Summary Chapter 3

Feasibility Analysis

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.

Primary research is research that is collected by the person or persons completing the analysis. Normally it includes talking to prospective customers, getting feedback from industry experts, conducting focus groups, and administering survey.

Secondary research probes data that is already collected. The data generally includes studies, Census Bureau data, analysis forecast, and other pertinent information gleaned through library and internet research.

•   When To Conduct a Feasibility Analysis :
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

•  Components of a Properly Conducted Feasibility Analysis

–   A properly conducted feasibility analysis includes four separate components, as discussed in the following slides.

Role of feasibility analysis in developing business ideas.

4 Areas of Feasibility Analysis:

1)      Product/ Service Feasibility Analysis
àAn assessment of the overall appeal of the product or service being proposed. And 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.

2 components to product/service feasibility analysis
- Product/Service Desirability
à To affirm that the proposed product or service is desirable and serves a need in the market place.

Concept Test

A 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.

The feedback will hopefully provide the entrepreneur :

•  A sense of the viability or the product or service idea.

•  Suggestions for how the idea can be strengthened or “tweaked” before proceeding further.

-    Product/Service Demand

àTo determine if their is demand for the product or service.

3 Commonly utilized methods for doing this include:
- Talking face-to-face with potential customers

àThe only way to know if your product or service is what people want is by talking to them.

One approach to finding qualified people to talk about a product or service idea or to react to a concept statement is to contact trade associations and/or attend industry trade shows.

- Utilizing online tools such as Google AdWords and Landing Pages, to assess demand

àThe beauty of using this tools is that people who click on the ad were either searching for the term or they wouldn’t have seen the ad.

A landing page is a single page that typically provides direct sales copy.

- Library, Internet, and gumshoe research.

à Reference librarians can often point you towards resources to help you investigate a business idea, such as industry-specific trade journal and industry reports.

Internet searches can often yield important information about the potentially viability of a product or service idea.

The important of library, internet, and gumshoe research doesn’t wane once a firm is launced. It’s important to continually assess the strength of product or service ideas and learn from users.

A simple gumshoe research is also important for gaining a sense of the likely demand for a product or service idea.
A gumshoe is a detective or an investigator that scrounges around for information or clues wherever they can be found. 

2)      Industry/Target Market Feasibility Analysis

àAn assessment of the overall appeal of the industry and the target market for the product or service being proposed.

An industry is a group of firms producing a similiar product or service, such as computers children’s toys, airplanes, or social networks.
A firm’s target market is the limited portion of the industy that it goes after or to which it wants to appeal.

2 components to industry/target market feasibility analysis:
- Industry Attractiveness

àParticularly important—the degree to which environmental and business trends are moving in favor rather than against the industry.

- Target Market Attractiveness
àThe challenge in identifiying an attractive target market is to find a market that’s large enough for the proposed business but yet is small enough to avoid attracting larger competitors at least until the entrepreneur venture can get off to a successful start.

Assessing the attractiveness of a target market is tougher than an entire industry.

Often, considerably ingenuity must be employed to finding information to assess the attractiveness of a specific target market.

3)      Organizational Feasibility Analysis

à Conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to successfully launch a business.

Focused on non-financial recources.

2 components of organizational feasibility analysis:
- Management Prowess
àA firm 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.
An indication of passion is the willingness of a new venture team to complete a comprehensive feasibility analysis.

Two of the most important factors in this area are:

•  The passion that the solo entrepreneur or the founding team has for the business idea.

           • The extent to which sole entrepreneur or the founding team understands the markets in which the firm will participate.

-    Resource Sufficiency

àTo determine whether the proposed venture has or is capable of obtaining sufficiet resoures to move forward.
The focus in organizational feasibility analysis is on nonfinancial resources.
The objective is to identify the most important nonfinancial resources and assess their availability.

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

•  Availability of affordable office or lab space.
• Likelihood of local and state government support of the business.
• Quality of the labor pool available.
•  Proximity to key suppliers and customers.
• Willingness of high quality employees to join the firm.
•  Likelihood of establishing favorable strategic partnerships.
•  Proximity to similar firms for the purpose of sharing knowledge.
•  Possibility of obtaining intellectual property protection in key areas.

4)      Financial Feasibility Analysis
àThe final component of a comprehensive feasibility analysis.
A preliminary financial assessment is sufficient.

3 components of financial feasibility analysis
- Tone Start-Up Cash Needed
à The first issues refers to the 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.

-    Financial Performance of Similiar Businesses
à 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. 

-          Overall Financial Attractiveness of the Proposed Venture
àA number of other financial factors are associated with promising business startups. 

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.