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Feasibility Analysis

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Saira Qayyum

on 15 March 2014

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Transcript of Feasibility Analysis

What Is Feasibility Analysis

When To Conduct a Feasibility Analysis
- To screen ideas before a lot of resources are spent on them.

Feasibility Analysis
Industry/Market Feasibility Analysis
-Industry attractiveness

-Market timeliness

-Identification of a niche market.
Evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing.

Components of a Properly Conducted Feasibility Analysis

Product/Service Feasibility Analysis
-An assessment of the overall appeal of the product or service being proposed.
-The two components of a product/service feasibility analysis are:
Product/ Service desirability.

Concept Statement
A concept statement is a one page description of a business that is distributed by a startup entrepreneur to people who are asked to provide feedback on the potential of the business idea.

Preparing a Concept Statement
-A description of the product or service being offered.
-Target market.
-The benefits of the product or service.
-A description of how the product will be positioned relative to similar ones in the market.
-A description of how the product or service will be sold and distributed.

Product/Service Demand

-Buying Intentions Survey
---Is an instrument that is used to gauge customer interest in a product or service.

- Conduct library, Internet, and Gumshoe research

Be a gumshoe(detective)
Ask peoplewhat they think about your productor service idea. If your idea is to sell educational toys, spend a week volunteering at a day care cente and watch how children interact with toys.

Characteristics of attractive industries for new ventures

-Are large and growing (with growth being more important than size).

-Are important to the customer.

-Have high rather than low operating margins.

Market Timeliness Considerations

First movers

are the first entrants to sell in a new product or service category (“pioneers”)
Early followers
are early to market but not first.
Late entrants
do not enter the market until the product begins to penetrate the mass market or later.
Product Life Cycle
Identification of a Niche Market

For a new firm, selling to a niche market makes sense for at least two reasons.
-To establish itself within an industry without competing against major competitors head on.
-To focus on serving a specialized market very well instead of trying to be everything to everybody in a broad market, which is nearly impossible for a new entrant.

Organizational Feasibility Analysis
There are two primary issues to consider in this area:

Management prowess.
Resource sufficiency.

Management Prowess

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 the solo entrepreneur or the founding team understands the markets in which the firm will participate.

Resource Sufficiency
-The focus here should be on nonfinancial resources in that financial feasibility is considered separately.
Examples of nonfinancial resources :

Availability of affordable office or lab space.
Quality of the labor pool available.
Proximity to key suppliers and customers.
Possibility of obtaining intellectual property protection in key areas

(Team Building)
Financial Feasibility Analysis
The most important issues to consider at this stage are:
Total start-up cash needed.
Financial performance of similar businesses.
Overall attractiveness of the proposed venture.
Total Start-Up Cash Needed
-When projecting start-up expenses, it is better to overestimate rather than underestimate the costs involved.

-An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed to generate the revenues.

Financial Performance of Similar Businesses
-There are several ways to doing this, all of which involve a little
ethical detective work.
First, there are many reports available, offering detailed industry trend analysis and reports .

-Second, simple
observational research

may be needed
Overall Attractiveness of the Investment

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.
Ability to forecast income and expenses with a
reasonable degree of certainty
Availability of an
exit opportunity
for investors to convert equity to cash.
Two components:

Product /Service Desirability
Product/Service Demand
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