ADENTRE MIDTERM 3
Overall Financial Attractiveness of the Proposed Investment
-A number of other financial factors are associated with promising business start-ups. -In the feasibility analysis stage, the extent to which a business opportunity is positive relative to each factor is based on an estimate rather than actual performance. -The table on the next slide lists the factors that pertain to the overall attractiveness of the financial feasibility of the business idea.
Financial Performance of Similar Businesses
-Estimate the proposed start-up's financial performance by comparing it to similar, already established businesses. -There are several ways to doing this, all of which involve a little ethical detective work. •First, there are many reports available, some for free and some that require a fee, offering detailed industry trend analysis and reports on thousands of individual firms. •Second, simple observational research may be needed. For example, the owners of New Venture Fitness Drinks could estimate their sales by tracking the number of people who patronize similar restaurants and estimating the average amount each customer spends.
Buying Intentions Survey
-Is an instrument that is used to gauge customer interest in a product or service. -It consists of a concept statement or a similar description of a product or survey with a short survey attached to gauge customer interest. -Internet sites like SurveyMonkey make administering a buying intentions survey easy and affordable.
First Screen
-Shown in Appendix 3.1 is a template for completing a feasibility analysis. -It's called "First Screen" because it's a tool that can be used in the initial pass at determining the feasibility of a business idea. -If a business idea cuts muster at this stage, the next step is to complete a business plan.
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 an entire industry. -Often, considerable ingenuity must be employed to find information to assess the attractiveness of a specific target market.
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.
Timing of Feasibility Analysis
-The proper time to conduct a feasibility analysis 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.
Library, Internet, and Gumshoe Research
-The second way to assess the demand for a product or service is by conducting library, Internet, and gumshoe research. -Reference librarians can often point you toward resources to help you investigate a business idea, such as industry-specific trade journals and industry reports. Internet searches can often yield important information about the potential viability of a product or service idea
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.
Management Prowess
A proposed business should candidly evaluate the prowess, or ability, of its management team to satisfy itself that management has the requisite passion and expertise to launch the venture.
Total Start-Up Cash Needed, Financial Performance of Similar Businesses, Overall Financial Attractiveness of the Proposed Venture
Components of financial feasibility analysis
Industry Attractiveness, Target Market Attractiveness
Components of industry/target market feasibility analysis
Management Prowess, Resource Sufficiency
Components of organizational feasibility analysis
Desirability and Demand
Components of product/service feasibility analysis
Product Service Desirability
First, ask the following questions to determine the basic appeal of the product or service. Second, Administer a Concept Test
product/service feasibility, industry/target market feasibility, organizational feasibility, financial feasibility
Forms/Components of feasibility analysis
Gumshoe Research
It is a detective or an investigator that scrounges around for information or clues wherever they can be found. Asking people what they think about your product or service idea. If your idea is to sell educational toys, spend a week volunteering at a day care center and watch how children interact with toys.
Concept Statement
It 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.
Product/Service Demand
There are two steps for it to be assessed under product/service: -Step 1: Administer a Buying Intentions Survey -Step 2: Conduct Library, Internet, and Gumshoe research
Non Financial Resources (Critical to success of 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 Industry
• 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
Industry/Target Market Feasibility Analysis
• Is an assessment of the overall appeal of the industry and the target market for the proposed business. • An industry is a group of firms producing a similar product or service. • A firm's target market is the limited portion of the industry it plans to go after.
Financial Feasibility Analysis
• Is the final component of a comprehensive feasibility analysis. • A preliminary financial assessment is sufficient.
Feasibility Analysis
• It 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.
Financial Attractiveness Factors
• 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
Feedback of concept statement
•A sense of the viability of the product or service idea. •Suggestions for how the idea can be strengthened or "tweaked" before proceeding further.
Product/Service Feasibility
•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.
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.
hit the streets, talk to potential customers.
•One of the most effective things an entrepreneur can do to conduct a thorough product/service feasibility analysis is to?
2 most important factors of mgt 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.