Feasibility Analysis

What do we learn?

a.     What is feasibility and why its important?

Ø  What is feasibility analysis?

·         process of determining if a business idea is viable.

·         Assessment of a potential business rather than strictly a product or service idea.

·         Investigative in nature.

·         Designed to critique the merits of proposed business.

Ø  Why feasibility analysis is important?

·         According to John w. Mullins: avoid falling into the “everything about my opportunity is wonderful” mode.

·         Failure to properly investigate the merits of bsiness idea before developing a business model and a business plan will create a risk of blinding an entrepreneur to inherent risks associated with potential business.

Ø  Completeing a feasibility analysis requires:

·         Primary research: collected the person or persons completeing the amalysis. (includes prospective customers)

Example: feedback from industry experts.

·         Secondary research: investigate data that is already collected. (includes industry studies)

Example: census bereau data, analysis forecasts.

b.    4 key areas of feasibility analysis.

Ø  Product/ service feasibility analysis

·         Assessment of the overall appeal of the product / service being proposed.

·         2 components:

1.      Product/ service desirability

-          Product/ service is desirable and serves a need in the marketplace.

-          Concept test: tool that is useful in soliciting feedback and advice from customers prospective.

-          Concept test involves showing preliminary description of a product or service idea called concept statement.

-          Contents in concept test one- page document:

1.      Description of the product or service.

2.      The intended target market.

3.      Benefits of the product or service.

4.      Description of how the product or service will be positioned relative to competitors.

5.      Brief description of the company’s management team.

2.      Product/ service demand

-          Determine if there is a demand for the product or the service.

-          3 utilized methods:

1.      Talking face-to-face with potential costumers.

§  the only way to know what kind of product or sevice people want.

2.      Utilizing online tools.

§  using the landing page methods. Landing page is a single web that provides direct sales copy.

3.      Library, internet, and gumshoe research.

§  to collect feedback from customer prospective and industry related data.

§  Library act as a archival.

§  Internet provides specific recommendations of online recources to utilize.

§  Gumshoe research is important for gaining a sense of the likely demand. This research act as a investigator.

Ø  Industry/ target market feasibility analysis

·         Assessment of the overall appeal of the industry and the target market.

·         Industry is a group of firms producing similar product or service.

·         Target market is the limited poertion of the industry that it goes after or to which it wants to appeal.

·         2 components:

1.      Industry attractiveness

-          Attractive industry have 5 main characteristics:

§  Young rather than old.

§  Early rather than late in their life cycle.

§  High rather than low operating margins.

§  Fragmented rather than concentrated.

§  Growing rather than shirnking.

2.      Target market attractiveness

-          Place within a larger market segment that represents a narrower group of customer with similar needs.

-          Challenges in identifiying an attractive target market is to find a market that’s large enough for the proposed business but yet small enough to yet attracting small competitors.

Ø  Organizational feasibility analysis

·         To determine whether the proposed business has sufficient management expertise, organizational competence, and resources to successfully lauch.

·         2 primary issues:

1.      Management prowess

-          Requires the individuals starting the firm to be honest and candid.

-          2 important factors are passion and the understanding of the markets.

-          New venture team: group of founders, key employees, and advisers that either manage or help manage new business.

2.      Resources sufficiency

-          The focus in organizational feasibility analysis is on nonfinancial resources.

-          The objective is to identify the most important nonfinancial resources and assess their ability.

-          Another key resources sufficiency issue is the ability to obtain intellectual property protection on key aspects of the business.

Ø  Financial feasibility analysis

·         A preliminary financial analysis of whether a business idea is wirth pursuing.

·         3 important areas to consider:

1.      Total start- up cash needed

-          Showing how a new venture’s start- up costs will be covered and repaid.

-          It is better to overestimate rather thanunderestimate the costs involved.

2.      Financial performance of similar businesses

-          Estimating a proposed start- up’s potential financial performance by comparing it to similar , already establish businesses.

-          Several ways of doing this:

§  Substantial archival data: offers detailed financial reports on thousands of individual firms available online.

§  Obtain financial data on smaller firms.

3.      Overall financial attractiveness of the proposed venture

-          Based primarily on a new venture’s sales and rate of return (or profitability).

-          Factors to assess whether the venture is financially feasible:

§  Amount of capital invested.

§  Risk assumed in launching the business.

§  Exsisting alternatives for the entrepreneur’s time and efforts.

c.      Feasibility analysis template.

Ø  first screen is a template entrepreneurial firms use to complete feasibility analysis. Called first screen because feasibility analysis is an entrepreneurial’s intia pass at determining the feasibility of the business idea.

Ø  It maps the 4 keys of feasibility analysis.