2. module 2

7/21/2019 2. module 2

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FEASIBILITY ANALYSIS

MODULE 2

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Identifying and recognizing opportunities

An opportunity is a favorable set of circumstances that

creates a need for a new product, service or business

Entrepreneurial ventures are started in one of two ways

1 !ome ventures are externally stimulated

An entrepreneur decides to launch a "rm, searches for

and reco#ni$es an opportunity and then starts a

business

2 Other "rms are internally stimulated

An entrepreneur reco#ni$es a problem or an opportunity

#ap and creates a business to "ll it

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A common mista%e entrepreneurs ma%e in

opportunity reco#nition process is pic%in# a

currently available product or service that they

li%e or are passionate about and then tryin# to

build a business around a sli#htly better version

of it& not sensible approach

'he %ey to opportunity reco#nition is to identify

a product or service that people need and are

illing to buy, not one that an entrepreneur

wants to ma%e and sell

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Four essential !ualities of an opportunity

"pportunity

#rat$er t$an %ust an idea&

Attractive

timely

'ura(le

Anc$ored in aproduct)

service or(usiness t$at

creates or addsvalue for its

(uyer and enduser

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An idea is a thou#ht, an impression or a notion

An idea may or may not meet the criteria of an

opportunity

Many entrepreneurial ventures fail not because

the entrepreneurs that launches them didn(twor% hard, but rather because there was no real

opportunity to be#in with

)t is crucial to understand whether the idea "lls a

need and meets the criteria for an opportunity

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T$ree ays to identify an opportunity

A& "(serving trends

Observe trends and study how they create

opportunities for entrepreneurs to pursue

'he most important trends to follow are

economic trends, social trends, technolo#ical

advances and political and re#ulatory chan#es&

remain aware of the chan#es in these areas

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Social forces!ocial and culturaltrendsDemo#raphic

chan#es*hat people thin% is+in

!tate of theeconomyLevel of disposableincome-onsumerspendin# patterns

*olitical andregulatory chan#es.ew chan#es inpolitical arena

.ew laws andre ulations

Tec$nologicaladvances.ew technolo#iesEmer#in#

technolo#ies.ew uses of oldtechnolo#ies

Ne(usiness)

productandserviceideas

Business)product) orservice

opportunitygapDi/erencebetween what(savailable andwhat0s possible

Environmental trendssuggesting (usiness or productopportunity gaps

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B& Solving a pro(lem

'he second approach& reco#ni$e problems and "nd ways

to solve them

'hese problems can be reco#ni$ed by observin# the

challen#es that people encounter in their daily lives and

throu#h more simple means such as intuition or chance

Many companies have been started by people who have

eperienced a problem in their own life and then reali$ed

that the solution to the problem represented a businessopportunity&

ay sorensen& cup sleeves&ava ac%et, Arlene

3arris425567& cell phones& 8reat-all

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+& Finding gaps in t$e mar,etplace-

A common way that #aps in the mar%etplace are

reco#ni$ed is when people become frustrated

because they can(t "nd a product or service that

they need and reco#ni$e that other people feel

the same way& curves international lady of

America, slim and tone

A related techni9ue for #eneratin# new idea is to

ta%e an eistin# product or service and create a

new cate#ory by tar#etin# a completely di/erent

tar#et mar%et& :op-ap #ames, %athryn

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*re. Selection *rocess

!et of activities one may en#a#e in before startin# to

loo% for ideas

'he obective is to have a clearer notion of eactly what

should you be loo%in# for

Uncover your personal traits

;nowled#e and Eperience

'echnical %nowled#e

Domain %nowled#e& speci"c to industry

-ontacts& width an depth

8oals and aspirations& short and lon# term

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Sources of Business Ideas

:ast wor% eperience

3obbies and interests

!tren#ths and abilities

<riends and family

Distribution channels

'ravel

=oo%s and ma#a$ines

-urrent trends

>esearch or#ani$ations

'he web

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Tec$ni!ues for generating ideas

Brainstorming

=rainstormin# is simply the process of #eneratin# several

ideas about a speci"c topic

<ormal brainstormin# session& the leader of the #roup as%s

the participants to share their ideas& one person shares an

idea, another person reacts to it, another person reacts to

the reaction and so on

'he session is not used for analysis or decision ma%in#&

ideas will be "ltered and analy$ed

<our rules for a formal brainstormin# session

.o criticism

<reewheelin#

Move 9uic%ly

Leapfro##in# is encoura#ed

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Focus group

A focus #roup is a #atherin# of ? to 15 people

who are selected because of their relationship to

the issue bein# discussed

)t involves a #roup of people who are familiarwith a topic, are brou#ht to#ether to respond to

