2. module 2
TRANSCRIPT
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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