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MODULE 2

FEASIBILITY ANALYSIS

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. Some ventures are externally stimulated

An entrepreneur decides to launch a firm, searches for


and recognizes an opportunity and then starts a
business.

2. Other firms are internally stimulated


An entrepreneur recognizes a problem or an opportunity

gap and creates a business to fill it.

common mistake entrepreneurs make in

opportunity recognition process is picking a


currently available product or service that they
like or are passionate about and then trying to
build a business around a slightly better version
of it- not sensible approach
The key to opportunity recognition is to identify

a product or service that people need and are


willing to buy, not one that an entrepreneur
wants to make and sell

Four essential qualities of an opportunity

timely

Attractive

Opportunity
(rather than
just an idea)

Durable

Anchored in a
product,
service or
business that
creates or adds
value for its
buyer and end
user

An idea is a thought, 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 didnt


work hard, but rather because there was no real
opportunity to begin with.
It is crucial to understand whether the idea fills a

need and meets the criteria for an opportunity.

Three ways to identify an opportunity


A) Observing trends
Observe

trends and study how they create

opportunities for entrepreneurs to pursue.


The

most

important

trends

to

follow

are

economic trends, social trends, technological


advances and political and regulatory changesremain aware of the changes in these areas.

Economic forces

State of the
economy
Level of disposable
income
Consumer
spending patterns
Social forces
Social and cultural
trends
Demographic
changes
What people think is
Technological
in
advances
New technologies
Emerging
technologies
New uses of old
technologies
Political and
regulatory changes
New changes in
political arena
New laws and
regulations

Environmental
trends
suggesting business or product
opportunity gaps

Business,
product, or
service
opportunity
gap
Difference
between whats
available and
what's possible

New
business,
product
and
service
ideas

B) Solving a problem
The second approach- recognize problems and find ways

to solve them.
These problems can be recognized by observing the

challenges that people encounter in their daily lives and


through more simple means such as intuition or chance.
Many companies have been started by people who have

experienced a problem in their own life and then realized


that the solution to the problem represented a business
opportunityjay

sorensen-

cup

sleeves-java

Harris(2006)- cell phones- GreatCall

jacket,

Arlene

C) Finding gaps in the marketplace.


A common way that gaps in the marketplace are

recognized is when people become frustrated


because they cant find a product or service that
they need and recognize that other people feel
the same way- curves international lady of
America, slim and tone
A related technique for generating new idea is to

take an existing product or service and create a


new category by targeting a completely different
target

market-

PopCap

games,

kathryn

Pre- Selection Process


Set of activities one may engage in before starting to

look for ideas


The objective is to have a clearer notion of exactly what

should you be looking for.

Uncover your personal traits

Knowledge and Experience

Technical knowledge

Domain knowledge- specific to industry

Contacts- width an depth

Goals and aspirations- short and long term

Sources of Business Ideas


Past work experience
Hobbies and interests
Strengths and abilities
Friends and family
Distribution channels
Travel
Books and magazines
Current trends
Research organizations
The web

Techniques for generating ideas


Brainstorming
Brainstorming is simply the process of generating several

ideas about a specific topic


Formal brainstorming session- the leader of the group asks

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
The session is not used for analysis or decision making-

ideas will be filtered and analyzed.


Four rules for a formal brainstorming session

No criticism

Freewheeling

Move quickly

Leapfrogging is encouraged

Focus group
A focus group is a gathering of 5 to 10 people

who are selected because of their relationship to


the issue being discussed.
It involves a group of people who are familiar

with a topic, are brought together to respond to


questions, and shed light on an issue through
the give and take nature of a group discussion.
Usually

work best as a follow up to brain

storming.

Library and internet research


Conduct library and internet research
Libraries

are often under utilized source of

information for generating ideas


Meet the librarian
Internet

research- type new biz ideas into

Google or any other search engines


Other techniques
Customer
research

advisory

boards,

day-in-the-life

Preliminary research
While researching the biz opportunity, one should be

careful to get as much as information in following key biz


areas.
Cost structure
Seasonality of raw material prices, cost and feasibility of

alternatives and variable costs of raw materials and


consumables as a proportion of total costs
Market research
Selling price of the product, dominant players in the

market,

is there any cartelization or a strong industry

association.

Technology
Recent change in technology
HR issues
Adequate safety measures
Also

be prepared for dealing with trouble in case

something goes wrong


Government regulations
Govt regulations may act as entry barriers in the industry
Long time to get clearance from Govt agency
May be very costly to comply with some industry standard

Business idea evaluation


The five question

1. Which is the product/service


Should

be

able

clearly

state

and

describe

the

product/service you are providing and the benefit it


offers- one or two sentences
Identify the important problem of the customer the

business addresses
Think about the value the customer stands to gain
Focus on the need rather than on the attributes of the

product/service

2. What is the business model?


A business model is a description of various aspects of

business,

such

as

operational

processes,

marketing

programmes and the organizational structures.