9uestions, and shed li#ht on an issue throu#h

the #ive and ta%e nature of a #roup discussion

Usually wor% best as a follow up to brain

stormin#

&

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Li(rary and internet researc$

-onduct library and internet research

Libraries are often under utili$ed source of

information for #eneratin# ideas

Meet the librarian

)nternet research& type new bi$ ideas into

8oo#le or any other search en#ines

"t$er tec$ni!ues

+ustomer advisory (oards) day.in.t$e.life

researc$

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*reliminary researc$

*hile researchin# the bi$ opportunity, one should be

careful to #et as much as information in followin# %ey bi$

areas

+ost structure

!easonality of raw material prices, cost and feasibility of

alternatives and variable costs of raw materials and

consumables as a proportion of total costs

1ar,et researc$

!ellin# price of the product, dominant players in the

mar%et, is there any carteli$ation or a stron# industry

association

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Tec$nology

>ecent chan#e in technolo#y

23 issues

Ade9uate safety measures

Also be prepared for dealin# with trouble in case

somethin# #oes wron#

4overnment regulations

8ovt re#ulations may act as entry barriers in the industry

Lon# time to #et clearance from 8ovt a#ency

May be very costly to comply with some industry standard

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Business idea evaluation

'he "ve 9uestion

5- 6$ic$ is t$e product7service

!hould be able clearly state and describe the

product@service you are providin# and the bene"t it

o/ers& one or two sentences

)dentify the important problem of the customer the

business addresses

'hin% about the value the customer stands to #ain

<ocus on the need rather than on the attributes of the

product@service

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8- 6$at is t$e (usiness model9

A business model is a description of various aspects of

business, such as operational processes, mar%etin#pro#rammes and the or#ani$ational structures

A detailed product description and an overview of how it is

#oin# to be produced and delivered to the tar#et customersDoes the business loo% to be economically viable

hi#h mar#ins are usually not sustainable or scalable

Mar#ins can come down when they try producin# in lar#enumbers or when there is intense competition in the

mar%et

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:- 2o (ig is your mar,et9

3ow many total customers are there

3ow many will buy your products

*hether you are tar#etin# di/erent pro"le of

customers& you have to ud#e if you cane/ectively tar#et di/erent se#ments at the

same time

Bou(ll #et an idea about the investment that is

re9uired for the business

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;- 2o can you protect your (usiness9

3ow can you protect your business from other

eistin# businesses and potential new entrants

*hy you do you thin% you are in a better

position to this bi$ than anyone else<- 6$at are you getting out of it9

'he business which ma%es more money is the

better bi$ =ut one should not loo% at the total

pro"ts alone

)t is also important to #au#e the reliability of the

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Feasi(ility analysis=

)t is the process of determinin# if a business idea

is viable

'he most e/ective business emer#e from the

process that includes

1 >eco#ni$in# a business idea

2 'estin# the feasibility of the idea

C *ritin# a business plan and

Launchin# the business

Many entrepreneurs ma%e the mista%e of

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A mental transition needs to be made when

completin# a feasibility analysis from thin%in# of

a business idea as %ust an idea to thin%in# of it

as a (usiness-

A feasibility analysis is an assessment of a

potential business rather than strictly a product

or service idea

-ompletin# a feasibility analysis re9uires both

primary and secondary research

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*rimary researc$= that is collected by the

person or persons completin# the analysis&

tal%in# to the industry eperts, obtainin#

feedbac% from prospective customers,

conductin# focus #roup, and administratin#

surveys

Secondary researc$= probes that already

collected& industry studies, census bureau data,analysts forecasts, and other pertinent info

collected throu#h library and internet research

*roduct7

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Proposed

businessventure

Spendingt$e time >resourcesnecessaryto move

forardit$ t$e(usiness

ideadepends

on

Financial

feasi(ility

"rganizational

feasi(ility

Industry7 mar,etfeasi(ilit

y

*roduct7service

feasi(ility

*roceedit$

(usinessplan

No inone ormoreareas

Yes inall areas

'rop orret$in,

(usiness

idea

3ole of feasi(ilityanalysis in developingsuccessful (usiness

plan

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*roduct7 Service feasi(ility Analysis

