Feasibility Analysis

same strategic group

have two or more competitive characteristics in common

concept statement

is a one-page description of a business that is distributed to people who are asked to provide feedback on the potential of the business idea. - feedback will hopefully provide the entrepreneur: A sense of the viability of the product or service idea. Suggestions for how the idea can be strengthened or "tweaked" before proceeding further.

Feasibility Analysis

- ... is the process of determining whether a business idea is viable. - It is the preliminary evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing.

Management Prowess

- A proposed business should candidly evaluate the ..., or ability, of its management team to satisfy itself that management has the requisite passion and expertise to launch the venture.

Examples of nonfinancial resources that may be critical to the successful launch of a new business

- Affordable office space. - Lab space, manufacturing space, or space to launch a service business. - Availability of contract manufacturers or service providers. - Key management employees (now and in the future). - Key support personnel (now and in the future). - Ability to obtain intellectual property protection. - Ability to form favorable business partnerships.

Characteristics of Attractive Industries

- Are young rather than old. - Are early rather than late in their life cycle. - Are fragmented rather than concentrated. - Are growing rather than shrinking. - Are selling products and services that customers "must have" rather than  "want to have." - Are not crowded. - Have high rather than low operating margins. - Are not highly dependent on the historically low price of key raw materials.

Product/Service Desirability steps

- First, ask the following questions to determine the basic appeal of the product or service. - Second, Administer a Concept Test

Industry attractiveness

- Industries vary in terms of their overall attractiveness. - In general, the most attractive industries have the characteristics depicted on the next slide. - Particularly important—the degree to which environmental and business trends are moving in favor rather than against the industry.

Components of industry/target market feasibility analysis

- Industry Attractiveness - Target Market Attractiveness

Industry/Target Market Feasibility Analysis

- Is an assessment of the overall appeal of the industry and the target market for the proposed business. - A firm's target market is the limited portion of the industry it plans to go after.

Product/Service Feasibility Analysis

- Is an assessment of the overall appeal of the product or service being proposed. - Before a prospective firm rushes a new product or service into development, it should be sure that the product or service is what prospective customers want.

Financial Feasibility Analysis

- Is the final component of a comprehensive feasibility analysis. - A preliminary ... assessment is sufficient.

Components of product/service feasibility analysis

- Product/Service Desirability - Product/Service Demand

Financial Factors Associated With Promising Business Opportunities

- Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined market niche. - High percentage of recurring revenue—meaning that once a firm wins a client, the client will provide recurring sources of revenue. - Ability to forecast income and expenses with a reasonable degree of certainty. - Internally generated funds to finance and sustain growth. - Availability of an exit opportunity for investors to convert equity to cash.

Product/Service Demand

- Step 1: Talking Face-to-Face with Potential Customers. - Step 2: Using Online Tools, Such as Google AdWords and Landing Pages, To Assess Demand.

Target Market Attractiveness

- The challenge in identifying an attractive target market is to find a market that's large enough for the proposed business but is yet small enough to avoid attracting larger competitors. - Assessing the attractiveness of a target market is tougher than assessing the attractiveness an entire industry. - Often, considerable ingenuity must be employed to find information to assess the attractiveness of a specific target market.

Talking Face-to-Face with Potential Customers

- The only way to know if your product or service is what people want is by talking to them. - The idea is to gauge customer reaction to the general concept of what you want to sell, and tweak, revise, and improve on the idea based on the feedback. - In some cases, talking with potential customers will cause an entrepreneur to abandon an idea.

Factors of management Prowess

- The passion that the sole entrepreneur or the founding team has for the business idea. - The extent to which the sole entrepreneur or the founding team understands the markets in which the firm will participate.

Timing of Feasibility Analysis

- The proper time to conduct a .... is early in thinking through the prospects for a new business. - The thought is to screen ideas before a lot of resources are spent on them.

Resource Sufficiency

- This topic pertains to an assessment of whether an entrepreneur has sufficient resources to launch the proposed venture. - To test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources that will be needed to move the business idea forward successfully. - If critical resources are not available in certain areas, it may be impractical to proceed with the business idea.

Guidelines: Strategic Group Maps

- Variables selected as axes should not be highly correlated - Variables chosen as axes should expose big differences in how rivals compete - Variables do not have to be either quantitative or continuous - Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group - If more than two good competitive variables can be used, several maps can be drawn

Components of organizational feasibility analysis

-Management Prowess - Resource Sufficiency

Components of financial feasibility analysis

1. total start-up cash needed 2. financial performance of similar businesses 3. overall financial attractiveness of the proposed venture

Components of a Properly Conducted Feasibility Analysis

A ............ includes four separate components. - Product/Service Feasibility - Organizational Feasibility - Industry/Target Market Feasibility - Financial Feasibility

Organizational Feasibility Analysis

Is conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to successfully launch a business. - Focuses on non-financial resources.

Constructing a Strategic Group Map

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group, making circles proportional to size of group's respective share of total industry sales

Utilizing Online Tools

Some entrepreneurs purchase text ads on search engines that show up when a user is searching for a product that is close to their idea. If the searcher clicks on the text ad, they are directed to a landing page that describes the idea. There may be a link on the landing page that says "For future updates please enter your e-mail address." Demand for the idea can be assessed by how many people click on the text ad and enter their e-mail address.

Total Start-Up Cash Needed

The first issue refers to the total cash needed to prepare the business to make its first sale. An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed to generate the first $1 in revenues. The point of this exercise is to determine if the proposed venture is realistic given the total start-up cash needed.