A detailed product description and an overview of how it is

going to be produced and delivered to the target customers


Does the business look to be economically viable?
high margins are usually not sustainable or scalable
Margins can come down when they try producing in large

numbers or when there is intense competition in the


market

3. How big is your market?


How many total customers are there
How many will buy your products
Whether you are targeting different profile of

customers- you have to judge if you can


effectively target different segments at the
same time
Youll get an idea about the investment that is

required for the business

4. How can you protect your business?


How can you protect your business from other

existing businesses and potential new entrants


Why you do you think

you are in a better

position to this biz than anyone else.


5. What are you getting out of it?
The business which makes more money is the

better biz. But one should not look at the total


profits alone.
It is also important to gauge the reliability of the

Feasibility analysis:
It is the process of determining if a business idea

is viable
The most effective business emerge from the

process that includes


1. Recognizing a business idea
2. Testing the feasibility of the idea
3. Writing a business plan and
4. Launching the business
Many entrepreneurs make the mistake of

A mental transition needs to be made when

completing a feasibility analysis from thinking of


a business idea as just an idea to thinking of it
as a business.
A feasibility analysis is an assessment of a

potential business rather than strictly a product


or service idea.
Completing a feasibility analysis requires both

primary and secondary research

Primary research: that is collected by the

person or persons completing the analysistalking

to

the

feedback

from

conducting

focus

industry

experts,

prospective
group,

and

obtaining
customers,

administrating

surveys
Secondary

research:

probes

that

already

collected- industry studies, census bureau data,


analysts forecasts, and other pertinent info
collected through library and internet research

Role of feasibility
analysis in developing
successful business
plan
Spending

Proposed
business
venture

the time &


resources
necessary
to move
forward
with the
business
idea
depends
on

Product/
service
feasibilit
y
Industry
/ market
feasibilit
y

Organiz
ational
feasibilit
y

Financia
l
feasibilit
y

Yes in
all areas
Proceed
with
business
plan

No in
one or
more
areas
Drop or
rethink
business
idea

Product/ Service feasibility Analysis


Is an assessment of the overall appeal of the

product or service proposed.


There are two components to

Product/ Service

feasibility Analysis
1. Product/ Service desirability
2. Product/ Service demand

1. Product/ Service desirability


First component of

Product/ Service feasibility

analysis is to affirm that the proposed product or


service is desirable

and serves a need in the

marketplace
1. Does it make sense? Is it reasonable? Is it

something consumers will get excited about?


2. Does it take advantage of an environmental

trend, solve a problem, or fill a gap in the


marketplace?

Concept test:
It involves showing a preliminary description of a

product or service idea, called a concept


statement,

to

the

industry

experts

and

prospective customers to solicit their feedback.


It is a one page document that normally includes
A description of the product or service- the

features of the product or service; many


include sketch of it
The

intended

target

market-

lists

the

The benefits 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.

companys position describe how its product or


service is situated relative to its rivals.
A

brief

description

management team

of

the

companys

It should be shown to at least 10 people who are

familiar with the industry that the firm plans to


enter and who can provide informed feedback.
The temptation to show it to family and friends

should be avoided because these people are


predisposed to give positive feedback and advice.
A

short

survey

should

be

attached

to

the

statement
The information collected from the survey should

be tabulated and carefully read.


The statement can be used as iterative manner to

2. Product/ Service Demand


To determine if there is demand for the product

or service
There

are

two

techniques

for

making

this

determination
1. Administering a buying intention survey
2. Conducting library, internet and gumshoe

research

Buying Intentions Survey


Is an instrument that is used to estimate customer

interest in a product or service


It consists of concept statement or a similar description

of a product or service with a short survey attached


The statement and survey should be distributed to 20

to 30 potential customers (people who completed the


concept statement test should not be asked to
complete this survey)
One caution is that people who say they intend to

purchase a product/service dont always follow throughresults are optimistic.

Format for the survey


How likely would you be to buy the product or service
described above
----------- definitely would buy
----------- probably would buy
----------- might or might not buy
----------- probably would not buy
----------- definitely would not buy
Additional questions
How much would you be willing to pay for the product or
service?
Where would you expect to find this product/ service for sale?

One

approach to finding quality people to talk

to about a product/ service or to react to the


concept

statement

is

to

contact

trade

associations and/or attend industry trade shows/

2. Library, internet and gumshoe research


You have to accumulate evidence that there

will be healthy demand for your product or


service.
Librarians- industry specific magazines, trade

journals and industry reports


Gumshoe

research:

investigator

that

is

detective

scrounges

or

around

an
for

information or clues wherever they can be


found

Industry/Target Market Feasibility


Analysis
Is an assessment of the overall appeal of the

industry and the target market for the product or


service being proposed.
Industry- is a group of firms producing a similar

product or service- computers, childrens toys


Target market- is the limited portion of the

industry that it goes after or to which it wants to


appeal.

