Nobody starts a business expecting it to fail. But the statistics are sobering: roughly half of all new businesses close within five years. The causes are remarkably consistent — and remarkably preventable. Every failed business had warning signs that, in hindsight, were visible before launch.
A feasibility study is designed to catch these warning signs before they cost you money. Here are the 10 most reliable predictors of business failure, what they look like in a feasibility analysis, and how to address each one.
1. Your Market Is Smaller Than You Think
The Warning Sign: You've calculated your market opportunity using top-down numbers — "the restaurant industry is worth $900 billion" — without narrowing to your actual addressable market. When you do the honest bottom-up math, the realistic revenue is a fraction of what you assumed. What It Looks Like in a Feasibility Study: TAM looks impressive, but SOM (Serviceable Obtainable Market) is tiny. Your realistic year-one revenue is $200,000, not the $2 million your initial estimate suggested. The Fix: Rebuild your market sizing from the bottom up. How many potential customers exist within your service area? What percentage will you realistically reach? What will they spend? If the bottom-up SOM doesn't support a viable business, the market isn't big enough — or your concept needs to reach a wider audience.2. You Can't Explain Why Customers Will Choose You Over Existing Options
The Warning Sign: When someone asks "why would customers pick you instead of [competitor]?", your answer is "because we'll be better" or "because our product is higher quality." These aren't differentiators — they're assumptions every competitor also makes. What It Looks Like: The competitive analysis reveals 5+ established competitors offering similar products at similar prices. Your concept doesn't have a specific, defensible advantage. The Fix: Identify a concrete differentiator that matters to customers and is difficult for competitors to replicate: a unique location, a proprietary process, a specific underserved niche, significantly lower cost structure, or a genuinely different customer experience. If you can't articulate the differentiator in one sentence, you don't have one.3. Your Revenue Projections Require Heroic Assumptions
The Warning Sign: Your financial model only works if you achieve above-average occupancy, above-average pricing, and below-average costs — simultaneously. Each assumption is theoretically possible, but achieving all of them together is unlikely. What It Looks Like: Sensitivity analysis reveals that a 10–15% shortfall in revenue (which is common for new businesses) turns your positive NPV negative. The Fix: Rebuild your projections using conservative assumptions — below-average occupancy, average pricing, above-average costs. If the business is still viable under these pessimistic conditions, you have genuine resilience. If it's only viable under perfect conditions, it's not viable in the real world.4. You're Undercapitalised
The Warning Sign: Your financial plan shows break-even at month 8, but you only have enough cash to survive until month 6. You're counting on revenue to fund operations before the business has proven it can generate that revenue. What It Looks Like: Cash flow projections show negative balances during the ramp-up period. The feasibility study reveals that you need 12–18 months of runway, but you've only planned for 6–8. The Fix: Either reduce your burn rate (lean launch, phased hiring), secure additional funding before launch, or redesign the concept to reach break-even faster. Never launch a business that requires revenue from day one to survive — the ramp-up always takes longer than expected.5. Your Margins Are Too Thin
The Warning Sign: Your projected net profit margin is under 5%, leaving no buffer for unexpected costs, slow months, or price competition. What It Looks Like: The financial model shows that even at projected volume, a 5% increase in food costs or a 10% decrease in pricing eliminates all profit. The Fix: Examine every component of the margin. Can you source cheaper? Can you charge more? Can you reduce overhead? If the industry inherently operates on thin margins (like restaurants), the volume and consistency need to be exceptional — and that needs to be proven, not assumed.6. You're Entering a Declining Market
The Warning Sign: The industry data shows consistent year-over-year decline in market size, customer numbers, or spending. You're planning to swim against the current. What It Looks Like: Market research reveals that demand has shrunk 3–5% annually for the past 5 years, with no signs of reversal. Your revenue projections assume growth in a shrinking market. The Fix: Either pivot to a growing segment within the declining market, differentiate so dramatically that you can grow even as the overall market shrinks, or choose a different market. Building a business in a declining industry requires exceptional execution and usually means taking share from weakening competitors.7. Your Break-Even Requires Unrealistic Volume
The Warning Sign: Break-even analysis shows you need 150 customers per day, but comparable businesses in similar locations serve 80–100. What It Looks Like: The break-even calculation produces a number that exceeds what the location, market, or business model can realistically deliver. The Fix: Reduce fixed costs (smaller location, leaner staffing), increase contribution margin (higher prices, lower variable costs), or accept that this specific configuration isn't viable. Sometimes the fix is a smaller version of the same concept — 40 seats instead of 80, one location instead of three.8. You Haven't Accounted for Competition's Response
The Warning Sign: Your market share projections assume competitors will continue doing exactly what they're doing now while you take their customers. The Fix: Plan for competitive response. If you enter at a lower price, competitors may match it. If you offer a new feature, competitors may copy it. Your advantage needs to be structural — something that survives competitive response.9. Your Business Depends on a Single Customer, Supplier, or Channel
The Warning Sign: More than 30% of projected revenue comes from one customer, one supplier controls a critical input, or one marketing channel drives all customer acquisition. The Fix: Diversify before launch. Identify multiple customer segments, secure backup suppliers, and build at least two customer acquisition channels. Concentration risk is one of the most common and preventable causes of business failure.10. You've Skipped the Feasibility Study
The Warning Sign: You've gone straight from idea to business plan — or worse, straight from idea to spending money — without objectively testing whether the concept is viable. The Fix: Stop. Before spending another dollar on the business, run a feasibility study. Test the market, model the finances, calculate NPV and IRR, run sensitivity analysis, and get an honest go/no-go recommendation.A $200 feasibility study that says "don't do this" saves you $200,000 in a failed business. A feasibility study that says "go" gives you evidence-based confidence. Either way, you win.
The Common Thread
Every one of these warning signs shares a root cause: assumptions that haven't been tested. The market assumption, the pricing assumption, the cost assumption, the volume assumption, the competition assumption. Each one feels reasonable in isolation. Together, they can create a beautiful plan for a business that was never going to work.
A feasibility study is the testing mechanism. It takes your assumptions and subjects them to data, financial modelling, and scenario analysis. The assumptions that survive this scrutiny become the foundation of a viable business. The ones that don't are caught before they cost you.
SimpleFeasibility tests your business assumptions against real market data and calculates whether the numbers actually work. NPV, IRR, break-even, and interactive What-If analysis — in under 8 minutes. Test Your Business Idea →Related Articles: