the first thing we do when approached with an idea is put it to the lean canvas test. The approach is to unpack your idea into a one-page template by providing information on the problem, customers, value proposition, solution, channels to customers, revenues and costs, key metrics and the unfair advantage, in that order. The lean canvas will quickly show you if what you have is just an idea or a good idea that has the potential to succeed. Once completed, the outputs can easily be translated into concept/proposal documents and/or a simple pitch deck.
It’s just the start!
Unfortunately, most public sector development finance institutions such as NEF and SEFA will require more detailed market research, and a business case document most likely won’t suffice in leveraging funds. It can, however, be used to leverage initial interest and develop support in undertaking specialist studies. Essentially, it will generate some level of confidence and buy-in and funders might be more likely to recommend you to other small enterprise support agencies, such as SEDA, who will assist you to undertake market research. However, the business case could go a long way to securing private sector investors.
So in summary, if you have a new idea, we would suggest that you take some time to unpack and test your idea and prepare a solid business case before approaching potential partners, investors or funding agencies. This will save you time and money, allow you to stand out above other start-ups, and put you in a better position to leverage support for additional market research.