)s an assessment of the overall appeal of the

product or service proposed

'here are two components to :roduct@ !ervice

feasibility Analysis

1 :roduct@ !ervice desirability

2 :roduct@ !ervice demand

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5- *roduct7 Service desira(ility

<irst component of :roduct@ !ervice feasibility

analysis is to arm that the proposed product or

service is desirable and serves a need in the

mar%etplace

1 Does it ma%e sense )s it reasonable )s it

somethin# consumers will #et ecited about

2 Does it ta%e advanta#e of an environmental

trend, solve a problem, or "ll a #ap in the

mar%etplace

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+oncept test=

)t involves showin# a preliminary description of a

product or service idea, called a concept

statement, to the industry eperts and

prospective customers to solicit their feedbac%

)t is a one pa#e document that normally includes

A description of the product or service& the

features of the product or serviceG many

include s%etch of it

'he intended tar#et mar%et& lists the

consumers or businesses who are e ected

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'he bene"ts of the products or service& how it

adds value and@or solves a problem

A description of how the product or service will

be positioned relative to competitors A

company(s position describe how its product or

service is situated relative to its rivals

A brief description of the company(s

mana#ement team

)t should be shown to at least 15 people who are

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)t should be shown to at least 15 people who are

familiar with the industry that the "rm plans to

enter and who can provide informed feedbac%

'he temptation to show it to family and friends

should be avoided because these people are

predisposed to #ive positive feedbac% and advice

A short survey should be attached to the

statement

'he information collected from the survey should

be tabulated and carefully read

'he statement can be used as iterative manner to

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8- *roduct7 Service 'emand

'o determine if there is demand for the product

or service

'here are two techni9ues for ma%in# this

determination

1 Administerin# a buyin# intention survey

2 -onductin# library, internet and #umshoe

research

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Buying Intentions Survey

)s an instrument that is used to estimate customer

interest in a product or service

)t consists of concept statement or a similar description

of a product or service with a short survey attached

'he statement and survey should be distributed to 25

to C5 potential customers 4people who completed the

concept statement test s$ould not (e as%ed to

complete this survey7 One caution is that people who say they intend to

purchase a product@service don(t always follow throu#h&

results are optimistic

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Format for t$e survey

3ow li%ely would you be to buy the product or service

described above&&&&&&&&&&& de"nitely would buy

&&&&&&&&&&& probably would buy

&&&&&&&&&&& mi#ht or mi#ht not buy

&&&&&&&&&&& probably would not buy

&&&&&&&&&&& de"nitely would not buy

Additional 9uestions

3ow much would you be willin# to pay for the product or

service

*here would you epect to "nd this product@ service for sale

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One approach to "ndin# 9uality people to tal%

to about a product@ service or to react to the

concept statement is to contact trade

associations and@or attend industry trade shows@

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8- Li(rary) internet and gums$oe researc$

Bou have to accumulate evidence that there

will be healthy demand for your product or

service

Librarians& industry speci"c ma#a$ines, trade

ournals and industry reports

8umshoe researchH is a detective or an

investi#ator that scroun#es around for

information or clues wherever they can be

found

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Industry7Target 1ar,et Feasi(ilityAnalysis

)s an assessment of the overall appeal of the

industry and the tar#et mar%et for the product or

service bein# proposed

)ndustry& is a #roup of "rms producin# a similar

product or service& computers, children(s toys

'ar#et mar%et& is the limited portion of the

industry that it #oes after or to which it wants to

appeal

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'wo components in industry@tar#et mar%et feasibility

analysis

1 )ndustry attractiveness

2 'ar#et mar%et attractiveness

5- Industry attractiveness

. Bou should #ain a sense of whether the industry

you(re enterin# is a #ood one or a poor one for start&

ups

. 'he de#ree to which environmental trends and

business trends are movin# in favor of the industry

.

=arriers to entry

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+$aracteristics of attractive industries

Are youn# rather than old

Are early rather than late in their life cycle

Are fra#mented rather than shrin%in#

!ell products or services that customers +must

have rather than +want to have

Are not crowded

3ave hi#h rather low operatin# mar#ins

Are not hi#hly dependent on the historically low

price of a %ey raw material to remain pro"table

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2 Target mar,et attractiveness

=y focusin# on a smaller tar#et, a "rm can usually avoid

head to head competition with industry leaders and canfocus on servin# a speciali$ed mar%et very well

Most successful start&ups either introduce a new product

into eistin# mar%et or introduce a new mar%et to aneistin# product

'he challen#e in identifyin# an attractive tar#et mar%et is

to "nd a mar%et that(s a large enoug$ for t$e proposed

(usiness but is yet small enoug$ to avoid attracting

larger competitors at least until the entrepreneurial

venture can #et o/ a successful start & Do#ster

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8enerally easy to "nd #ood information to

assess the attractiveness of an entire industry

)nformation about the attractiveness of a small

tar#et within an industry is tou#her& if the start&

up is pioneerin# the tar#et mar%et

)nformation from more than one industry and@or

mar%et must be collected

32O audios& M:C mar%et and i:od mar%et and

also water sports industry

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"rganizational Feasi(ility Analysis

)s to determine whether a proposed business has

sucient mana#ement epertise, or#ani$ational

competence and resources successfully launch

its business

)mportant part& is assessin# the de#ree of

passion that a sole entrepreneur or team of

entrepreneurs has for a business idea 'wo primary issues to consider

1 Mana#ement prowess

2 >esource sucienc

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1anagement proess=

A proposed business should evaluate the

prowess or ability, of its initial mana#ement

team, whether it is a sole entrepreneur or a

lar#er #roup

'his tas% re9uires the individuals startin# the

"rm to be honest and fran% in their self&

assessment

'wo most important factors in this area& the

passion for the business idea and the etent to

which entre reneur and team understands the

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Mana#ers with etensive professional and social

networ%s have an advanta#e& reach out to collea#ues

and friends& plu# eperience or %nowled#e #apA potential new&venture team should have an idea of the

type of new venture team that it can assemble

A new venture team is the #roup of founders, %eyemployees and advisers that either mana#e or help

mana#e a new business in its start&up years

Many potential business founders "nd while assessin#mana#ement prowess is that they may bene"t from

"ndin# one or more partners to help them launch their

business

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Or#anisational feasibility analysis& <indin# the

ri#ht business partner

'ipsH

;now the eperiences and s%ills you need&

"nd out the #aps that remain after self

assessment

Ma%e sure your wor% habits and personalities

are compatible

Ma%e sure you and your partner have

common #oals and aspirations

&

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3esource su?ciency=

)s to determine whether the proposed venture

has or is capable of obtainin# sucient

resources to move forward

'he obective is to identify non "nancial

resources and assets whether they are available

Another %ey issue is the ability to obtain

intellectual property protection on %ey aspects

of the business& only applicable to companies

that have invented a ne product or are

introducin a ne (usiness rocess that

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A resource suciency issues that varies in

importance dependin# on the type of business

that is bein# considered is the availability of an

appropriate and a/ordable location to operate

from

'o test resource suciency, a "rm should list the

6 to 12 most critical non "nancial resources that

it will need to move its business idea forwardand determine if those resources are available

location& what type of location will wor% the

best

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Financial feasi(ility analysis

<inal component of feasibility analysis

A preliminary "nancial assessment is usually

sucient& speci"cs of the business will #radually

evolve, ma%in# it impractical to spend a lot oftime early on preparin# detailed "nancial

forecasts

'he most important issues to consider at this

sta#e

1 'otal start&up cash needed,

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Total start.up cas$ needed

>efers to the total cash needed to prepare the

business to ma%e its "rst sale

An actual bud#et should be prepared that all

lists the anticipated capital purchases and

operatin# epenses needed to #et the business

up and runnin#

Mention where the money will come from

!howin# how a new venture(s start&up costs will

be covered and repaid is an important issue

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Financial performance of similar (usiness

Estimatin# a proposed start&up(s potential

"nancial performance by comparin# it to similar,

already established businesses

Approimate rather than eact numbers

*ays of doin# this&

Online& o/ers detailed "nancial reports on

thousands of individual "rms

<ind the "nancial performance of small, more

comparable "rms

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"verall @nancial attractiveness-

Evaluations are based on a new venture(s

proected sales and rate of return4pro"tability7&

the proected sales and rate of return is a

ud#ment call

Estimation can be computed by preparin#

proected "nancial statements& cash Fow,

income statements, balance sheets alon# with

the ratios I this can be done if time and

circumstances permits& usually done at the

business plan sta#e

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<actors to assess whether the venture is

"nancial feasible

'he amount of capital invested

'he ris%s assumed in launchin# the business

'he eistin# alternatives for the money bein#invested

'he eistin# alternatives for the entrepreneurs0

time and e/orts

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End of module 2

Documents

2. module 2