Two components in industry/target market feasibility

analysis.
1. Industry attractiveness
2. Target market attractiveness

1. Industry attractiveness
.You should gain a sense of whether the industry

youre entering is a good one or a poor one for startups.


.The degree to which environmental trends and

business trends are moving in favor of the industry.


.Barriers to entry

Characteristics of attractive industries


Are young rather than old
Are early rather than late in their life cycle.
Are fragmented rather than shrinking
Sell products or services that customers must

have rather than want to have


Are not crowded
Have high rather low operating margins
Are not highly dependent on the historically low

price of a key raw material to remain profitable

2. Target market attractiveness


By focusing on a smaller target, a firm can usually avoid

head to head competition with industry leaders and can


focus on serving a specialized market very well.
Most successful start-ups either introduce

a new product

into existing market or introduce a new market to an


existing product.
The challenge in identifying an attractive target market is

to find a market thats a large enough for the proposed


business but is yet small enough to avoid attracting
larger competitors at least until the entrepreneurial
venture can get off a successful start. - Dogster

Generally

easy to find good information to

assess the attractiveness of an entire industry.


Information about the attractiveness of a small

target within an industry is tougher- if the startup is pioneering the target market
Information from more than one industry and/or

market must be collected


H2O audios- MP3 market and iPod market and

also water sports industry

Organizational Feasibility Analysis


Is to determine whether a proposed business has

sufficient management expertise, organizational


competence and resources successfully launch
its business
Important

part- is assessing the degree of

passion that a sole entrepreneur or team of


entrepreneurs has for a business idea.
Two primary issues to consider

1. Management prowess

Management prowess:
A

proposed

business

should

evaluate

the

prowess or ability, of its initial management


team, whether it is a sole entrepreneur or a
larger group
This task requires the individuals starting the

firm to be honest and frank in their selfassessment


Two most important factors in this area- the

passion for the business idea and the extent to


which entrepreneur and team understands the

Managers

with

extensive

professional

networks have an advantage- reach out

and

social

to colleagues

and friends- plug experience or knowledge gap.


A 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 group of founders, key

employees and advisers that either manage or help


manage a new business in its start-up years.
Many potential business founders find while assessing

management prowess is that they may benefit from


finding one or more partners to help them launch their
business.

Organisational feasibility analysis- Finding the

right business partner


Tips:
Know the experiences and skills you need-

find out the gaps that remain after self


assessment
Make sure your work habits and personalities

are compatible
Make

sure

you

and

your

common goals and aspirations

partner

have

Resource sufficiency:
Is to determine whether the proposed venture

has

or

is

capable

of

obtaining

sufficient

resources to move forward


The

objective

is

to

identify

non

financial

resources and assets whether they are available


Another

key issue is the ability to obtain

intellectual property protection on key aspects


of the business- only applicable to companies
that have invented a new product or are
introducing a new business process that

resource sufficiency issues that varies in

importance depending on the type of business


that is being considered is the availability of an
appropriate and affordable location to operate
from
To test resource sufficiency, a firm should list the

6 to 12 most critical non financial resources that


it will need to move its business idea forward
and determine if those resources are available.
location.-

best

what type of location will work the

Financial feasibility analysis


Final component of feasibility analysis
A preliminary financial assessment is usually

sufficient- specifics of the business will gradually


evolve, making it impractical to spend a lot of
time

early

on

preparing

detailed

financial

forecasts
The most important issues to consider at this

stage
1.Total start-up cash needed,

Total start-up cash needed


Refers to the total cash needed to prepare the

business to make its first sale


An actual budget should be prepared that all

lists

the

anticipated

capital

purchases

and

operating expenses needed to get the business


up and running.
Mention where the money will come from
Showing how a new ventures start-up costs will

be covered and repaid is an important issue.

Financial performance of similar business


Estimating

proposed

start-ups

potential

financial performance by comparing it to similar,


already established businesses.
Approximate rather than exact numbers
Ways of doing thisOnline-

offers

detailed

financial

reports

on

thousands of individual firms.


Find the financial performance of small, more

comparable firms

Overall financial attractiveness.


Evaluations

are based on a new ventures

projected sales and rate of return(profitability)the projected sales and rate of return is a
judgment call.
Estimation

projected

can

be

financial

computed
statements-

by

preparing

cash

flow,

income statements, balance sheets along with


the ratios. this can be done if time and
circumstances permits- usually done at the
business plan stage.

Factors

to

assess

whether

the

venture

is

financial feasible
The amount of capital invested
The risks assumed in launching the business
The existing alternatives for the money being

invested
The existing alternatives for the entrepreneurs'

time and efforts

End of module 2