a feasibility study framework for e-business start-ups: a

AFeasibilityStudyFramework

forE-BusinessStart-ups:AcasestudyonSxuirrel®

HenriBam

Thesispresentedinfulfilmentoftherequirements

forthedegreeofMasterofEngineering(EngineeringManagement)intheFacultyofEngineering

atStellenboschUniversity

Supervisor:Mr.DKennon

March2018

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Declaration

Bysubmittingthisthesiselectronically,Ideclarethattheentiretyoftheworkcontainedthereinis

my own, original work, that I am the authorship owner thereof (unless to the extent explicitly

otherwisestated)andthatIhavenotpreviouslyinitsentiretyorinpartsubmitteditforobtaining

anyqualification.

Date:................................................

Copyright©2018StellenboschUniversity

Allrightsreserved

Stellenbosch University https://scholar.sun.ac.za

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Executivesummary

E-businessesthatusetechnologytoinfiltratethebiggestrisingmarkettoday,theMillenials,have

becomemoreandmorepopularoverthepastfewyears.Thismarkethoweverisveryunpredictable

andseemseasytoinfiltrate,butthisisnotatallthecase.Duetolackofknowledgeeverybodyis

looking tobecomingentrepreneursby attacking thee-businessmarket. The largenumberof e-

businessfailures,thatoccureveryyear,areagoodexampleoftheriseine-businessstart-upsover

thelastfewyears.Thiscreatesanopportunityforatoolthatcanhelpdeterminethepotentialofan

e-businessstart-upbeforethestart-uphasstarted,whilesimultaneouslyhelpsdefiningthemarket

andideaofthee-businessstart-up.

The objective of this study was to develop a process that could help e-business start-ups to

determineifitisworthtakingonthechallengeofcontinuingwiththestart-up.Byansweringthe

question of feasibility, start-ups could determine if itworth taking the risk. In this context, the

questionoffeasibilitycanbeansweredbythefollowingcomponents:Returnoninvestmentofthe

start-up,themarketpotential,theacquisitioncostandthee-businesscustomerlifecycle.

Theresearchendeavourinvestigatedthemainfactorsoffeasibility,namelymarketfeasibilityand

financialfeasibility.Eachmainfactorwasdividedintosub-factorsthatwerealsoinvestigated.These

mainandsub-factorsarethecoreofthefeasibilitystudyframework.Aftertheframeworkwasset

upavalidationprocessconfirmedthatthefeasibilitystudyframeworkhasachieveditsgoalandcan

help e-business start-ups, to determine the potential feasibility of the e-business start-up. This

resultedine-businessstart-upfoundersaswellas incubator liaisonseeingthepotentialofane-

businessstart-upbeforethestart-upwasoutoftheideaphase.

Thefeasibilitystudyframeworkforane-businessstart-upisanimportantsteppingstonetowards

developingabetterunderstandingofthee-businessstart-upitself,thee-businessstart-upworld

andinwhatdirectionthestart-upneedstogoinordertoreachmaximumpotential.


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Opsomming

E-besighedewatgebruikmaakvantegnologieomdiegrootstetoenemendemarkvandag,naamlik

dieMillennials,teinfiltreer,hetdieafgelopepaarjaaralhoemeergewildgeword.Hierdiemarkis

egterbaieonvoorspelbaarenlykmaklikomteinfiltreer,maarditisgladniediegevalnie.Weens'n

gebrek aan kennis wil al hoe meer mense entrepreneurs word en word die e-besigheid mark

stormgeloop.Diegrootaantale-besighedewatelkejaarmisluk,duiopdiestygingine-besigheid

start-upgetalledieafgelopepaarjaar.Ditskep'ngeleentheidvirdieontwikkelingvan'nhulpmiddel

watgebruikkanwordomdiepotensiaalvan'ne-besigheidstart-uptebepaalvoordatdiestart-up

nogbeginenwatterselfdertydkanhelpomdiemarkenideevandiestart-updeeglikertedefinieer.

Diedoelvanhierdiestudiewasom'nprosesteontwikkelwate-besigheidstart-upskanhelpomvas

testelofditdiemoeitewerdisomvoorttegaanmetdieaanvangvandiestart-up.Deurdievraag

vanlewensvatbaarheidtebeantwoord,kanstart-upsbepaalofdierisikodiemoeitewerdisomte

neem.Inhierdiekontekskandievraagvanlewensvatbaarheidbeantwoordworddeurmiddelvan

dievolgendekomponente:opbrengsopdiebelegging,diemarkpotensiaal,dieverkrygingskosteen

diee-besigheidlewensiklusvandiekliënt.

Dienavorsingspoginghetdiehooffaktorevanlewensvatbaarheidondersoek,naamlik

markvatbaarheidenfinansiëlevatbaarheid.Elkehooffaktorisonderverdeelinsub-faktorewatook

ondersoekis.Hierdiehoof-ensub-faktorevormdiekernvandielewensvatbaarheidraamwerk.

Nadatdieraamwerkopgestelis,het'nbekragtigingsprosesbevestigdatdielewensvatbaarheid

raamwerkdiedoelwitbereikhetendiee-besigheidstart-upkanhelpomdiepotensiële

lewensvatbaarheiddaarvantebepaal.Dithetdaartoegeleidatstigtersvane-besigheidstart-ups

sowelasincubatorskakelpersoneeldiepotensiaalvan'ne-besigheidstart-upkaninsiennog

voordatdituitdieideefaseis.

Dielewensvatbaarheidraamwerkvir'ne-besigheidstart-upis'nbelangrikestapindierigtingvan'n

beterbegripvandiee-besigheidstart-upself,diee-besigheidstart-upwêreldeninwatterrigting

diestart-upmoetbeweegommaksimumpotensiaaltebereik.


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TableofContents

Declaration ......................................................................................................................................... i

Executive summary ........................................................................................................................... ii

Opsomming ....................................................................................................................................... iii

Table of Contents ............................................................................................................................. iv

List of figures .................................................................................................................................... ix

List of tables ..................................................................................................................................... xi

1 INTRODUCTION ....................................................................................................................... 1

1.1 Background ........................................................................................................................ 1

1.2 Problem statement ............................................................................................................. 3

1.3 Research objective ............................................................................................................ 4

1.4 Research methodology ...................................................................................................... 5

1.4.1 Research design ........................................................................................................ 5

1.4.2 Research domains ..................................................................................................... 8

1.4.3 Model versus framework .......................................................................................... 10

1.5 Scope and limitations ....................................................................................................... 10

1.6 Document outline ............................................................................................................. 11

1.7 Conclusion to Chapter 1 .................................................................................................. 13

2 LITERATURE REVIEW ........................................................................................................... 14

2.1 E-business ....................................................................................................................... 14

2.1.1 E-business environment .......................................................................................... 15

2.1.2 E-business versus technology businesses .............................................................. 18

2.1.3 E-business customer life cycle ................................................................................. 18

2.1.4 E-business measurements ...................................................................................... 20

2.1.5 Acquisition cost ........................................................................................................ 21

2.1.6 E-customer behaviour .............................................................................................. 21


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2.1.7 E-business framework requirements ....................................................................... 22

2.2 Start-ups .......................................................................................................................... 23

2.2.1 Start-up overview ..................................................................................................... 24

2.2.2 Start-up survival ....................................................................................................... 25

2.2.3 Start-up founder ....................................................................................................... 27

2.2.4 Start-up incubator .................................................................................................... 28

2.2.5 Start-up investment .................................................................................................. 29

2.2.6 Start-up framework requirements ............................................................................ 29

2.3 E-business start-ups ........................................................................................................ 30

2.3.1 Difference between an e-business and a start-up ................................................... 31

2.3.2 How an e-business can help or worsen start-up survival ......................................... 31

2.3.3 The effect of the internet on strategy – E-business competition .............................. 34

2.3.4 Where in the business chain does a start-up fit in? ................................................. 36

2.3.5 E-business start-up framework requirements .......................................................... 39

2.4 Feasibility study ............................................................................................................... 39

2.4.1 What is the purpose feasibility study? ...................................................................... 40

2.4.2 Why do a feasibility study? ...................................................................................... 40

2.4.3 When to do a feasibility study? ................................................................................ 41

2.4.4 Pilot study versus feasibility study ........................................................................... 42

2.4.5 Feasibility study versus business model .................................................................. 44

2.4.6 Conceptual elements of a feasibility study ............................................................... 47

2.4.7 Core principles and importance of a feasibility study ............................................... 49

2.4.8 Feasibility study framework requirements ................................................................ 53


3 INTEGRATIVE RESEARCH .................................................................................................... 54

3.1 The start-up idea and basic background ......................................................................... 55

3.1.1 Start-up idea ............................................................................................................ 55


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3.1.2 Start-up background ................................................................................................ 58

3.1.3 Environment ............................................................................................................. 58

3.2 Market feasibility .............................................................................................................. 59

3.2.1 Demand analyses .................................................................................................... 59

3.2.2 Competitor analysis and industry overview .............................................................. 63

3.3 Financial feasibility ........................................................................................................... 63

3.3.1 Cost analysis ............................................................................................................ 64

3.3.2 Sensitivity analysis ................................................................................................... 66

3.3.3 Risk analysis ............................................................................................................ 66

3.3.4 Return on investment ............................................................................................... 67

3.3.5 Financial analysis ..................................................................................................... 68


4 DEVELOPING THE FEASIBILITY STUDY FRAMEWORK FOR E-BUSINESS START-UPS 71

4.1 Need for framework design .............................................................................................. 71

4.2 Requirements for framework design ................................................................................ 71

4.2.1 Requirement categories ........................................................................................... 72

4.2.2 User requirements ................................................................................................... 72

4.2.3 Functional requirements .......................................................................................... 75

4.2.4 Design restrictions ................................................................................................... 80

4.2.5 Attention points ........................................................................................................ 82

4.2.6 Boundary conditions ................................................................................................ 83


5 FEASIBILITY STUDY FRAMEWORK FOR E-BUSINESS START-UPS ................................ 86

5.1 Introduction ...................................................................................................................... 86

5.1.1 The main objectives of the framework ..................................................................... 86

5.1.2 Potential users ......................................................................................................... 87

5.1.3 Framework methodology ......................................................................................... 88


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5.2 Feasibility study framework for e-business start-ups creation process ........................... 89

5.2.1 Components ............................................................................................................. 89

5.2.2 Feasibility study framework creation process step 1 ............................................... 90





5.3 Framework method and illustrative example ................................................................. 101

5.3.1 Phase 1 .................................................................................................................. 101

5.3.2 Phase 2 .................................................................................................................. 103

5.3.3 Phase 3 .................................................................................................................. 104

5.3.4 Phase 4 .................................................................................................................. 105

5.3.5 Phase 5 .................................................................................................................. 106

5.3.6 Illustrative case study result ................................................................................... 107

5.4 Conclusion to Chapter 5 ................................................................................................ 107

6 VERIFICATION AND VALIDATION OF THE FEASIBILITY STUDY FRAMEWORK FOR E-

BUSINESS START-UPS ............................................................................................................... 108

6.1 Verification of the feasibility study framework for e-business start-ups ......................... 108

6.1.1 User requirements ................................................................................................. 109

6.1.2 Functional requirements ........................................................................................ 110

6.1.3 Design restrictions ................................................................................................. 112

6.1.4 Attention points ...................................................................................................... 113

6.1.5 Boundary conditions .............................................................................................. 114

6.1.6 Verification conclusion ........................................................................................... 114

6.2 Validation of feasibility study framework for e-business start-ups ................................. 115

6.2.1 Illustrative case study ............................................................................................. 115

6.2.2 Interview validation ................................................................................................ 115

6.3 Results and discussion .................................................................................................. 121


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6.4 Framework changes ...................................................................................................... 122

6.5 Conclusion to Chapter 6 ................................................................................................ 123

7 CONCLUSION AND RECOMMENDATIONS ........................................................................ 124

7.1 Overview ........................................................................................................................ 124

7.2 Methodology execution .................................................................................................. 125

7.3 Results ........................................................................................................................... 127

7.4 Conclusions ................................................................................................................... 127

7.5 Recommendations for future research .......................................................................... 128

8 References ............................................................................................................................ 130

Appendix A - Interview presentations November 2017 ................................................................. 138

Appendix B - Interview transcripts ................................................................................................. 140

Master’s thesis interview – David Krige ..................................................................................... 140

Master’s thesis interview – JD Nel ............................................................................................. 142

Master’s thesis interview – Brandon Paschal ............................................................................ 145

Master’s thesis interview – Phillip Marais .................................................................................. 148

Master’s thesis interview – Leonard Brewer .............................................................................. 150

Master’s thesis interview – Thinus Pretorius ............................................................................. 153

Master’s thesis interview – Graham Lombard ........................................................................... 155


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Listoffigures

Figure 1 - Research design classification adapted from Mouton (2011) ........................................... 6

Figure 2 - Mapping design adapted from Mouton, (2011) ................................................................. 7

Figure 3 - Systematic engineering approach ..................................................................................... 8

Figure 4 - Research domains ............................................................................................................ 9

Figure 5 - Chapter layout and sub-research question allocation ..................................................... 12

Figure 6 - Chapter 2 layout adapted from Figure 5 ......................................................................... 14

Figure 7 - First step from Figure 4 in the literature development process ....................................... 14

Figure 8 - The customer life cycle (Cutler & Sterne, 2000) ............................................................. 19

Figure 9 - Second step from Figure 4 in the literature development process .................................. 24

Figure 10 - Change of a start-up (Ries, 2011) ................................................................................. 26

Figure 11 - Third step from Figure 4 in the literature development process .................................... 31

Figure 12 - Growth and exports of SME’s adapted from Manyika and Roxburgh (2011) ................ 33

Figure 13 - Fourth step from Figure 4 in the literature development process ................................. 40

Figure 14 - The developmental process of an endeavour (Claase, 2012) ...................................... 41

Figure 15 - Business model canvas (Osterwalder et al., 2009) ....................................................... 46

Figure 16 - Business model canvas separated to explain feasibility from Blank, (2016) ................ 47

Figure 17 - Chapter 3 layout adapted from Figure 5 ....................................................................... 54

Figure 18 - Final step from Figure 4 in the literature development process .................................... 54



Figure 21 - Step 1 of the framework creation process .................................................................... 92




Figure 25 - Step 5 of the framework creation process .................................................................. 100


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Figure 26 - Phase 1 of the framework methodology ..................................................................... 102





Figure 31 - Chapter 6 layout adapted from Figure 5 ..................................................................... 108

Figure 32 - Changed framework .................................................................................................... 122

Figure 33 - Chapter 7 layout adapted from Figure 5 ..................................................................... 124


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Listoftables

Table 1 - E-business framework requirements ................................................................................ 23

Table 2 - Start-up framework requirements ..................................................................................... 30

Table 3 - New Economy vs Old Economy (Ungerer, 2015) ............................................................ 35

Table 4 - E-business start-up framework requirements .................................................................. 39

Table 5 - Literature search with keywords feasibility and pilot (Ioannidis et al., 2005) .................... 43

Table 6 - Enduring characteristics and secondary issues of a feasibility study (Overton, 2007) .... 50

Table 7 - Feasibility study framework requirements ........................................................................ 53

Table 8 - Value creation examples .................................................................................................. 56

Table 9 - Market segmentation bases ............................................................................................. 61

Table 10 - Cost Types (Stevens and Sherwood, 1982; AccountingTools, 2015) ............................ 64

Table 11 - Feasibility study framework for e-business start-ups - User requirements .................... 73

Table 12 - Feasibility study framework for e-business start-ups - Functional requirements ........... 75

Table 13 - Feasibility study framework for e-business start-ups - Design restrictions .................... 80

Table 14 - Feasibility study framework for e-business start-ups - Attention points ......................... 83

Table 15 - Feasibility study framework for e-business start-ups - Boundary conditions ................. 84

Table 16 - The verification of the satisfaction of the user requirements in the framework ............ 109

Table 17 - The verification of the satisfaction of the functional requirements in the framework .... 110

Table 18 - The verification of the satisfaction of the design restrictions in the framework ............ 112

Table 19 - The verification of the satisfaction of the attention points in the framework ................. 113

Table 20 - The verification of the satisfaction of the boundary conditions in the framework ......... 114

Table 21 - Interview questions and explanations .......................................................................... 116

Table 22 - Professionals interviewed ............................................................................................ 117

Table 23 - Sub-research questions verification ............................................................................. 125


Introduction

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1 INTRODUCTION

Thischapterprovidesthestructurefortheresearchbyintroducingthebackgroundandrationale

fortheresearch.Thisisfurtherelaboratedoninaproblemstatementwhichiscondensedintoa

researchquestion.Theresearchmethodology,scopeanddocumentoutlineprovidetheroadmap

forthereader.

1.1 Background

Thecreationoftheinternetandthenetworkeconomywasoneofthemostinfluentialmilestones

of the previous century. This created a technological revelation that benefitted not only large

enterprises and national economies, but also small first-time entrepreneurs and individual

consumers.Allthesenewtechnologiesthatcamewiththeinternetcreatedanewenvironmentfor

businessestoworkin,calledthee-environment.Thiswasmadepossiblebythefactthattheinternet

adds value to almost every aspect of modern day life and provides a whole new range of

opportunitiesforwealthcreationandinnovativebusinesses(ManyikaandRoxburgh,2011).Thee-

environmentexpandedrapidlyduetotheopportunitiesitcreatedonbothnoveltyandscale(Porter,

2001).

The user base of the e-environments consists mostly of millennials1. Millennials are generally

consideredtobethe“now”generationbecauseoftheir fast-paced,technology-enabled lifestyle

andhowtheydemandproductsinstantaneously.Globally,millennialsspendanaverageofsixhours

onlineeverydaywith the longest timesspent inNorthAmericaandLatinAmerica inparticular,

followedbyAsia(Main,2013).

1Millennialsrefertothegenerationofpeoplebornbetweenthe1980sandthe2000s(Main,2013).


Introduction

2 | P a g e

The“sharingeconomy2”isoneofthemostuniqueentrypointsthatdefinemillennials.Socialmedia,

inparticular,hasbecomethekeyplatformthatconnectsandallowsmillennials toquicklyshare

theirliveswitheachother.Thisamountofonlineactivityhascreatedanewenvironmentofmarket

opportunitiesthatcanbeexploiteddirectlybynewe-businesses.E-businessesthatusetechnology

toinfiltratethebiggestrisingmarketfornewtechnologytoday,themillennials,havebecomemore

andmorepopularoverthepastfewyears(Sacks,2011;Main,2013).

Thismillennialmarket,however,isverydissectibleandseemseasytoinfiltrate,butthisisnotatall

thecase.Thereisacommonmisperceptionabouthoweasilyandquickitistostartane-business

start-upandgetrichquick(Batish,2014;LaDuke,2016).Thislackofknowledgeencouragesalotof

peopletoattackthee-businessmarketandtrytobecomeentrepreneurs.Thelargenumberofe-

businessfailures,thatoccureveryyear,areagoodexampleoftheriseine-businessstart-upsover

thelastfewyears.Also,showingthatitisverydifficulttostartasuccessfule-business.Between30

and80percentofe-businessstart-upsfailwithinthefirstfiveyearsofoperation(Ungerer,2015).

Thisisduetomultiplereasons,butoneofthereasonshavebeenshowntobepoorevaluationof

theideaearlyon.Insomecases,theideaisgood,butmightnotalwaysbeprofitableorbankable.

By evaluating the idea better, the start-up can reduce failure ratewith thorough research and

customerfeedback.

When still in the idea phase, it is difficult to measure the success of a start-up. Without the

reassuranceofpossiblesuccess,someentrepreneurswillnoteventakeontheprocessofstartinga

start-up.

Themotivationofthestudyistofindawaytohelpfoundersbemoreconfidencetostarttheirstart-

upandhelpotherstakeholderstobelieveintheideafromanearlystage.Creatingaframeworkthat

enablestheusertodeterminethepotentialfeasibilityofane-businessstart-upcanbeessentialin

the success of any new e-business start-up. However, the results of a feasibility study do not

determinethesuccessofastart-up,itonlyhighlightthepotentialthatthestart-upmighthave.

2Thesharingeconomyisaneconomywhereindividualscanborroworrenttheassetsownedbysomeoneelse.(Sharing

EconomyDefinition|Investopedia,2017)


Introduction

3 | P a g e

Afeasibilitystudyisaresearchtoolthatisusedveryoften,butunfortunately,generalstandards,

requirements,orguidesonfeasibilitystudydesignaremissing(Palvia&Palvia,1988;Claase,2012).

Thelackofacleardesignoranystructuremakesitverydifficulttodeterminewhatafeasibilitystudy

mustcontainespeciallyforearlystagestart-upswhensomuchisstillunknown.Anotherreasonis

thatsolittleinfoaboutthemarket,business,etc.isavailableandtheentrepreneursareinclinedto

moveon,butthisshouldnotbethecase.Entrepreneursshouldforcethemselvestofindcreative

waystoanswerallthequestionsoffeasibility.TheHowever,theaimofafeasibilitystudyshould

alwaysremainthesame,whichisto“determinethepossiblefuturesuccessorfailureofprospective

endeavours” (Claase, 2012). To understand this definition an endeavour can be defined as any

futureprojectororganisationthat isstudiedfor itsprospectivefeasibility(Palvia&Palvia,1988;

Brockman,2008;Bowenetal.,2009;Claase,2012).

1.2 Problem statement

Between 30 and 80 percent of e-business start-ups fail within the first five years of operation

(Ungerer,2015).Thisisduetomultiplereasons,butoneofthereasonshavebeenshowntobepoor

evaluationoftheideaearlyon.Insomecases,theideaisgood,butmightnotalwaysbeprofitable

orbankable.

It isdifficulttomeasurethesuccessofastart-upwhenit isstill intheideaphase.Thiscanbea

problem for the founders of the start-up as well as for other interested parties, like possible

investorsorstart-upincubators.Withoutthereassuranceofpossiblesuccess,someentrepreneurs

willnoteventakeontheprocessofstartingastart-up.

Afeasibilitystudycanbeasolutiontosolvethisproblem,butthelackofproperguidelinestoshow

whatafeasibilitystudyshouldentailaswellashowtoconductaproperfeasibilitystudydoesnot

makeitaviablesolution.Literaturefocussesonalotofresearchonfeasibilitystudies,butwithout

anyclearmodelthatworksandstandsoutfromtherest.

The lackoffeasibilitystudyguidelinesandthehighfailurerateofe-businessstart-upscreatean

opportunityforafeasibilitystudyframeworkfore-businessstart-ups.


Introduction

4 | P a g e

1.3 Research objective

Theresearchobjectiveofthisstudywastocreateafeasibilityframeworkfore-businessstart-ups

thatcanhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.

Toachievetheresearchobjective,amainresearchquestionmustbeansweredandbyanswering

thesub-researchquestions, itcontributestofindtheanswertothemainresearchquestion.The

researchquestionandsub-researchquestionsareasfollows:

Mainquestion:

Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthe

e-businessstart-up?

Thesub-researchquestionsarestatedandexplainedinbelow.

i. Whatisane-business?

a. Whatisthedifferencebetweenane-businessandanormalbusiness?

b. Whatarethemostimportantmetricsforane-business?

c. Howhase-businesschangedthenormalwayofdoingbusiness?

ii. Whatisastart-up?

a. Whatmakesastart-updifferentfromanormalbusiness?

b. Whostartsastart-up?

c. Howdoesastart-upgrow?

iii. Whatisane-businessstart-up?

a. Whatisthedifferencebetweenastart-upandane-business?

b. Howdifficultisittostartasuccessfule-businessstart-up?

iv. Whatisafeasibilitystudy?

a. Whatdoesafeasibilitystudyentail?

b. What is the difference between a feasibility study, a pilot study and a business

model?

v. Whatcomponentsdeterminethefeasibilityofane-businessstart-up?

vi. Howwilltheliteratureoftheresearchstudybeextractedtocreateaframework?

vii. Howcantherequirementsbemeaningfullycombinedintoaframework?

viii. Istheframeworkaddressingtherequirementsassetoutbytheresearchdomains?


Introduction

5 | P a g e

ix. Willtheframeworkdeliveronprovidingawayofdeterminingthepotentialfeasibilityof

ane-businessstart-up?

1.4 Research methodology

This section describes and explains the research design used as well as the research domains

investigated. The difference between amodel and a framework aswell as the reasonwhy this

researchmaduseofaframeworkinsteadofamodelarediscussed.Theresearchdesignmapwas

developed as proposed byMouton (2011). This provides a detailed description of the research

designaswellasthetypesofresearchthatwereconducted.Togetherwiththeresearchdesign,the

research domains thatwere investigated are discussed and indicated in Figure 4. The research

domainsshowwhatthebasisliteratureisdiscussedaswellashowthesedomainsareconnected.

1.4.1 Research design

Mouton(2011)directsthedifferenttypesofresearchdesignintotwodifferentdirections,empirical

andnon-empiricalstudies(Figure1).Thisclassificationoftheresearchdesigncannarrowandguide

theresearchintotherightdirection.

Empiricalstudiescanbefurtherbrokendownintotheuseofprimarydataversusanalysingexisting

data.Whenanalysingexistingdata,thenatureofthedatacanbetextualornumerical.Thisresearch

studyisanon-empiricalstudythatfocussedontheorybuildingthroughaliteraturereview.


Introduction

6 | P a g e

Figure 1 - Research design classification adapted from Mouton (2011)

WhenlookingattheatthefirsttwodimensionsoftheresearchdesignclassificationinFigure1,the

map in Figure2 canbedrawn.The research studywas investigativeandmadeuseof inductive

reasoningtoexpandandrefineexistingtheories.Thismeansthatthestudyfallsintothetheoryand

modelbuildingcategorythatisdefinedandexplainedbyMouton(2011).Figure2illustrateswhere

thisresearchstudyiswhenlookingatthefirsttwodimensionsofresearchdesign.

Types&of&study

Empirical&studies Non5empirical&studies

(Philosophical+analysis,+conceptual+analysis,+theory+building,+literature+reviews)

Using&primary&data

(Surveys,+experiments,+case+studies,+programme+

evaluation,+ethnographic+studies)

Analysing&existing&data

Text&data

(Discourse+analysis,+content+analysis,+textual+

criticism,+historical+studies)

Numeric&data

(Secondary+data+analysis,+statistical+modelling)


Introduction

7 | P a g e

Figure 2 - Mapping design adapted from Mouton, (2011)

Theresearchstudyusedtwotypesofdata,bothtextualandnumerical.Thishybriddatacollection

approach can be explained by three different types of data collection. Firstly, the existing non-

empiricaldatawasobtainedbyaliteraturereviewandsecondlytheprimarydatawascollectedin

thevalidationchapteroftheresearchthroughsemi-structuredinterviews.

The third typeof data collection study is a second typeof validation, an illustrative case study.

Rationally,thetwotypesofvalidationmethodswillworkverywelltogether,becausetheillustrative

casestudyteststhepracticalityoftheframeworkandtheinterviewsteststhetheorybehindthe

framework.Thefeedbackfromthesemi-structuredinterviewscanhelpprovidereasoningforthe

results obtained from the illustrative case study that also tests the implementation of the

framework.

The problem that the research aims to solve is too complex to approach as is whichmakes it

necessarytolookattheproblemfromasystemengineeringperspective.Theproblemneedstobe

brokendownintosmallersub-problemssystematically.Thesmallerproblemsmustnotlosecontext

whenbrokendown.Byhavingabetterunderstandingofthesmallerproblems,willprovidegreater

Non$empirical

PrimaryData

ExistingData

Empirical

Methodological,Studies

Ethnographic,designs,,participatory, research,,surveys,,experiments,,comparative,studies,,evaluation,research

Discourse,analysis,,conversational,

analysis,,life,history,methodology

Secondary,data,analysis,,modelling,and,

simulation,studies,,historical, studies,,

content,analysis,,textual,studies

Conceptual,studies,,philosophical,

analyses,,theory,and,model,building


Introduction

8 | P a g e

contextual knowledge of the bigger problem. Now, the smaller sub-problems can be solved by

smallersub-solutions.Thesesub-solutionscanbeusedtosolvetheinitialproblem.

The methodology of creating this framework followed a system engineering approach. This

approach started with an in-depth literature study that was conducted to identify a set of

framework requirements that needed to be satisfied by the framework. The framework then

neededtobevalidatedtocompletethesystemsengineeringapproach.

AsseeninFigure3thesystemengineeringapproachhasfivesteps;1)anin-depthliteraturereview,

2)arequirementanalysisfromliterature,3)creatingtheframeworkfromtherequirements,4)the

verificationandvalidationprocessoftheframework,and5)refiningandevolvingtheframework

fromthevalidationprocessornewcomponentsthatcanaffecttheframework.

Figure 3 - Systematic engineering approach

1.4.2 Research domains

AsseeninFigure4,therearethreemainresearchdomains,e-businesses,start-upsandfeasibility

studies.The first researchdomain,e-businesses,was thechosenas the firstdomain,because it

narrowsdowntheresearchanddefinesthecontextinwhichthenexttwodomainsmustbelooked

at.Thenextdomain,start-ups,isaveryopendomainandneedstobemorefocussedbylooking

morespecificallyate-businessstart-ups.Thefinaldomain,feasibility,isaverydifficultdomainto

specify.Thiscouldbebecauseofthedifferenttypesoffeasibility.Thisdomainonlyfocussesonthe

feasibilityofe-businessstart-ups.

Figure4illustratestheresearchdomainsaswellashowtheyoverlap.Theoverlappingareasindicate

theintegratedareasofthedomains.

Literature

reviewRequirements Framework Validation Refine


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9 | P a g e

Figure 4 - Research domains


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10 | P a g e

1.4.3 Model versus framework

Amodelapproachandaframeworkapproacharenotcompletelydifferentfromeachother,but

thereare some importantdifferences that canhaveabig effectona research study. Themain

differencebetweenamodelandaframework,isthefactthatamodelonlyhasalimitednumberof

variables.Thisrestrictsmodelstoonlyusetheoriesthatcanbemodelled,whereasaframeworkcan

useparametersthatarenotfixedandcanconstantlychange(Porter,2001).

Forthisresearchstudyaframeworkwasbettersuitedthanamodel,giventhedefinitionofPorter

(1991).Thiswasbecauseofthediversityoftheresearchquestionandsub-questionsaswellasthe

factthattheparametersforthestudywerenotfixed.

1.5 Scope and limitations

Thissectionhelpstodefineexactlywhatthisthesisisandwhatitistryingtoachieve.Thissection

alsodefineswhatthisthesis isnotandwhatthelimitationspertainingtheapproachusedare.A

preciselydefinedscopeisrequiredfortheoreticalmodels,asvaguedelineationsleadtoomisplaced

expectationsandineffectivemodelsthatmakeimplausibleclaimsonreality(Mouton,2011).

Toreiterate,thestudy’sgoalwastoassiste-businessstart-upwithformulatingafeasibilitystudy

andhelpingthesestart-upsdeterminepotentialfeasibility.Theintentwastoassiste-businessstart-

ups by providing a framework for setting up a feasibility studybefore entering the competitive

environmentwithoutanyknowledgeofchancesthatthestart-uphasofsucceeding.Thiscanbe

beneficialforthefoundersofthee-businessstart-upaswellasbeneficialforotherstakeholders,

likepotentialinvestorsorstart-upincubators.

Thefeasibilitystudyframeworkfocussedone-businessstart-upsandnotonallstart-ups.Thestart-

up environment is a very broad topic to cover and by focussing on e-business start-ups the

frameworkismorein-depth.

Thelimitationsofthisstudywereasfollows:

• Itonlyfocussedone-businessstart-upsbasedinSouthAfrica.

• Theframeworkwasnotimplementedinawidevarietyofindustries.

• Time prevented a longer andmore thorough validation process. The framework can be

implemented,butthetimeconstraintslimitedthevalidationtoashortperiod.


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11 | P a g e

1.6 Document outline

Figure5illustratestheoutlineofthestudyaswellasthesub-researchquestionthateachchapter

answers.Thischapterprovidesanoverviewoftheresearchareaaswellastheproblemstatement

andtheresearchobjective.Theresearchattributessuchastheresearchmethodology,limitations,

scopeandanoutlineofthedocumenthavealsobeenexpressed.

Chapter 2 focusses on the literaturebehind all the sectionsof this research, namely e-business

environment,start-ups,e-businessstart-upsandfeasibilitystudies.

Chapter3investigatesthecomponentsofafeasibilitystudythatinfluencee-businessstart-upsand

theimportanceofeachcomponent.Chapter3alsointegratesallthreeresearchdomainstofindthe

componentsthatwilldeterminethefeasibilityofe-businessstart-ups.Chapter2and3providethe

literature that is required to create the frameworks requirements inChapter 4. The framework

requirementsarethebuildingblocksusedtoillustratehowtheframeworkwascreated(Chapter5).

Anillustrativecasestudyexampletohelpexplainhowtheframeworkisusedisalsoprovidedin

Chapter5.Thisformspartofthevalidationprocess.

Chapter 6 consists of the verification process aswell as the validation process. The verification

processwill check if the framework fulfilled all the requirements and the validation process by

summarisingtheroundof interviews.Thefinalchapterofthestudyconsistsofaconclusionand

recommendationsregardingtheresearch.


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12 | P a g e

Figure 5 - Chapter layout and sub-research question allocation

• This chapter provides an overview of the research area along with the problem

statement and research objectives. Research characteristics such as the

limitations, scope and an outline of the document are also provided.

Chapter1:Introduction

• This chapter focusses on the literature behind all the sections of this research,

namely e-business environment, start-ups, e-business start-ups and feasibility

studies.

Chapter2: Sub-researchquestions:Literaturereview i.- iv.

• This chapter integrates all three research domains to find the components that

will determine the feasibility of e-business start-ups.

Chapter3: Sub-researchquestions:Integrativeresearch v.

• This chapter presents and explaines the requirements that were subjectively

extracted from the literature to help develop the feasibility study framework for

e-business start-ups.

Chapter4: Sub-researchquestions:Frameworkdevelopment vi.

• This chapter explains the creation process of the framework as well as the

framework itself with an illustrative case study.

Chapter5: Sub-researchquestions:Framework vii.

• This chapter shows the verification process as wel as the validation that consists

of a round of interviews.

Chapter6: Sub-researchquestionsVerificationandvalidation viii.&ix.

• The final chapter provides a conclusion as well as recommendations for future

research.

Chapter 7:Conclusion


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13 | P a g e

1.7 Conclusion to Chapter 1

Inconclusion,thischapterexplainedtheproblemaswellashowthisresearchstudyaimedtosolve

theproblem,bydividingtheresearchquestionintosub-researchquestionsandansweringthesub-

researchquestionsthatwillhelpanswerthemainresearchquestion.Also,includedinthischapter

isthescopeandlimitationsoftheresearchstudy.Thenextchapterprovidesaliteraturereviewfor

thestudy.


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14 | P a g e

2 LITERATUREREVIEW

Thischapterintroducesthemainresearchfields,namelye-business,start-ups,e-businessstart-ups

andfeasibilitystudy.Thecorecontentofeachoftheseresearchfieldsarediscussedaswellasthe

importanceof each research field in termsof the framework. Figure 6 summarises the chapter

layoutandmentionsthesub-research,asseeninSection1.3thatisaddressedinthischapter.

Figure 6 - Chapter 2 layout adapted from Figure 5

2.1 E-business

Section 1.4.2 describes the research method with the focus on certain domains. This section

focusses on the e-business domain by giving a broad over view of e-businesses as well as by

providingtherequirementsneededtocreatetheframeworkfromthissection.

Figure 7 - First step from Figure 4 in the literature development process


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15 | P a g e

“E-businesses”,“electronicbusinesses”,“onlinebusinesses”or“dot-coms”arealltermsthatcan

bedefinedasbusinessesthatcompetemostlyorcompletelyonline,relyentirelyontheinternetfor

thesuccessofthebusiness,andconductbusinessonlineorelectronically(Nelson,2005).E-business

can be easily confusedwith the term "e-commerce". The term "e-commerce" simplymeans to

conductbusinesstransactionselectronicallyontheinternet,wherease-businessismorethanjust

buying,sellingandtransferringproducts,servicesandinformationontheinternet.E-commercecan

beseenasoneofe-business'manyfacets(Gordijn&Akkermans,2003).

E-businessescanbedividedintwomaingroups,namely"pureplaye-businesses"and"hybride-

businesses" (Ungerer, 2015). In simple terms, pure play e-businesses can be described asmore

digitallyorientedandofferdigitalproductsandservices.Evenifpureplaye-businessessellphysical

products,themainpartofalltheirinteractionsarestilldigital.Examplesofpureplaye-businesses

includeNetflix,Facebook,Twitter,Google,YouTube,etc.(Ungerer,2015).

Hybride-businessessellthephysicalproductsthattheyownthroughcommerceinterfaceplatform.

Thismeansthattheymakeuseofwarehousesandtheyusephysicalorderfulfilment.Therecanbe

someconfusionbetweenhybride-businessesandnormal"brick-and-mortar"businesses(Ungerer,

2015).Thiscaneasilybesolvedbyunderstandingthefollowing:Thenewtechnologyenabledbrick-

and-mortarbusinessescanfunctionwithouttheinternetbyusingtheirphysicalchannels,excluding

them fromhybrid e-businesses. Examplesof hybrid e-businesses includeAmazon,Geekfuel etc.

(Ungerer,2015).

2.1.1 E-business environment

Thecreationoftheinternetandthenetworkeconomywasoneofthemostinfluentialmilestones

of the previous century. Creating a technological revelation that benefitted not only large

enterprises and national economies, but also small start-up entrepreneurs and individual

consumers.Thiswasmadepossiblebythefactthattheinternetsimplifiesalmosteveryaspectof

modernday life andprovides awholenew rangeofnewopportunities forwealth creationand

innovativebusinesses(Manyika&Roxburgh,2011;Ungerer,2015).Thee-environmentexpanded

rapidlyduetotheopportunitiesitcreatedonbothnoveltyandscale(Porter,2001).

Forconsumerstheinternethadthreemajorbenefits;(1)realtimeaccesstounparalleledamounts

of pertinent information, (2) it has given the consumer an whole new range of new digital


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capabilities,and(3)italsochangedtheaccessibilitytocommunicate,share,collaborate,socialise

andinteractwithotherconsumers(Ungerer,2015).

Thesethreebenefitscanbeexplainedinmoredetail.Byallowingtheconsumertoaccesstheright

kindofinformationtheconsumerhasaccesstoinformationthatdirectlyeffectstheirneeds.Itcan

veryclearlybeseeninonemajorarea,namelytheincreaseinpricetransparency.Thisdrivesonline

pricesdowndrasticallydue to the competitionbetween rivals andmaking itpossible foronline

pricestobeonaverage10percentlowerthanofflinecompetition(Manyika&Roxburgh,2011).

Thesecondbenefitallowsconsumerstodoalmostanythingontheinternet,tomaketheirlifeas

convenientandaseasyonpossible.Theopportunitiesareendlessandcanbeseeninareaslike,

doingyourbankingontheinternet,makingonlinereservationsfromflightstoaccommodationto

movieticketsandorderingproducttobedeliveredimmediately(Manyika&Roxburgh,2011).

Lastly,theabilitytocommunicate,share,collaborate,socialiseandinteractwithotherconsumers

providesendlessopportunitiesfortheconsumer.Thisabilitytoshareinformationmakesitpossible

forpeopletousetheinternettogetpublicinformation;gainknowledgeandeventoseekpersonal

connection(Manyika&Roxburgh,2011).

Theinternetdoesnotonlybenefittheconsumer,italsoprovidesanorganisationtheopportunity

to be more flexible, efficient and multifaceted. On top of this, the internet also allows an

organisationtoconnectwithcustomersonadeeperlevel.Thechangethattheinternethasbrought

to organisations, even resulted in changing the structures of organisations. This resulted in

organisational silos tobreakdownandcombine tohelpsolveproblemsmoreeffectively.This is

madepossiblethroughsocialnetworksthatlinkemployees,customersandstakeholders(DuRausas

etal.,2011).Oneofthemorecommonphenomenathat isbecomingmoreandmorepopular is

knownasopeninnovations(Manyika&Roxburgh,2011).Chesbroughetal,(2006)explainsopen

innovationas“thepracticeofemployingcommunitiesofinternetparticipantstodevelop,market

andsupportproductsandservices”.

Thereareotherphenomenathatarechangingtheenvironmentfore-businessesapartfromopen

innovation. These phenomena include big data analysis and cloud computing. Big data can be

referredtoascollectingandanalysingverylargeamountsofdatainordertoimproveorevento

automatedecisionmaking(Bughinetal.,2010).Withthesecharacteristics,bigdatahasmassive

potentialnotonlyintheprivatesector,butalsoinareaslikehealthcare,educationandgovernment


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operations.Cloudcomputingreferstoaccessingcomputerresourcesprovidedthroughnetworks

liketheInternet,ratherthanrunningsoftwareorstoringdataonalocalcomputer(Bughinetal.,

2010). The significant cost and accessibility benefits that cloud computing holds, are extremely

beneficialfore-businessstart-ups.Bymovingabusinessorconsumer’sdatastorageandcomputing

capabilitiesonlineor to“thecloud”, it isno longernecessary topurchaseservers, softwareand

other IT infrastructure. The necessary functions or applications can simply be acquired online

(Manyika&Roxburgh,2011;Chesbrough&Brunswicker,2013;Ungerer,2015).

The aforementioned benefits that the internet provide have created amassive rise in internet

technology adoption. There are about two billion people connected to the internet globally

(Manyika & Roxburgh, 2011) and the size of the Internet economy in 2010 in the 20 major

economiesoftheworld(alsoknownastheG-20economies)alonewasalmost$2.3trillion(Deanet

al., 2012). On average, this accounted for 4.1 percent of their GDP (Gross Domestic Product)

(Manyika&Roxburgh,2011;Deanetal.,2012;Ungerer,2015).Theinternethasaccountedforten

andtwentyonepercentGDPgrowthintheG-20economiesoverthelast15and5yearsrespectively

(Deanetal.,2012).Theinterneteconomyisexpectedtoincreaserapidlywiththeincreasedaccess

totheinternetviasmartphonesandmobiledevices(Deanetal.,2012).

These facts show themassive size and the rapid growthof the internet economy.According to

(Manyika&Roxburgh,2011),foreveryjobthattheinternetrendersobsolete2.6jobsarecreated.

Thishighlightstheprosperitybenefitsthattheinternetprovides.TheeconomicgrowthintheG-20

economiesthattooktheindustrialrevelation50years,wasaccomplishedin15yearsbyinternet

maturity (Manyika & Roxburgh, 2011; Ungerer, 2015). Internetmaturity can be defined as the

extent of a country’s Internet access to infrastructure and internet usage, that accounts for a

country’s e-engagement, e-environment and e-expenditure (Ungerer, 2015). This shows the

connectionbetweenrisinglivingstandardsandthematurityofacountry’sinternetecosystem.The

opportunitythattheinternetprovidestodriveeconomicgrowthshouldnotbeneglectedorwasted,

especiallyindevelopingcountrieswhohavethemosttogain(Manyika&Roxburgh,2011).

Eventhoughtheinternethashadamassiveeffectontheworld,thedigitalrevolutionhasonlyjust

started.Theamountof technological innovationsandnewbusinessesthatarestillvery likely to

emergeareendless.Nottomentiontheexpansionpotentialprovidedbytheinternet’sabilityto


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connect people and things and engage with customers on a much deeper level (Manyika &

Roxburgh,2011;Ungerer,2015).

However, thereareawholerangeofnewrisks thatbecame imminentwiththeadoptionof the

internet.Themostcommonrisksareinvasionofprivacy,onlinefraud,identitytheftandthehacking

ofsensitiveinformationanddatabases.Eventhoughtheserisksareareasofconcernandcannotbe

ignored,theystilldonotoutweighthepositivepotentialthattheinternethastobuildbusinesses,

improve lives and enable consumers to make improved decisions in the future (Manyika &

Roxburgh,2011;Ungerer,2015).

With all the new technology and innovation, the ever-changing and evolving e-environment is

difficulttobreakdownincomponents.Therearealwaysnewcomponentssurfacingthatwillaffect

thee-environment.Therefore,theframeworkmustbebuiltwithaprocessthatisabletoadaptto

changeandeffectivelyevolve.

2.1.2 E-business versus technology businesses

There isacommonmisperceptionbetweene-businessesand technologybusinesses.Both these

terms are often used to refer to any business that uses technology. The difference between a

technologyortechbusinessandane-businessbusinesscanbeeasilydefinedbythefollowing:A

technologybusiness isabusinessthatcreatesanewformoftechnology,whereasane-business

doesnothavetocreateanewtechnology(Weatherby,2009).Thisstudyfocussedone-business

start-upsandnotontechstart-ups.

2.1.3 E-business customer life cycle

Beforelookingate-businessmetrics,itisimportanttounderstandhowthecustomerlifecycleof

ane-businessworks.E-businesseshasbecomecustomerlifecycle–centricandthisisbecausethe

whole product-centric mind-set has changed to a much more customer-centric mind-set. The

customer life cycle helps to understand what are most important metrics to track and

measurementsaremoreimportantthanotherforane-business(Cutler&Sterne,2000).

Anotherimportantfactorwhenitcomestoe-businessmetricsandmeasurements,isthefactthat

without a clear understanding or definition of a user or online visit, customers can sometimes

becomeinvisibleandthismakestrackingtheirmovementimpossible.Averysimplewaytolookat


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it,isthatthecustomersthatvisitasite,leavesfootprintsonthesite.Thesefootprints,ortraces,are

easytopickuportrack,buttheytellyounothingaboutthecustomerswholeftthosefootprints

(Cutler&Sterne,2000;Puschmann&Alt,2016).

The customer life cycle describes how customers of a certain e-business goes through

considerationsofpurchasing,usingandmaintainingloyaltytotheserviceorproductofabusiness.

Thecustomerlifecyclestartswithreachingouttoatargetmarket,thenacquiringthemintothe

sphereofinfluenceofthebusiness.Afterthisthecustomermustbeconvertedintoaregisteredand

paying customer.This customermusthavea retention ratio3andultimately the customermust

becomealoyalcompanyadvocate(Cutler&Sterne,2000;Reichheld&Schefter,2000).

Figure 8 illustrates the customer life cycle starting at reaching the potential targetmarket and

endingwithaloyalcustomerbase.Thisloyalcustomerbaseformsthecoretargetmarketofforms

thebusiness.

Figure 8 - The customer life cycle (Cutler & Sterne, 2000)

Thecustomerlifecycleisnotafixedcyclethatisthesameforalle-businesses.Thelinesforthe

variousstagesaredrawnatdifferentplacesfordifferente-businesses.Therearedifferentfactors

3Retentionratioreferstothepercentagethatacustomerreusesaplatform(Cutler&Sterne,2000).


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thatinfluencewherethedifferentphasesstartfordifferentbusinesses.Afewexamplesofthese

factorsare:doesthebusinesssellaproductoraservice;thetimeasaletakes;whattheproductor

theserviceis;thetypeofbusinessetc.(Cutler&Sterne,2000).

2.1.4 E-business measurements

Whenitcomestoe-businessmetrics,alsoreferredtoase-metrics,therearethreeanalysesthat

helpyouanswerthemostfundamentalquestionaboutdatabasemarketing.Thesethreee-metrics

arerecency,frequencyandmonetaryvalue.Therecency,frequencyandmonetaryvalueorRFM

analysis,asthesee-metricsareoftenreferredas,answerthemostimportantquestionofe-business

metrics,namelywhoaremycustomers?(Cutler&Sterne,2000)

Each of these e-metrics provide valuable insights about a customer’s behaviour and can be

determinedbyusingpasttransactions.Thesee-metricscanbedescribedasfollows(Cutler&Sterne,

2000):

• Recency:Researchprovesthatcustomerswhohaverecentlymadeapurchaseorusethe

servicewillmorelikelypurchasetheproductorusetheserviceagain.Todeterminerecency,

thequestionthatmustbeaskedis:Hasthecustomermadeapurchase,usedtheserviceor

visitedthewebsiterecently?

• Frequency:Usersthathavefrequentlymadeapurchaseorusetheservicewillbemorelikely

tocontinuemakingpurchasesandusingtheservice.Todeterminefrequency,thequestion

thatmustbeaskedis:Howoftenhasthecustomerpurchasedtheproduct,usedtheservice

orvisitedthewebsite?

• Monetaryvalue:Customersthathavespentahighamountinthepast,willbemorelikelyto

spendhighamountsinthefuture.Thesecustomersmightnotplacefrequentorders,butif

thevalueoftheordersishigh,theyareveryprofitablecustomers.Todeterminemonetary

value,thequestionthatmustbeaskedis:whatisthetotalspendingandprofitability?

The RFM-based clustering method can be very beneficial to help separate certain customer

segmentsby identifyingandprofilingcustomersegmentsthatarenotalwaysobviousoreasyto

identifyandseparatefromeachother.Thismethodrepresentssignificantopportunities(Baruaet

al.,2000;Cutler&Sterne,2000;Baruaetal.,2001;Baruaetal.,2001).


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2.1.5 Acquisition cost

Withthee-businessenvironmentbringingsomuchchangetothetraditionalwayofdoingbusiness,

theway thatmarketingcampaignscanbemeasuredhaschangedcompletely.Nowadays,highly

targetedmarketingcampaignscantracktheexactprogressofeachlead.Thenumberofcustomers

thatareconvertedwiththemarketingbudgetcanbeusedtodeterminetheacquisitioncostofeach

customerbydividingthemarketingcostspentbythenumberofcustomersacquiredintheperiod

duringwhichthemoneywasspent(Thomas,2001;Hughes,2015).

Thecustomeracquisitioncostoracquisitioncostofane-businessisaveryimportantmetricfrom

thestart.Thismetriccanbeusedtohelpthee-businesstoshapethewaythemarketingisdoneand

toseecalculatetheminimumlifetimevalueofthecustomer.Thecustomeracquisitioncostmust

belessthanthelifetimevalueofthecustomertoensurethatthee-businessstart-upmakesaprofit

fromthecustomer(Hansotia&Wang,1997).

Simply, thecustomeracquisitioncost is thecostofconvincingapotential customer touseyour

productorservice.Itisavitalmetricthate-businessesmusttrackanditisoneofthemetricsthat

investorsoftenlookat,beforeinvestinginae-businessstart-up(Hughes,2015).

2.1.6 E-customer behaviour

It is difficult toproperlydefineexactlywhate-customerbehaviourentails, but it is anessential

componentfore-business.Tounderstandexactlyhowe-customersbehaveandwhattheneedto

besatisfied,isavitalpartofanye-businessstart-up(Kwanetal.,2005;Dennisetal.,2009).There

areafewmodelsthatcanbeusedtodescribee-customerbehaviour,butamuchsimplerwayisto

usethefollowinge-metrics(Cutler&Sterne,2000):

• Stickiness:thestickinessissimplythetotaltimeofauniqueuserisonthesiteoverthetotal

numberofuniqueusers.Stickinessisidealforsalespagesonawebsite.

• Slipperiness: slipperiness is the exact opposite of stickiness and it is ideal for customer

supportpagesonawebsite.

• Focus:focusistheaveragenumberofpagesvisitedineachsectionoverthetotalnumberof

pagesinasection.

• Velocity:thismetricmeasureshowquicklyoneusermovesfromonestageinthecustomer

lifecycletothenext.


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• Seduciblemoments:thesemomentsarethemomentsonthewebsitewherethecustomer

isexceptionallyvulnerabletoanoffer.Thesemomentscanstretchfrombuyingmorethan

oneproduct,tosigninguponforanewsletter.

Thesemetrics are all aimed at a different segment of an e-business, namely providing enough

information to better understand e-customer behaviour throughout the whole e-business. By

understandinge-customerbehaviour,thecustomerlifecyclecanbebetterunderstoodaswellas

thecustomeracquisitioncost(CutlerandSterne,2000).Fore-businessstart-upsitwillbeeasierto

usethesemetrics,becausee-customerbehaviourmodelscanbeverycomplexandtimeconsuming

(Kwan,FongandWong,2005).

2.1.7 E-business framework requirements

The followingrequirements,aspresented inTable1,werederived fromthe literaturereview in

Section2.1.Theserequirementswillbeusedtoserveasthebuildingblocksfortheframework.


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Table 1 - E-business framework requirements

Typerequirement Requirement

Userrequirement TheFrameworkshouldconsidertheenvironmentofe-businessstart-ups.

Userrequirement

Theframeworkshouldallowforallthedifferentsectorsofthee-business

landscape.

Userrequirement Theframeworkmustbeabletoevolveasthee-environmentevolves.

Functionalrequirement

Theframeworkshouldpromotealearningcapabilityone-businessstart-

upsandthee-environment.


Framework needs to include other important aspect that make it

applicableforspecificallye-businessstart-ups(Acquisitioncost.Customer

lifecycleetc.).

Designrestriction

Theframeworkisintendedfore-businessstart-ups,butsomeprinciplesor

suggestedcomponentsmaybeapplicableforalltypesofstart-ups.

Attentionpoint

Someofthefactorsincludedintheframeworkmayvaryfordifferenttypes

ofe-businessstart-ups.

Boundarycondition

Theframeworkassumesthatthetechnologyofthee-businessstart-upis

feasible.Noneedforanytechnologytobebuiltfore-businessstart-upto

workintermsoftechnologythatdoesnotexist.

2.2 Start-ups

AccordingtoRies(2011)thestart-upenvironmentcanbedescribedwiththefollowingquote:“The

grimrealityisthatmoststart-upsfail.Mostnewproductsarenotsuccessful.Mostnewventuresdo

notliveuptotheirpotential.”

Section 1.4.2 described the research method with the focus on certain domains. This section

focussesonthestart-updomainbygivingabroadoverviewofstart-upsaswellasbyprovidingthe

requirementsneededtocreatetheframeworkfromthissection.


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Figure 9 - Second step from Figure 4 in the literature development process

2.2.1 Start-up overview

Astart-upisabusinesswithlimitedoperatinghistory.Itcanbeassimpleasjusthavinganidea.The

ideacanbetosellaproductoraservice.Itisdifficulttodeterminewhenabusinessisbigenough

nottobeastart-upanymore,becausetherearenoguidelinesorsetrulesthatstatewhenastart-

upbecomesabusiness(Weatherby,2009).

Thetermstart-upisoftenassociatedwiththepopularstereotypeofthreecollegekidswithyouthful

ambition and endless enthusiasm creating brilliant new technology thatwill change the future.

Becomingmillionairesovernightandachievingearlysuccessareoftenseenaspartofthestart-up

process.Thishoweverisfarfromthetruth.

Astart-upcannotbedefinedbythissimplestereotype.Ries(2011)definesastart-upasahuman

institutionthatmustfunctionunderconditionsofextremeuncertaintytocreateanewserviceor

product.Start-upsareeverywhere,canbemanagedbyyoungandoldanddonotturn intogold

overnight(Gelderenetal.,2005;Ries,2011).

Theseextremeuncertainconditionscanbecausedbyvariousfactors.Factorsthatcanvaryforevery

singlestart-up.Thefactthatthesefactorsaresounpredictablemakesitverydifficulttomitigate

theriskthatiscausedbyuncertainconditions.Thisisthesecondpartthatpeopleoftengetwrong.


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Overnightsuccessisneveraseasyasitsoundsandalmostneverhappensovernight.Thehardwork,

latenights,endlesscupsofcoffeeandcountlessheadachesarenotalwaysmentioned.

Takingallofthisintoaccount,nineoutoftenstart-upsfail(Patel,2015).Someentrepreneursmay

evenwritetheirbusinesspost-mortembeforethestartoftheirbusiness.Thisstatementmaycome

overas veryharsh,but if your start-up lasts, youare lucky. The success stories likeGoogleand

Facebook,areoftenmisleading,moststart-upshavetofollowamuchlongerandmoredifficultpath

tosuccess(Patel,2015).

Theuncertaintyoftheworldmakesitnearlyimpossibletopredictthefuture,makingitdifficultfor

start-upstoknowexactlywhotheircustomersareandwhattheirservice/productshouldbe.Old

management techniques relied on a long, stable operating history and a relative stable

environment.However,forstart-upsitisimpossibletohavethesefeatures,thusmakingplanning

and forecasting very inaccurate. Another problematic approach that start-ups adopt after the

traditionalmethodsfail,isthe“justdoit”approach(Ries,2011).

Itisdifficulttomanageastart-upwithalltheuncertaintyandchangethatthereisfromthestart,

however it isvery importantthatevensomethingasdynamicandexcitingasastart-upmustbe

managed(Ries,2011).

2.2.2 Start-up survival

Asmentionedbefore,nineoutof10start-upsfail(Patel,2015).Themainreasonforstart-upfailure

isthatthereisnomarketneedfortheproductorservicethatthestart-upprovides(Weatherby,

2009).Start-upssucceedbecausetheyaresolvingaparticularproblemthatusersareexperiencing.

Bynotsolvingaproblem,42%ofstart-upsfail(Weatherby,2009).Apartfromnotsolvingaproblem,

big factors like limitedpreparationand information are key in the failureof start-ups (Ungerer,

2015).

According toRies (2011),whatwereseenas signsof likely success inearliereras,mightnotbe

applicableforstart-ups.Basicthingslikeasolidstrategyoragreatplandoesnotworkforstart-ups.

Thereasonforthisisthefactthatstart-upsoperatewithtoomuchuncertainty.Asmentionedin

section2.2.1,theextremeuncertainconditionsthatstart-upscreateproductsandservicesunder,

cannotbepredictedandvaryfromonestart-uptothenext.Therefore,start-upschangetheirinitial


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ideaconstantly(Hyytinenetal.,2015).Theseuncertainconditionsandconstantchangethattakes

place,generatethestart-upculture.

Whencreatingaproductoraservicetherewillalwaysbesomesortoffailure.Failuremustbeseen

asanopportunitytodiscoverthatthebestwaytogomightbethroughchange(Rampton,2014).A

start-upconsistsofthreebasiccomponents,namelyvision,strategyandproduct.Theproductand

the strategy stages can change constantly. The product changes through a process called

optimisation,whichsometimescausesthestrategytochangeaswell.Thisiscalledapivot,asseen

inFigure10(Ries,2011).Figure10illustratestheseprocessesandpointsoutthatthevisionofany

start-upisitsfoundationandthisneverreallychanges.Thevisionofastart-upcanbedescribedas

theendgoalandentrepreneursarecommittedtoseetheirstart-upreachthefinaldestinationthat

theyhadinmindfromdayone.

Figure 10 - Change of a start-up (Ries, 2011)

Astart-upcanbeseenasaportfolioofdifferentactivitiesthatallworksimultaneously:acquiring

new customers, serving existing customers, improving the product, improving the marketing,

improvingoperationsandevenmakingmajordecisionslikewhentopivot.Alltheseactivitiesmust

bebalancedandthisisthechallengethattheentrepreneurfaces.Thesechallengescanbefoundin

all thephasesofastart-up.Smallerstart-upssometimesstruggletosupportexistingcustomers,

whiletryingtoinnovateandgrow(Ries,2011).Someofthemostestablishedstart-upsarefaced


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27 | P a g e

withthechallengeofbalancingthedecisionofwhentoinvestininnovationbeforetheybecome

obsolete(Hyytinenetal.,2015).Asastart-upgrowsandbecomesbigger,thethingthatchangesis

themixtureoftheseactivitiesintheportfolioofwork.

Entrepreneurshipcanbeseenaspuremanagement.Managingallthechanges,uncertainconditions

andactivitiesthataremixedandthrownatthepersonthatmanagesthestart-up.Thismaysound

verystraightforward,butitistheexactopposite.Ingeneralmanagement,therearetwotypesof

failures,namelya failure toplanadequatelyora failure toexecuteproperlyandboth lead toa

failuretodeliverresults.Inthemoderneconomy,thesearenotjustfailures,butsteppingstones

thatareoftenrequiredtoachievegreatness.Thismeansthatsignificantlapsescanoftenleadto

successinthestart-upenvironment(Gelderenetal.,2005;Ries,2011)

2.2.3 Start-up founder

To understand what a start-up founder is, it is essential to know the difference between

entrepreneursandstart-upfounders.Thesetermsareoftenconsideredtohavethesamemeaning,

however,thisisnotthecase.Thismisconceptioncanbeeludedbyunderstandingthedifference

betweenastart-upfounderandanentrepreneur(Shane&Venkataraman,2000;Herringtonetal.,

2010;Oe&Mitsuhashi,2013).

Tenner(2013)definesanentrepreneurassomeonewhosetsouttofindbusinessopportunitiesand

createbusinesssystemstoexploitthoseopportunitiesforfinancialgain.Thisdefinitionhighlights

thefactthattheentrepreneursalwayshasafinancialmotive.

Start-upfoundersarethepeoplewhoestablishthebusinessandcreatesomethingfromnothing

(Fairbrothers&Gorla,2013).Foundersdon’thaveafinancialmotive,theyoftenstartabusinessto

createagreatproduct,changetheworld,becomefamousetc.Theirsecondarymotivecanbeto

makemoney,butthisisnevertheprimarymotive.Manystart-upfoundersarealsoentrepreneurs.

Theriskandpressurethatfoundersmustdealwithisenormousandthedifficultytosucceedisclose

toimpossible.Start-upfoundersoftenmusttietheirownfatewiththefateoftheirstart-up.This

meansthatastart-upfounderalwayshastheriskofexitingastart-upjustasbrokeastheycamein

(Bengtsson&Hsu,2010;Tenner,2013).

Start-up founders can have various educational backgrounds, making it very difficult for some

founderstostartastart-up.Therefore,alotofstart-upshavemorethanonefounder.Whenmore


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28 | P a g e

thanoneperson foundsastart-up, theyare referred toasco-founders.Start-up foundersoften

foundastart-uptogether,becausethedifferentexpertiseofeachco-foundercanimprovethestart-

up'ssurvival(Fairbrothers&Gorla,2013).

2.2.4 Start-up incubator

Start-up incubators startedas flexibleworkspace thathelped small companiesbyoffering them

discount,butthemodelhassincechangedcompletely.Nowstart-up incubatorsaredesignedto

help start-ups succeed, by offering workspace, support, training, networking, funding, events

servicesandfacilitiestoacceleratethegrowthofthestart-up.Themostcommonservicethatstart-

upincubatorsprovideishelpwithbusinessbasics(Smilor,1987;Willson,2012).

Incubatorsareoftenassociatedwithuniversitiesorevenbusinessschools.These incubatorsare

createdtohelpstudentandalumnifoundersgrowtheirstart-ups.Thereareincubatorsstartedby

other entities than universities like former entrepreneurs, governments and other businesses

(Forrest,2014).

Thesolepurposeofanincubatoristohelpastart-upgrow,butthereisnomodelforincubating

start-ups,noproperguidelinestofollow.Moststart-upsusetheirowndiscretionandmethodsto

helpstart-upsgrowasfastaspossible(Harris,2017).

Incubatorsareoftenconfusedwithacceleratorsandthiscanhaveabigimpactonearlystagestart-

ups. Even thoughboth can be good for early stage start-ups, the few key distinctions between

incubatorsandacceleratorsmustbedefinedproperlybeforethefoundercanchoosewhichoneto

join.Thebestwaytodescribethedifferencebetweenanincubatorandanacceleratorisbylooking

atthegoalsofboth.Acceleratorslooktoacceleratethegrowthofastart-upbyfocussingonthe

scalingofastart-up.Incubatorsontheotherhandlooktoincubatedisruptiveideasinthehopeof

buildingacompany,byfocussingoninnovation(Forrest,2014;Harris,2017).

The goal of an incubator can also be explained as to decrease the chance of a start-up to fail

(Chapman&Hannon,2001).Theincubatorwillachievethisgoal,bymakingavailabletheincubator

liaisonofficer,whoseroleistonurturethestart-upbyhelpingthemwiththeirdifferentneedsand

connecting themto thenetwork in the incubator thatwill supply support (Chapman&Hannon,

2001). Liaison managers are employees for the incubator and has different educational

backgrounds.Thismeansthatthereisnospecificguidelinewhatanincubatorliaisonofficerneeds


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toknowbeforeworkingforanincubator.Theincubatorliaisonofficeroroftenreferredtoasthe

incubatormanagerorportfoliomanagercanbeseenasaprocesscoachmorethananythingelse.

2.2.5 Start-up investment

Togetastart-upofftheground,thereiscapitolneeded,thisiscalledtheinitialinvestment.There

arealotofdifferentmethodstogettheinitialinvestmentforastart-up,thestart-upfoundercan

investtheirownmoney,moneycanbeborrowedfromdifferentsourcesormoneycanberaised

frominvestors(Tanrıseveretal.,2012;Peavler,2016).

Astart-uphasdifferentstepsofraisingmoney,seedcapitol,angel investorfundingandventure

capital financing.Theseedcapitalphase is thetypeof investmentthatearlystagestart-upsuse

(Kanniainen&Keuschnigg,2004).Seedcapitalorseedfundingcancomeindifferentforms,suchas

bank loans, crowdfunding, credit cards or even the start-up founders own investment (Truong,

2017).

Getting investmentforastart-up isvery important,but itcomesatacost.Thestart-upfounder

usuallygivesawayequitytoreceivefunding.Gettingtherightinvestorisalsoaverytime-consuming

task.Takingseveralmonthsorevenyears,findingtherightinvestorisveryrareforearlystagestart-

ups(Rader,2017).

2.2.6 Start-up framework requirements

The followingrequirements,aspresented inTable2,werederived fromthe literaturereview in

Section2.2.Theserequirementswillbeusedtoserveasthebuildingblocksfortheframework.


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Table 2 - Start-up framework requirements


Userrequirement

Whenusingtheframework,ausershouldbeallowedtoapplytheirown

discretion.

Userrequirement

The framework should be considered as a decision-making tool for the

useroftheframework.

Userrequirement

The framework shouldprovide cleardefinitions andexplanations for at

leastaliaisonofficertounderstandcompletely.


Theframeworkshoulddetermine ifane-businessstart-upwillhavethe

potentialtobefeasible.

FunctionalrequirementTheframeworkshouldsupportthecontinueduseoftheframework.


The frameworkmustprovideenough information tohelpane-business

start-updeterminewhatitwilltaketopotentiallybefeasible.


The framework should follow and effective and efficient process and

design.


Theframeworkshouldbestructuredthatastart-upfoundercanusethe

frameworkwithoutthehelpofanincubatorliaisonifthefounderhasthe

necessaryknowledge.

Designrestriction

The framework does not guarantee that an e-business start-up that is

potentiallyfeasiblewillbesuccessful.

2.3 E-business start-ups

Thissectionexplainsthedifferencebetweene-businessesandstart-upsaswellasgivebackground

onwhye-businessstart-upshavebecomesopopularandhowtheneweconomyhasdeveloped

throughtheriseoftheinternet.


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focussesontheoverlappingsectionbetweenthee-businessdomainandthestart-updomainby

givingabroadoverviewofe-businessstart-upsaswellasbyprovidingtherequirementsneededto

createtheframeworkfromthissection.

Figure 11 - Third step from Figure 4 in the literature development process

2.3.1 Difference between an e-business and a start-up

AsseeninSection2.1andSection2.2,itisclearthatthereisabigdifferencebetweenane-business

andastart-up.Thesearetwodifferententitiesontheirown.Astart-updoesnothavetobeane-

businessandabusinessdoesnothavetobeinitsstart-upphasetobeane-business.Thisstudyonly

focussedone-businessesintheirstart-upphase.

Ane-businessstart-upcanbedefinedas“Abusinessthatisinitsstart-upphaseandthatcompetes

mostly or completely online, rely entirely on the internet for the success of the business, and

conductsbusinessonlineorelectronically”(Ungerer,2015).

2.3.2 How an e-business can help or worsen start-up survival

According to Ungerer (2015), digital products and information services are becoming more

significanttotheeconomyeveryday.Smallfirmsareusingtheseproductsandservicestocreate

opportunities that were not easily accessible or even possible earlier. As mentioned earlier in

Section2.1.1,cloudservicesmakeitmuchsimplerandmuchcheapertostartane-business.The


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smallerbusinessescannowcompetewithmuchbiggercompanies,bymakinguseofonlinetools

thatautomatealotofunnecessaryprocesscanhelplightentheirworkload,foralotcheaper.These

affordable online tools are constantly improving and are making it possible for the smaller

businessestogettomarketaloteasier(Ungerer,2015).Whattheinternethasdoneforstart-ups,

istoleveltheplaygroundbetweenstart-upsandlargercorporations.Bymakingitpossibleforany

start-uptoestablishaglobalfootprintfromdayone,start-upscannowcompetegloballyfromday

one(Manyika&Roxburgh,2011;Deanetal.,2012).

Theinternetprovidesalotofotheradvantagesforstart-upsthatwerepreviouslyonlypossiblefor

largercorporations.Theseadvantagesincludebettercustomerreach,findingsupplierseasily,better

marketing, improvedbrandbuilding,tappingintotalentworldwideandmanagingasupplychain

thatconsistsofaglobalworkforce(Ungerer,2015).AccordingtoDeanetal. (2012),theBoston

ConsultingGrouptheinternetprovidesfivemainadvantagesfore-businessesandtheyinclude:

1. Extendedglobalreach

2. Enhancedmarketing

3. Enhancedcustomerinteraction

4. Accesstocloudservices

5. Simplifiedstaffrecruitment

Whiletheinternethasahugeimpactonstart-upsandSMEs,italsohelpstoimproveperformance

inlargebusinesses.Asurveythatincluded4,800SMEsin12countrieswasconductedtoseethe

differencebetween smallbusinesses thathaveahighweb technologyutilisation rateand small

businessesthathaveaminimalwebpresence.Theresults,Figure12,showthatwithahighweb

utilisationrate,asmallbusinesscangrowtwiceasfast,canbringintwiceasmuchrevenueandcan

evencreatemorethantwiceasmanyjobs(Manyika&Roxburgh,2011).Thisistrueacrossallsectors

oftheeconomy(Ungerer,2015).


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Figure 12 - Growth and exports of SME’s adapted from Manyika and Roxburgh (2011)

InSouthAfrica,thereareabout410,000SME’sand63percentoftheseSME’shaveawebsite.27

percent of these SME’swith awebpresence are very profitable andonly five percent of these

businessesaremakingaloss.Ontheotherhand,only11percentofSMEswithoutawebpresence

aremakingahealthyprofitand16percentofthesebusinessesaremakingaloss(Ungerer,2015).

ThisshowsthatSMEswhoarenotmakinguseoftheonlinee-businessenvironmentaremorelikely

tobe indangerof losingout tobigsaleschannels,bymakingthemselves irrelevant todifferent

customerssegments(Ungerer,2015).

It is clear that internet technologies canmakean instrumental difference in themodern-daye-

economy. In order to enhance the survivability of start-ups, they should utilise internet

technologies. Even businesses that have been established can benefit from using internet

technologies(Ungerer,2015).Althoughmakinguseof internettechnologieswill improveastart-

ups chancesof survival, it doesnotmean that every e-business start-upwill be successful. It is

pivotal for a start-up to have a e-business start-up competitive strategy and a businessmodel

(Manyika&Roxburgh,2011;Ungerer,2015).

13

7,4

6,2

5,3

2,7 2,5

0

2

4

6

8

10

12

14

High Medium Low

SMEcompanygrowthduetowebtechnology

use

Annualgrowthoverpast3years(%) Revenueduetoexports(%oftotal)


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2.3.3 The effect of the internet on strategy – E-business competition

Theinternetinfluencedbusinessinvariousways.Theeconomywasnotjustaffected,itchanged

completely. Other factors like strategy, industry structure and even basic business was also

influencedbytheinternet.Theinternethasseveraldisruptivecomponentsthatastart-up’sbusiness

modelmustcapitaliseontoenablethestart-uptoofferinnovativesolutions.Bycapitalisingonthese

disruptiveattributes,theinternetprovidescertaineconomiesofscaleandscopethatcanchange

theoutcomeofastart-up’smarketsegmentationcompletely(Porter,2001;vanderHeijden,2001;

Ungerer,2015).

Theriseoftheneweconomywasmadepossiblebytheriseoftheinternet.Theinternethassucha

bigeffectontheeconomy,thatitdidnotjustchangetheoldeconomy,itcreatedaneweconomy.

Theneweconomydiffersfromtheoldeconomyinseveralways.Thesewaysinclude,information

basedtechnology,digitalproductsorservices,supplyingtoaglobalmarketandenablingofferings

tobecustomised.Theoldeconomyfocussedonsupplyingtolocalmarkets,exploitingtheefficiency

ofmassproduction,manufacturing-basedtechnologiesandtheproductionofphysicalgoodsand

services. Even though there are several differences between the old economy and the new

economy, it does not mean that all the old rules of competition are no longer valid. This

misconceptionwasmadebyalotofe-businesses.Table3summarisesthedifferencesbetweenthe

oldandtheneweconomy.


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Table 3 - New Economy vs Old Economy (Ungerer, 2015)

NewEconomy OldEconomy

Information-basedtechnology Manufacturing-basedtechnology

Focusonservices Focusongoods

Informationassourceofvalue Informationsupportsphysicaltransformation

Masscustomisation Massproduction

Valuemaximisation Costminimisation

Economicprincipleofabundance Economicprincipleofscarcity

Globalmarkets Localmarkets

Table3summarisessomeofthedifferencesbetweentheoldandtheneweconomy,butthisalso

createstheillusionthattherulesoftheoldeconomydoesnotcountfortheneweconomy.This

misconceptionhasresultedinthedownfallofmanye-businesses.Earlyinternetfirmsbelievedthat

withawebsiteandabusinessmodelitwaspossibletobypassthetraditionalwayofstrategizing

andjustdiveinheadfirst.Theproblemwiththesebusinesseswasnottheirbusinessmodels,itwas

themisuseoftheirbusinessmodelthatcausedtheirdownfall.Thiswasacommonmistakethat

businessesmadeintheearlydaysoftheinternet–thinkingthatalltherulesthatweretherebefore

theinternetcannowbeforgottenandignored(Porter,2001;VanderHeijden,2001).

Manye-businessesordot-comsastheyarereferredto,assumedtheywouldbesuccessfulbecause

theywerethefirsttomarketandthisgavethemtheadvantagetheyneeded.Thiswasnottheright

mindset,becausetheinternetmadeemulationsomucheasierinthedigitalworldandthisallowed

competitorstocatchupveryquickly.Withtheselowbarrierstoentry,e-businessesarerequiredto

rapidlyadaptandchangeconstantly.Thiscausesariskofbecomingobsoleteandhighlightsthree

key factors in the digital environment, namely innovation, speed and surprise (Ungerer, 2015).

These three factors and the risk of becoming obsolete are not just applicable for established

businesses,butalsofore-businessstart-ups.


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2.3.4 Where in the business chain does a start-up fit in?

From themoment thedecision ismade to setupabusiness, thebusiness life cycle starts. This

journeystartswiththeideaandgoesfromstart-upphasetosuccessorfailure.Theprocessconsists

ofeveryobjectfacedthroughgrowthandmaturity.Eachofthefivestagesofthebusinesslifecycle

hasitsownchallengesorobstaclesandnotoneofthemiseasy.Differentapproachesarerequired

foreachstage,becauseoftheuniquecharacteristicsofeachstage.

AccordingtoPetch(2016)alotofstart-upsfailduetotheself-destructionoftheirfoundersinstead

of conditions thatwere out of their control. This can be prevented by understanding inwhich

positionthefoundersareinthebusinesslifecycle,becausethiscanhelpunderstandthepotential

challengesthatthefoundersmighthavetofaceduringthestagetheyarein.Anotherwaytolook

atitis,ifabusinessgrowsanddevelops,theobjectivesandaimschange.Therefore,knowingwhere

thebusinesscurrentlyisandwhenitisgrowingcanbeveryhelpfultothesuccessofthebusiness.

Thefirststageof thebusiness lifecycle isknownasthedevelopmentorseedstage.Duringthis

stage,thebusinessisjustanideaanditmustbedeterminedifthisideaviableandhaspotential.

Thisstageconsistsofresearchandtesting.Gettingadviceandopinionsfromasmanysourcesas

possible, like friends, family, colleagues, business associates, or any industry specialist that is

accessible.Thisstagecanthenbeseenasthesoul-searchingstage,whenyoumusttakeastepback

anddecideiftheideahasthepotentialtogrowintoastart-upandifyouhavewhatittakestoget

itthere.Thefollowingchallengesaremorethanlikelytopopupduringthisstage(Chen,2014):

• businessideaprofitability;

• marketacceptance;

• establishingbusinessstructure;and

• accountingmanagement.

Thesecondstageofthebusinesslifecycleisknownasthestart-upstage.Thisstagebeginswhenit

isdecidedthatthebusinessideaisworthpursuingandhasbeenthoroughlyestablished.Thisdoes

notmeanthattheideaisfinalandwillneverchange,butthebusinessideamustbecanvassed.This

stageisdifficultandriskyanddecisionsmadeduringthisstagecanaffecttherestofthebusiness

lifecycle.Duringthisstage,theserviceorproductcangofromdevelopmenttomarketandchange

againduetotheinitialfeedbackofyourusers.Thisiswheremostofthetimeisspent,tweakingand


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changingyourproductorserviceaccording to the initial feedbackofpayingcustomers. Insome

cases,notonlytheproductorservicemustbeadjusted,buteventhebusinessmodelmustchange

to ensure profitability and customer satisfaction. That’s why during this stage adaptability and

innovationareessential.Thechallengesthatwillbefacedduringthisstageare(Chen,2014):

• managingcashreserves;

• managingsalesexpectations;

• accountingmanagement;

• establishingcustomerbase;and

• establishingmarketpresence.

Thethirdstageisthegrowthstageandcanalsobereferredtoasthesurvivalorestablishmentstage.

Thebusinesshasnowenduredandsurvivedtheinitialstagesofthebusinesslifecycleandisnow

established.Consistentlygenerationrevenueandtakingonnewcustomersarethemainfocusof

thisstage.Theconstantrevenuecanhelptocovertheoperatingexpensesandopennewbusiness

opportunities. This stage creates awhole new range of demands that needs to be balanced to

ensureanincreaseintherevenueandimproveprofit.Competition,increasingrevenue,expanding

theworkforce,marketingmodelsandoperationmodelsareonlyafewofthedemandsthatneed

tobebalancedandorganisedbeforeexpandingtomassmarket.Thechallengesthatwillbefaced

duringthisstageare(Chen,2014):

• dealingwithincreasingrevenue;

• dealingwithincreasingcustomers;


• effectivemanagement;and

• marketcompetition.

Thefourthstageofthebusinesslifecycleistheexpansionstage.Duringthisstage,thebusinesshas

beenfirmlyestablishedwithinacertainindustryandwilllooktoexpandintonewmarkets.Thisdoes

notmeanthatthebusinesswillexpandbyitself.Alotofcarefulplanningisnecessaryandfactors

likeresources,effort,cost,potentialreturnsandproduct/servicequalitymustbeconsideredatall

times.Whatmakesthisstagedifficult,istheriskoftakingontoomuchtoquicklyandthinkingthat

asuccessfulbusinessmodelcanworkinallmarkets.Measuringrisksandpreparingthebusinessfor


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anythingisessentialduringthefourthstageofthebusinesslifecycle.Thefollowingchallengescould

befacedduringthisstage(Chen,2014):

• increasingmarketcompetition;


• movingintonewmarkets;

• addingnewproducts/services;and

• expandingexistingbusiness.

Thefifthandfinalstageofthebusinesslifeisthematuritystage.Aftersuccessfulexpansion,the

businessisnowatthetopoftheindustry.Duringthisstage,thecompanyshouldseeastableprofit

year-on-year.Thenextstepistoeitherexitthebusinessbysellingortoexpandevenfurther.Alot

ofentrepreneursbringinaseasonedCEOwithloadsofexperienceatthisstagetomanageallthe

newchallengesandtotakethebusinesstoawholenewlevel.Exitingthebusinessisawholeprocess

onitsownandcanbedonefullyorpartially,dependingontypeofcompany.Thefinalstageinthe

businesslifecyclecanpresentthefollowingchallenges(Chen,2014):

• Increasingmarketcompetition;

• Accountingmanagement;

• Movingintonewmarkets;

• Addingnewproducts/services;and

• Exitstrategy.

These five stages of the business life cycle are not experienced by every business or in the

chronologicalorder.Thebusinesslifecycleismerelyanoutlineandthechallengesofeachstagecan

differfrombusinesstobusiness,butformanycompaniestherewillbesomekindofresemblance

tothesefivestagesandstayingintoofthingscanenhancethechangeofsuccess.Stayingontopof

things isvery importantandknowinginwhichstagethebusiness isatalltimes, iscrucial (Chen,

2014).

This study focussed on the start-up stage of the business life cycle. The success of each stage

dependsonalotofdifferentfactorsandaninnumerableamountofdecisionsmadebythefounders

andemployeesofthebusinessduringeachofthesestages,thatiswhyplanningandanticipating

whatcomesnextissoimportant.Thefeasibilitystudyframeworkthatthisstudyprovidescanbe


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usedinphaseoneandphasetwo.Whenusedinthefirstphase,itcanbeusedtoplanaheadand

prepareforsomeofthechallengesthatthesecondstagewouldprovide(Chen,2014).

It is importanttounderstandthestart-uplifecycleandwhichstageofthestart-uplifecyclethe

studyfocussedon.Therearefivedifferentstagesofthestart-uplifecycle,problem,minimumviable

product,productmarketfit,scaleandmaturity(Bass,2015).Thestudyfocussedonthestageright

beforethestart-uplifecyclestarts,namelytheideaphase.Theideaphasedoesnotformpartof

thestart-uplifecycle,becausethestart-uphasnotstartedyet.Itisstillonlyanidea.Duringthis

phasetherearestillloadsofuncertaintyaboutthefutureandthesuccessofthestart-up.Thestart-

uplifecycleismuchmorecomplicatedthanthesefivephases,butthefivephasescanbeusedasa

guideline(Bass,2015).

2.3.5 E-business start-up framework requirements

Thefollowingrequirements,aspresentedinTable4,werederivedfromtheliteratureinSection2.3.

Theserequirementswillbeusedtoserveasthebuildingblocksfortheframework.

Table 4 - E-business start-up framework requirements


Userrequirement TheFrameworkshouldconsidertheenvironmentofe-businessstart-ups.

Userrequirement Theframeworkshouldbeuserfriendlyandstraightforward.

Functional

requirement

Theframeworkshouldbeuseableforstart-upsthatarepasttheideaphase.

Functional

requirement

Theframeworkshouldfollowandeffectiveandefficientprocessanddesign.

2.4 Feasibility study


focussesonthefeasibilitystudydomainbygivingabroadoverviewoffeasibilitystudiesaswellas

byprovidingtherequirementsneededtocreatetheframeworkfromthissection.


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Figure 13 - Fourth step from Figure 4 in the literature development process

Therearemanydifferentdefinitionsandexplanationsofwhatafeasibilitystudyentailsandwhat

thepurposeof a feasibility study is. Theword feasibility is derived from feasible,which canbe

describedascapableofbeingdoneoraccomplished.Afeasibilitystudyisastudythattriestoprove

ifsomethingisfeasiblebycompilingaformaldocumentthatsummarisestheresultsoftheanalysis

and evaluations conducted to review the business. It also provides results of research done on

alternatives aswell as recommendations. The feasibility study describes and supports themost

feasiblesolutionapplicable for thebusiness (Feasibility.pro–LearnFeasibilityStudy,RealEstate

FinanceandExcelOnline,2016).HoaglandandWilliamson(2000)usesthequestions inSections

2.4.1,2.4.2and2.4.3tohelpexplainwhatafeasibilitystudyentails.

2.4.1 What is the purpose feasibility study?

Whenstartinganewbusinesstherearealotofassumptionsthatmustbemadetodetermineifit

isworthwhiletopursuethebusinessidea.Thepurposeofafeasibilitystudycanbetodeterminea

businessopportunityispractical,viableandpossible.

2.4.2 Why do a feasibility study?

Whenanentrepreneurgetsan idea,or isapproachedwithabusinessopportunity, thenegative

aspectsareeasilyoverlooked.Thefocusofanewbusinessventuretendstobemoreonthepositive

aspects.Afeasibilitystudyhelpsensurethatamorerealisticapproachisfollowed,lookingatboth

thepositiveandnegativeaspectsofthebusinessventure.


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2.4.3 When to do a feasibility study?

Beforeanewbusinesscanbestartedthebusinessmustbedefined.Thisstepiscriticalandcanvery

easilybeleftoutorunderestimated.Afeasibilitystudycanbeusedtoasatooltomaketheright

decisionswhendefiningabusiness.Awrongdecisioninthisstepcanleadtothefailureofastart-

up.AccordingtoHoaglandandWilliamson(2000)only50percentofstart-upsarestillinbusiness

afterthefirst18monthsandthepercentagedropsto20after5years.Feasibilitystudiescanalso

beconductedwhenacquiringanexistingbusiness,butthisstudyonlyfocussedonfeasibilitystudies

conductedbeforestartinganewbusiness.

According to Claase (2012), a feasibility study is a tool that helps an endeavour realise its

prospective.Withanendeavourdefinedasanyfutureprojectororganisationthatisstudiedforits

prospective feasibility (Claase, 2012). Figure 14 illustrates the developmental process of an

endeavour.Thishighlightstheimportanceofafeasibilitystudyandshowsthatit is importantto

conductsuchastudybeforethebusinessisstartedtodiscoverthepossibleprospectandpotential.

Figure 14 - The developmental process of an endeavour (Claase, 2012)

Claase(2012)alsostatesthatnoonehasarticulatedageneralfeasibilitydesignmethod.Thereare

alsonoguidelines, general standardsoreven requirementson feasibility studydesign (Palvia&

Palvia,1988;Claase,2012).Asmentionedbefore,afeasibilitystudycanhavemorethanoneaim,

butforthisstudytheaimofafeasibilitystudyisdefinedinSection1.1by(Palvia&Palvia,1988;

Claase,2012).Theaimofanyfeasibilitystudy is toexamineand/orevaluatethepossible future


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successorfailureofaprospectiveendeavour.Forthisstudy,anendeavourisdefinedasanytypeof

futurestart-up.

Thelackoffeasibilitystudyguidelinesandrequirementshasledtoconfusionbetweenfeasibility

studiesandsimilarbusinesstools, likepilotstudies,businessmodelsandbusinessplans.Section

2.4.4explainsthedifferencebetweenafeasibilityandapilotstudyandSection2.4.5thedifference

between a feasibility study and a business model. The rest of this chapter describes the core

principlesofafeasibilitystudyaswellasthecoreelementsofafeasibilitystudy.

2.4.4 Pilot study versus feasibility study

Pilotstudiesandfeasibilitystudiesareoftenconfusedwitheachother.Thesestudieshavesimilar

traits and sometime a feasibility and a pilot study can be used to obtain the same objective

(Ioannidisetal.,2005).Fortheobjectiveofthisstudy,thereisabigdifferencebetweenafeasibility

studyandapilotstudy.Thereasonthesestudiesareoftenconfusedandmisused,isbecausethere

arenoguidelinesorruleswhenitcomestoconductingafeasibilitystudyorapilotstudy.

Apilotstudycanbedefinedasasmallstudythatisconductedtohelpdesignafurtherconfirmatory

study.Studieslikeapilotstudycanbeusedforalotofdifferenttypesofpurposes,suchastesting

study procedures, estimation of parameters, validity of tools etc.(Ioannidis et al., 2005).When

conductingapilotstudy,theauthorisoftenconfrontedwiththeproblemthatthereaderswillnot

regardthepilotstudymore favourable thanasmall trial.Thiscan leadtoconfusionofwhento

conductafeasibilitystudyandwhentoconductapilotstudyandwhatfeaturesmustbeincluded

whenthesetypesofstudiesareconducted.

Ioannidisetal.(2005)andLancasteretal.(2010)bothconductedastudytodescribethedifference

betweenapilotandafeasibilitystudy,aswellasthedifferencebetweenthemethodsofapilotand

afeasibilitystudy.Thesestudiesusedfeasibilityandpilotaskeywordstofinddifferenttypesof

researchpapersinsevendifferentjournalsfrom2000to2001and2007to2008.Theresultsofthe

searchfrom2000to2001canbeseeninTable5.Thestudyconductedfrom2007to2008founda

totalof54papers.Ofthese54papers,20weredescribedbythewordpilotand34weredescribed

bythewordfeasibility.


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Table 5 - Literature search with keywords feasibility and pilot (Ioannidis et al., 2005)

AccordingtoLancasteretal.(2010),evenwhenthestudywasrepeatedbetween2007and2008,

the reporting of pilot studies was still very poor. Pilot studies are also often confused with

Randomisedcontrolledtrials(RCTs)andthiseffectedthereportingaswellasthequalityofpilot

studies.This createsaproblemwith thedistinctionbetween feasibility studiesandpilot studies

(Lancasteretal.,2010).Lancasteretal.(2010)foundthatstudieslabelledasfeasibilitystudieshave

amoreflexiblemethodologythanstudieslabelledpilotstudies.Feasibilitystudiesareusedforlarge

scalestudiessuchasscreeningprogramsthatareappliedatapopulationlevel.Thisisthenusedto

determine the initial feasibility of the programs. In contrast pilot studies used more rigorous

methodsandusedcomponentslikesamplesizeestimationandrandomisedselections.

Todistinguishbetweenthesetwotypesofstudies,Lancasteretal.(2010)recommendstheNETSCC

definitionstobethemosthelpful.Thisdefinitionismostlyfocussedonconductingafeasibilitystudy

orapilotstudyaspartofamainstudyandnotforaprojectorbusiness.However,thisdefinition

doesexplainthedifferencebetweenapilotstudyandafeasibilitystudyclearly.

TheNETSCCdefinesthedifferencebetweenfeasibilitystudiesandpilotstudiesasfollows(Glossary,

2017):


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44 | P a g e

Afeasibilitystudyisastudythatisdonebeforethemainstudytakesplace.Thefeasibilitystudyis

undertakentodetermineimportantparametersthatareneededtodesignthemainstudy.Themost

definingtermofafeasibilitystudyis,isthefactthatitdoesnotchangetheoutcomeofthemain

study,itonlydeterminesapossibleoutcome.

Apilotstudyontheotherhandisaversionofthemainstudy.Itcanbeseenasasmalltestofthe

mainstudytodetermineifallthecomponentsofthemainstudyworktogether.Thepilotstudyis

focussed on the process of themain study and not on the possible outcome. The data that is

determinedbythepilotstudycanbeusedtohelpthemainstudyinsomecases.

Inconclusionpilotstudiesareverypoorlyreportedandtheyfocusonthehypothesistestingthatis

inappropriate for these typesof studies.At themomentauthorsarenotawareof thedifferent

requirementsthatpilotandfeasibilitystudieshave.Thismustbehighlightedmoreeffectivelyand

thesestudiesmustbereportedappropriately.Theproblemoriginatesfromthefactthatfeasibility

andpilotstudiesarepoorlydefined.ThedefinitionthatLancasteretal.(2010)suggest,definesthe

differenceadequately.

2.4.5 Feasibility study versus business model

A good business model remains essential to every successful organisation, whether it’s a new

ventureoranestablishedplayer(Magretta,2002).Itisclearthatabusinessmodelisavitalpartof

asuccessfulbusiness,becauseitprovidesastructuretocertainaspectsofastrategyanditshows

howall theelements fit intoawhole.Therearea lotofdifferentelementsanddefinitionsofa

businessmodelmakingitverydifficulttochoosethebestoption.Accordingto(Ungerer,2015),the

literatureisnotconsistentintheusageofthetermbusinessmodeland,moreover,oftenauthors

donotevenprovideadefinitionoftheterm.

Businessmodelsoftenvarybecauseoftheresearcher’sfieldofstudy.Therearethreemainfields

ofstudythatgiveattentiontobusinessmodels(Zottetal.,2011).Thesethreefieldsofstudyare:

• E-businessandtheuseofinformationtechnologyinorganisations.

• Strategicissues,suchasvaluecreation,competitiveadvantageandfirmperformance.

• Innovationandtechnologymanagement.

Eventhoughmostofthebusinessmodelshavedifferentdefinitions,themainfocusofabusiness

modelremainsthesame.Regardlessofresearchers'fieldofstudyorthetypeofbusiness,thereare


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45 | P a g e

common factors that applies to every business model: business models assumes a bottom-up

analysisofthefundamentalswithineachcompany,astodeterminethenormalcourseofhowafirm

“does business”; the business model is used as a primary source of new information that

incorporates aholistic viewof the companyand the stakeholders influencing the company; the

firm’soperationsandexecutivesplayanimperativeroleinconceptualisingwhatthebusinessmodel

entails;andabusinessmodelstrivestoexplainbothhowvalueiscreatedandcapturedbythefirm

(Zottetal.,2011).

ThebusinessmodelcanvasofOsterwalderandPigneurisusedasaguidelineinthisregard.Thisis

a recently developed business model that is getting popular globally and provides generic

componentsthatmakesitaflexiblemodelthatisperfectfore-businessstart-ups(Ungerer,2015).

Thebusinessmodelcanvasconsistsoffourmainelements,namelyanofferingelement,acustomer

element,aninfrastructureelementandafinanceelement.Thesefourelementscanbebrokendown

intoninesmallersegments,knownastheninebasicbuildingblocksofabusiness.Thesebuilding

blocksaretheblueprintofhowabusiness’sstrategyistobeimplementedthroughorganisational

structures, systemsandprocesses for anybusiness. Theninebuildingblocks arenowexplained

individually(Osterwalderetal.,2009).

• Customersegmentsdefinesthedifferentgroupsofpeopleororganisationsanenterprise

aimstoreachandserve.

• Customer relationship describes the types of relationships a company establishes with

specificcustomersegments.

• Valuepropositionsdescribesthebuddiesofproductsandservicesthatcreatevaluefora

specificcustomersegment.

• Channelsdescribehowacompanycommunicateswithandreachesitscustomersegmentto

deliveravalueproposition.

• Revenuestreamsrepresentsthecashacompanygeneratesfromeachcustomersegment.

• Keyactivitiesdescribethemostimportantthingsacompanymustdotomakeitsbusiness

modelwork.

• Keyresourcesdescribethemostimportantassetsrequiredtomakeabusinessmodelwork.

• Keypartnershipsdescribe thenetworkof suppliersandpartners thatmake thebusiness

modelwork.


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• Coststructuredescribesthecostincurredtooperateabusinessmodel.

ThebusinessmodelcanvascanbeseeninFigure15.

Figure 15 - Business model canvas (Osterwalder et al., 2009)

Toexplainhowthebusinessmodelcanvascanalsobeusedtodeterminefeasibility,thebusiness

modelcanvasisseparatedinto3partsasseeninFigure16.


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Figure 16 - Business model canvas separated to explain feasibility from Blank, (2016)

Thefeasibilitysideofthecanvasconsistsoutofthreeorpossiblyfourstagesofthebusinessmodel.

Thesestagesaredefinedandexplainedabove.Itcanbeverydifficulttodeterminefeasibilityfrom

thebusinessmodelcanvas.Therearenostructuresorevenguidelinestodeterminefeasibilityfrom

thebusinessmodelcanvas.

2.4.6 Conceptual elements of a feasibility study

Theconceptualelementsarethebodyofthefeasibilitystudy.Itisveryimportanttodefinethese

elementsbeforethefeasibilitystudyisstarted.Thefeasibilitystudyshouldcometoaconclusion

andtosupporttheconclusionthefeasibilitystudymusthavesometypeofformat.Theformatof

thefeasibilitystudycanvaryforeveryfeasibilitystudy,buttheremustbeacertaintypeofguideline

tosupportthestudy.

Due to the lack of clear guidelines and set our principles for feasibility studies, the conceptual

elementscoveraverybroadfield.Theseelementsarenotjustvague,butalsooutdatedformost

reliablesources.Oneofthemorecompletefeasibilitystudytempletsweredesignedby(Behrens&


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48 | P a g e

Hawranek,1991).AccordingtoBehrensandHawranek(1991),afeasibilitystudyshouldhavesome

kindofstructureandcover,butshouldnotbelimitedtothefollowingareas:

Asummaryofthestart-upbackgroundandhistory:

• Nameanddetailsoffounder(s)

• Founder(s)roleswithinthestart-up

• Product/servicebackground

• Start-up objective and basic strategy including geographical area, market niche and

differentiation

• Start-uplocationandthelocationofresources

• Economicpoliciesthatarepossiblysupportingthestart-up

Alistoftherawmaterialsandsupplies:

• Provide a description of the availability of rawmaterials, processed industrialmaterials,

industrialcomponents,factoryandsparepartsandsuppliesforsocialandexternalneeds.

• Materialsneededforsupplyrequirements

• Asummaryoftheavailabilityofcriticalmaterialinputs

Asummaryofthemarketanalysisandthemarketconcept:

• Summariseall themarketresearch includingbusinessenvironment,targetmarket,target

segmentation,channelofdistribution,competitionandlifecycles

• Listtheannualdataondemand,likequantities,pricesandsupply

• Outline the marketing strategies for achieving the project objective and explain the

marketingconcept

• Makeassumptionsandcalculatetherevenueandelementsofprojectedsales

• Think about possible impacts on the supplies, location, environment, production

programme,technologyetc.

Alistofthelocationandtheenvironment:

• Identify the locationof the start-up,aswellas theecologicalandenvironmental impact,

socio-economicpolicies,incentivesandconstrains

• Describethesignificantcostrelatingtothelocationandsite


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Adetailedexplanationoftheengineeringandtechnology:

• Describeandjustifytechnologyselectedfocussingontheadvantagesanddisadvantagesas

wellasthelifecycle,transferoftechnology,training,riskcontrol,cost,etc.

• Outlinetheproductionprogramme

• Describemajorengineeringworks

Alistoftheorganisationandoverheadcosts:

• Describethebasicmanagement,organisationaldesignandmeasuresrequired

Alistofthehumanresources:

• Describeallthesocial-economicenvironmentandhumanresourcesavailability

• Describethetrainingneededandrecruitmentprocess

• Indicatekeyemployee’sskillsrequired

• Indicatethetotalnumberemploymentneededaswellasthecost

Aprojectimplementationschedule:

• Indicatetherateoftheproductionstart-upandcost

• Indicatethedurationoftheproductioninstallation

Financialanalysisandinvestmentassessment:

• Thetotalcostoftheinvestment

• Asummaryandexplanationofthedifferenttypesofinvestment

• Thetotalcostofsoldservicesorproducts

• Thefinancingoftheproject

Mostoftheseconceptualelementsofafeasibilitystudymightnotevenbeapplicabletoalltypesof

e-businessstart-ups.Thiscontributestothenecessityofafeasibilitystudyframeworkfore-business

start-ups(Behrens&Hawranek,1991).

2.4.7 Core principles and importance of a feasibility study

Afeasibilitystudycanbeseenasthefirststageofaproductorservicelifecycle,withtheaimto

examine the viability of the project, product or service (Overton, 2007). The feasibility study


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analysestheproductorservicebylookingattheperformanceobjectivesthatthestart-upexpects

toachieveaswellasthecostbenefitreport.

Anotherwayoflookingattheuseofafeasibilitystudy,isthatafeasibilitystudyistheprocessof

definingexactlywhatastart-upisandwhatstrategicissuesneedstobeexaminedtoevaluatethe

feasibilityofthestart-upaswellasthestart-upschangeofsuccess.Itisveryimportantthatwhena

feasibilitystudyisconductedalltheassumptionsthataremade,mustbemadebasedoncorrect

facts.Collectingcorrectfactsandfinancialdatatomakeaccurateassumptionsisakeyfactorwhen

conductingafeasibilitystudy(Overton,2007).

Whenconductingafeasibilitystudy,therearealotofdecisionsthatneedtobemadeaboutseveral

enduringcharacteristicsofastart-up.Table6showspossibleenduring issuesthatwillaffectthe

decisionsmadewhenconductingafeasibilitystudyaswellassecondaryissuesthatmustalsobe

considered.

Table 6 - Enduring characteristics and secondary issues of a feasibility study (Overton, 2007)

Enduringcharacteristics Secondaryissues

1. Establishing project scope - stating

exactlywhattheprojectisandwhatitis

intendedtoachieve-itsobjectives

1.Isthereakeydecisionmakerinvolved?

2.Vision/missionstatement 2.Istechnicalfeasibilityanissue?

3. Vision - where do you see this

opportunitytakingyou?

3.Arethereclearbusinessobjectivestobeaddressed

bythefeasibilitystudy?

4. Situation analysis, history and

background of the product/service,

industryandtheorganisation

4. How committed are users and management to

achievingthestatedbusinessobjectives?

5. Identifying the statutory and

mandatoryrequirements

5. Appointing analyst(s) to conduct the initial

assessment.


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6. The aims, goals and objectives of

pursuingtheopportunity

6.Producinga schedule for the feasibility studyand

determining its size and scope based on previous

experience,andconsideringthefollowingpoints:

7.Marketopportunities 7.Deadlinesimposedbytheorganisation

8.Currentmarketpenetration

8.Anestimationofthetimerequiredtocompletethe

feasibilitystudy

9.Currentmarketsegments

9. Appointing a research team based on the

preliminarystudytoconductthefeasibilitystudy.

10. Projected growth in each market

segment

10.Shouldacampaigngoforwardatthistime?

11.Areviewofwhatiscurrentlyonthe

market

11.Arethereanyfoundationsandgrantstoassistour

project?

12.Customerprofileanddemographics

12.Areweintheoptimalpossiblepositiontoconduct

acampaign?

13.Performanceobjectivesexpected

13.Isthereenoughstrongleadershipavailableforthe

campaign?

14. Estimation of customers and

potentialrevenues

14.When is thebest time for the campaign to take

place?

15.Criticalsuccessfactors 15.Wherewillthefinancialsupportcomefrom?

16. Determination of competitive

advantage

16.Whatisafeasiblegoalfortheproject?


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17. Barriers to entry, education,

distributionchannels,costs

17. Do you have a business plan for this project,

productorservice?

18. Definition of proposed

operations/management structure and

managementmethods

18.Whatactiondoweneedtotaketomakeourvision

areality?

19.Thetimeframes

20.Theinitialcostsinvolved

21.Financingandprojectedcashflows-

wherewillthemoneycomefrom?

22.Breakevenanalysis

23.Thepaybackperiod

24.Returnoninvestment

25.Areportofcostbenefits

26. Development of an action plan for

theprojecttoproceed

27.Asummaryoffindings

Afeasibilitystudycanbeusedforanytypeofnewstart-up,itdoesnotmatterwhattypeofbusiness

itis.Thefeasibilitystudycanbeusedtoassistwithmakingthepivotaldecisionofproceedingwith

thestart-upafterlookingatthewiderangeofbusinessissuesthatcanaffectthebusiness.Agood

waytostartthefeasibilityafterlookingatTable6,istowritedowntheaimsandobjectivesthat

needstobeachievedbythestudy.Itisimportanttoestablishtheextentofthefeasibilitystudyand

state exactly what it intends to achieve. This long list of characteristics also emphases the


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importanceoffollowingastructuredframeworkwhenconductingafeasibilitystudy,becausemany

ofthesecharacteristicscaneasilybeoverlooked.

2.4.8 Feasibility study framework requirements

Thefollowingrequirements,aspresentedinTable7,werederivedfromtheliteratureinSection2.4.

Theserequirementswillbeusedtoserveasthebuildingblocksfortheframework.

Table 7 - Feasibility study framework requirements



The frameworkmustprovideenough information tohelpane-business

start-updeterminewhatitwilltaketopotentiallybefeasible.

Designrestrictions

Theframeworkdoesnotfocusonmanagement-orteam-feasibilityofan

e-businessstart-up,onlyonthemarket-andfinancial-feasibility.

Attentionpoint

Feasibilitystudyframeworkarenoteasilyavailableandthereisnoclear

expertinthefieldoffeasibilitystudies.Thisframeworkwassetupwithout

clearguidelinesofhowtocreateafeasibilitystudy.


Thischapterexploredthedifferentresearchdomainsseparatelytoprovidethebaseoftheliterature

fortheresearchstudy.Enoughinformationwasprovidedfortheauthortointegratealltheresearch

domains and conceptualise the literature where the domains overlap in the next chapter. The

necessaryframeworkrequirementsusedasthebuildingblocksoftheframeworkcanbecreated

fromtheliteratureinChapter2andChapter3.


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3 INTEGRATIVERESEARCH

Thischapterinvestigatesthecomponentsofafeasibilitystudythatwillinfluencee-businessstart-

upsandtheimportanceofeachcomponent.Figure17summarisesthechapterlayoutandmentions

thesub-researchquestions,asseeninSection1.3thatisaddressedinthischapter.


AsseeninFigure17,thissectionintegratesallthreeresearchdomainstofindthecomponentsthat

will provide the feasibility of e-business start-ups. Figure 18 illustrates the integration of the

researchdomains.

Figure 18 - Final step from Figure 4 in the literature development process

The overlapping area of the three domains has little to no existing literature. Thus, the three

domainswereplaced intocontext through the interpretationof theauthor.Chapter2provided

literatureaboutthethreedomainsthatwasusedtodeterminetheimportantcomponentsforthe



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feasibilitystudyframework.Thischapterprovidestheauthorconceptualisationoftheintegration

ofthesethreedomains.Thisstudytookthefirststeptomakesenseoftheoverlappingareaofthe

threedomains.

3.1 The start-up idea and basic background

The insights provided in this section were synthesised from the elaborative research done for

sections2.1.1,2.1.2,2.2.1,2.3.1and2.3.4.Thissectionprovidestheauthorsconceptualizationof

thestart-upideaandbasicbackgroundofthestart-up.

Beforeafeasibilitystudycanbeconducted,thereareafewobjectsofthestudythatmustbevery

cleartoensurethesuccessfulcompletionofthefeasibilitystudy.Howthestart-upideafitsintothe

frameworkofthegeneraleconomicconditionsofthecountryorcountriesthatthestart-upisorwill

be based inmust be clear before the feasibility study canbeproperly conducted (Behrens and

Hawranek,1991).

Theprojectideaandthebasicbackgroundofafeasibilitystudyaimstoprovideenoughbackground

informationaboutthestart-upaswellasthedirectandindirectenvironmentthataffectsthestart-

up.Thispartofafeasibilitystudywillnotonlyprovidethereaderofthefeasibilitystudywithenough

information, itwillalsohelpthee-businessstart-uptoformulatethestart-up ideaaswellasdo

thoroughresearchabouttheenvironmentthatthestart-upwillbein.Toensurethattherelevant

informationisprovided,threepartsmustbecovered,namely:1)start-upidea;2)background;and

3)environment.

3.1.1 Start-up idea

Whenformulatingtheideaofastart-upitisbesttodivideitupintwoparts.Theproblemandthe

solution.Ifthestart-updoesnotsolveaproblem,itcanbedifficulttomeasurethefeasibilityofa

start-up.Whensolvingaproblem,thestart-upcreatesavalueforacertaincustomersegment.This

canbereferredtoasthevaluepropositionofastart-up.Avaluepropositionaimstosolveaproblem

for the customer or to satisfy their specific needs and describe the combination of elements,

products and services that creates value for a customer segment. A list of examples that can

contribute to value creation can be seen in Table 8. These are not the only examples that can

contributetovaluecreation,buttheseexamplescanserveasaguidelinewhenlookingtofindthe



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valuethatastart-upprovides.Whenthevaluethatastart-upcreatescanbedetermined,theidea

ofastart-upcanbeformulatedandclearlyexplained.

Table 8 - Value creation examples

Valuecreation Description

Newness

Newness refers to value offerings that satisfy an entirely new set of

needsthatcustomerspossiblydidnotevenperceivetheyhad.Newness

is often related to technology, but this need not always be the case

(Osterwalderetal.,2009).

Performance

Performancereferstofitnessforuseandachievingthedesiredoutput.

Improving product or service performance is a classic example of

creatingvalue(Osterwalderetal.,2009).Itinvolvesdoingthingsbetter,

faster,withfewerresources,producingfewerdefectsandactingmore

efficientlyandeffectivelyoverall.

Customisation

Customisation refers to tailoring products and services to the specific

needs of individuals or customer segments. Recently, mass

customisationandcustomer co-creationhavegained traction,as they

allowforcustomisedproductsandservices,whiletakingadvantageof

economiesofscale.(Osterwalder,etal.,2009)

Gettingthejobdone

The“gettingthejobdone”elementreferstohelpingcustomerstoget

particular jobsdone, therebycreatingvalue for them(Osterwalder,et

al.,2009).

Design

Design is another element that can lead to value creation, but this

elementisoftendifficulttomeasure(Osterwalderetal.,2009).Itmay

refertoaestheticstylisingtofitwithnewerfashiontrends,butonamore

functional level, it may also refer to designing for modularity of

components, designing for fewer components to ease assembly, and

designingforenvironmentalfriendliness.



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Valuecreation Description

Brandingorstatus

Valuecanalsobeunlockedforthecustomerthroughacompany’sbrand

or status (Osterwalder,et al., 2009). Customersmaywant to express

themselves throughabrandand intentionallyorunintentionally show

society certain aspects of themselves. Wearing a Rolex for instance,

could signify that a customer wants to be perceived as rich. Buying

organic food at Woolworths on the other hand could signify that a

personmaywant their friends to think that they areenvironmentally

conscious.

Price

Anotherwaytounlockvalueistooffercustomerssimilarvalueproducts

andservices,butatalowerprice(Osterwalderetal.,2009).

Costreduction

Helpingcustomersreducetheircostsindoingcertainthingsisanother

element that creates customer value (Osterwalder et al., 2009). An

online customer relationship management application, online

recruitmentoranonlineaccountingsoftwarepackageareallexamples

ofwaystoreducecustomers’costsfordoingnecessarythings.

Riskreduction

Reducingcustomerriskbyemployingwarranties,guaranteesorservice-

level agreements also create value for customers(Osterwalder et al.,

2009).

Accessibility

Making products and services accessible to previously untapped

customersegmentsalsocreatesenormousvalue.Thiscanresult from

businessmodel innovation,newtechnologiesoracombinationof the

two.(Osterwalderetal.,2009)

Convenienceor

usability

Lastly,valuecanbecreatedbymakingthingsmoreconvenientoreasier

touse(Osterwalderetal.,2009).



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3.1.2 Start-up background

The background should include start-up objective, proposed basic start-up strategy, to identify

everybodythatisinvolvedinthestart-upandthehistoryofthestart-up.

Themostimportantthingthatmustbeincludedinthestart-upbackgroundisthestart-upobjective

aswellastheproposedbasicstart-upstrategy.Itisimportanttoidentifyeverybodythatisinvolved

inthestart-up.Thestart-upinitiatorsnameandlocationmustbeprovidedaswellasthefinancial

possibilitiesthatthefounderswillbeableorwanttoinvestinthestart-up.Theroleofeachfounder

in the start-up must be clearly stated as well as the role of any mentor. Any other relevant

informationaboutthefoundersandmentorsthatmayberelevantmustalsobeprovided.Thismay

includepreviousprojectsofthefoundersandmentors(Behrens&Hawranek,1991).

Youcangetthehistoryofthestart-upandanyhistoryofsimilarstart-upsorbusinesses,bylooking

at the following: 1) the dates of essential events in the start-ups history, like the start of the

developmentofthetechnologythatthee-businessstart-upuses;2)alltheinformationaboutthese

studies about similar businesses, including titles, authors, completion dates etc.; and 3) all

conclusionsofthesesimilarstudiesmustbeconsideredandinvestigatedtohelpwithanyfurther

research(Behrens&Hawranek,1991).

3.1.3 Environment

Theenvironmentofthestart-updoesnotrefertotheindustrythatthestart-upisin,itrefersmore

tothelocationandthedirectenvironmentofthee-businessstart-up.Eventhoughthee-business

environmentmaybesimilarforalle-businessstart-ups,thedirectenvironmentofallstart-upsis

different.

Informationneededtoexplainthedirectenvironmentofthestart-upisthelocationofthestart-up

aswellastheresourcesavailableatthislocation.Theseresourcesareresourcesthatthestart-up

needsaswellasanyresourcesthatcanhelpthestart-upgrowwithouthavingadirecteffectonthe

start-up.Thelocation,includesallthedifferentlocations,thismustincludeallgeographicallevels

thatpossiblyinfluencethestart-upincludinglocal,regional,nationalandinternational.Itisalsovery

importanttoknowtheeconomicandindustrialpoliciessurroundingtheproductorservicethatthe

start-upprovides.Oranyotherrelatedpolicies,likefinancial,social,economicorindustrial.



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3.2 Market feasibility


sections 2.1.1, - 2.1.6 and 2.4.6. This section provides the authors conceptualization ofmarket

feasibilityforane-businessstart-up.

Themarket sectionof the feasibility study isvery importantand linksdirectlywith the financial

section.Themain focusof themarket sectionofa feasibility study is todetermine thedemand

analysis.

3.2.1 Demand analyses

When determining the demand analyses of a start-up, there are three factors that must be

determinedtobeforethemarketsectionofafeasibilitystudycanbeproperlyassessed.Themost

importantfactorofmarketfeasibilityisthemarketpotential.Theotherfactors,industryoverview

andcompetitionanalyses,arenotessentialwhendeterminingmarketfeasibilityforane-business

start-up,butcancontributewhendrawingaconclusion(Stevens&Sherwood,1982;Capps&Love,

2002).

Thedemandanalysesfactorofthefeasibilitystudyisessentialwhendeterminingifane-business

has the potential to be feasible. This factor, however, can also help the founder of a start-up

determinetheexactmarketthatthestart-upwantstotarget.Thefocusofthedemandanalysis

factoristoproveifthebusinesshasmarketfeasibility(Shome,1999).

Whenanalysingthedemandofabusiness,therearethreestepsthatmustbefollowed.Thesesteps

include;identifyingthemarketsegments,identifyingmarketfactors,estimatingmarketpotential

(Stevens&Sherwood,1982).

3.2.1.1 Marketsegments

Oneofthemostimportantconceptsthatthedemandanalysesisbasedon,isthatamarketfora

productorserviceismadeupofseveralsmallermarkets,thateachhasidentifiablecharacteristics.

Agoodexample canbe theautomobilemarket.When referring to theautomobilemarket, it is

referred to a large market that consists of different smaller submarkets or segments. The

automobilemarketcanbedividedinvarioussubmarkets,liketheclassofcardifferentconsumers

want.Thischaracteristiccanbedividedintoatleastfourdifferentsegments:familycars,sportscars,



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economy cars, commercial cars, etc. The process of breaking down up a market into smaller

submarkets, isusually calledmarket segmentation(Stevens&Sherwood,1982;McDonald etal.,

1995;Baloglu&Uysal,1996).

Thebasicconceptofmarketsegmentation,isthattheconsumerinonemarketsegmentisdifferent

fromtheconsumerinanothermarketsegment.Therationalebehindmarketsegmentation,isto

breakdownbigmarketsintosmallermarkets,becausebigmarketsaretoocomplexanddiverseto

classifyalltheconsumersinthesemarketsassimilarconsumers.Whenbreakingdownabigmarket

intoasmallermarketsegment,thesmallermarketsegmentmustbestudiedonitsown.Thebig

marketconsistsofdifferentmarketsegments,butthesemarketsegmentsmustnotbestudiedat

thesametime,becausethecharacteristicsoftheconsumersineachmarketsegmentisdifferent.

Marketsareusuallysegmentedbyafewcommonbases.Thesebasesarenottheonlywayamarket

canbesegmented,butthesebasescanbeusedasaguideline.Thebases include:demographic,

geographic,productbenefitsandproductusage(Stevens&Sherwood,1982).Table9belowexplains

eachbaseindetail.



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Table 9 - Market segmentation bases

Bases for market

segmentationDescription

Demographic

segmentation

Demographic segmentation together with geographic segmentation are

most commonly used bases formarket segmentation. Variables such as

age, sex, income, educational level, etc. are used as the bases for

demographicalmarketsegmentation.Thesevariablesareappropriatefor

manyproductsandservices.

Geographic

Segmentation

Geographicsegmentation,theothermostcommonlyusedbasesformarket

segmentation, uses cities, countries, regions or trade areas as basis of

segmentation. For many products or services, this is a very logical

framework.

Benefit

segmentation

Benefitsegmentationreferstothecertainbenefitsthatconsumersexpect

frompurchasesoruseofaproduct.Agoodexampleisinthetoothpaste

market that canbe segmented inmarket segments like flavour, product

appearance,brightnessofteeth,decaypreventionandprice.Eachofthese

benefitsegmentsiscomposedofconsumerswithdifferentdemographics,

personalities, geography etc. Each of these represent a distinct market

segment.

Segmentation by

productusage

Productusagepatternsofcostumerscanalsobeusedasthebasisofmarket

segmentation. Consumers can be classified as recurring users or non-

recurring users and recurring users can be further classified as light,

mediumandheavyusers.Forsomeproductsorservices,asmallnumberof

usersaccountforthemajorityofthepurchases.Theseproductsincludeair

travel,carrental,dogfoodhairproductsetc.Inthesecases,productusage

ratescanbeaveryimportantmarketsegmentbase.



62 | P a g e

3.2.1.2 Marketfactors

Thedemandofaproductiscausedbyacertainrealityinthemarketandtheserealitiesarereferred

toasmarketfactors.Whenlookingatbabybeds,themarketfactoristhenumberofbabiesborn

eachyear.Amarketcanbedefinedasmerelypeoplewithmoneyandamotivationtobuy.This

meansthatpopulationfiguresandincomefigurescanbeseenasmarketfactors(Doyle,2017).

Theeasiestway to identifymarket factors, is to followa three-stepprocess.The first step is to

identify the factors that influence the demand for the product or service. After identifying the

demand,therelationshipbetweenthefactorandtheproductorservicemustbedetermined.Lastly

themarketfactorforfutureyearsmustbeforecasted.Itcanbeverydifficultandtimeconsuming

toaccuratelyforecastmarketfactors.Sincemanyproductsandservicesaredependentonthesame

marketfactors,muchoftheforecastingworkhasalreadybeendoneandonlyneedstobelocated.

Forecasts likepopulation forecastsareavailableanddoesnot requireanyadditional forecasting

(Stevens&Sherwood,1982;Fama&French,1995).

Therearevarioustechniquesavailablethatcanbeusedtodetermineandanalysethe impactof

marketfactorsonacertainproductorservice.Regardlessofallthetechniquesthatcanbeusedto

analysemarket factors, themost importantpartofmarket factors, is tounderstand the factors

influencingthedemandforaproductorserviceandthehistoricalandfuturetrendsofthosefactors

(Birdetal.,2005).

3.2.1.3 Marketpotential

Afterthemarkethasbeendivided intodifferentmarketsegmentsandall thefactorsthataffect

these segments have been computed, the next step is to determine themarket potential. The

marketpotentialreferstothesizeofthemarketandtheexpectedsalestothismarket.Themarket

potential looksatthemarketas ifeveryone inthemarketbuysproductorservice.Accordingto

Stevens& Sherwood (1982),market potential can be defined as a quantitativemeasure of the

marketscapacitytoconsumeaproductinagiventimeperiod.Themarketpotentialisessentialif

theprofitabilityofabusinessneedstobedetermined(Hanson,2005;Best,2012).

Fore-businessstart-upstherearefactorsthataffectthemarketpotential.Thesefactorshavearisen

becauseofthechangethattheinternetandthee-businesslandscapehavecreated.Acquisitioncost

inSection2.1.5andcustomerlifecycleinSection2.1.3arethetwofactorsthatinfluencethemarket



63 | P a g e

potentialofane-businesslifecycle.Factorslikecompetitiveanalysisandindustryoverviewcanalso

helpwhendeterminingthemarketpotentialofane-businessstart-up.

3.2.2 Competitor analysis and industry overview

Acompetitorcanverysimplebedefinedasidentifyingthecompetitorsandevaluatingthestrategies

ofthecompetitortohelpdeterminetheirstrengthsandweaknesses(CompetitiveAnalysis,2017).

Thisinformationcanthenbeusedtocomparethestrategiesofthecompetitortoyourownproduct

orservice.

Therearelotsoftoolsandtypesofcompetitoranalysesthathasbeenusedthroughtheyears(Chen,

1996; Bergen& Peteraf, 2002) These tools are not the best andmost effectiveway of doing a

competitoranalysisforane-businessstart-up.Aquickeffectivecompetitoranalysisthatprovides

enoughinformationaboutthecompetitortocomparetheirserviceorproducttoyourownwillbe

muchmoreefficient(CompetitiveAnalysis,2017).

Anindustryoverviewgoeshand-in-handwithacompetitoranalysis.Theindustryoverviewdoesnot

focusonthecompetitors,butontheindustrythattheproductorservicewillfallunder(Nigudkar,

2016).Themainreasonfordoinganindustryoverviewincludetounderstandhowtocompetein

theindustry,tobepreparedforthepossiblechangesthattheindustrywillundergoandtomake

surethattheenteringtheindustryispossibleandhasbenefits(Abrahametal.,2012).

Industrieschangeconstantlyanditisimportanttoconsiderthedrivingforcesthatarecausingthe

industry to change. These driving forces may include competition intensifying, technological

evolutionandinnovation,globalisation,regulationchangesorcustomerneedsandtastechanges

(Abrahametal.,2012).

3.3 Financial feasibility


sections2.1.5,2.2.3-2.2.5,2.4.6and2.4.7.Thissectionprovidestheauthorsconceptualizationof

financialfeasibilityforane-businessstart-up.

Thissectionexplainsthefinancialaspectsofafeasibilitystudy.Itrangesfromthedifferenttypesof

coststothefinalreturnoninvestmentorROIofthebusiness.Thebottomlineofanybusinessis

significantlyaffectedbytheunderlyingcoststructureofthebusiness.Thecostanalysisisclosely



64 | P a g e

linkedwith thedemandanalysisand theseanalysesareneeded fora riskanalysisand finally to

determinetheROIofastart-up.TheROIisthefinalandperhapstheoverridingfactorwhenitcomes

tofeasibility.

3.3.1 Cost analysis

Acostanalysisisacomplexprocessthatisusedtodeterminethecostswhenconductingbusiness

operations.Whenanalysingcostforfeasibility,acostanalysisisveryimportantfortherestofthe

feasibilitystudy.Thefinalproductorserviceofabusinessdoesnotalwaysshowthedifferenttypes

ofcoststhatwentintotheproduct.However,costsaretracedthroughthebusinessoperationsas

theassetsandresourcesofthebusinessisconvertedintothefinalproductorservice.Thefeasibility

ofastart-updependsonvariousfactors,butthefinancialfeasibilityismeasuredthrough,among

other things, the revenue and the cost. Thismeans that the business cannot be determined as

feasiblewithoutdependablecostestimates(Stevens&Sherwood,1982).

Therearemanydifferent typesof costs.Costs canbe categorised togetherbyplacing the costs

togetherthathavethesamepurpose.Thisprocesscanbeverydifficultandmustbedonewithcare.

Thespecificapplicationofeachcostisthepartthatmustbeunderstood.Someofthesecategories

will be instrumental when developing the cost summary that will help determine the financial

feasibilityofaproject.Table10showsdifferenttypesofcosts.

Table 10 - Cost Types (Stevens and Sherwood, 1982; AccountingTools, 2015)

CostType Explanation Example

PeriodCosts

Periodcostsaremeasuredbytimeintervals

andnotbygoodsorservices.

Equipmentrental

ProductCosts

ProductCostsarethecoststhatisusedto

createaproduct.

Factory overheads, employee

benefits

FixedCosts

Fixedcostsarethecoststhatareexpected

to stay the same over a period of time

regardlessoftheactivitylevels.

Rentandsalaries.



65 | P a g e


VariableCosts

Variable costs are costs that vary closely

withtheproduction.

Directlabourandmaterial

Semi variable

costs

Semivariablecostsarecoststhatfluctuate

with volume, but are not directly in

relationshipwithproduction.

Marketresearch

DirectCosts

Direct Costs are those costs that are

distinguishable with a particular product,

departmentoractivity.

Direct materials, commission,

piece rate wages and

manufacturingsupplies.

IndirectCosts

IndirectCostsarethosecoststhatarenot

directlydistinguishablewithanyparticular

product,activityordepartment.

Supervision salaries, insurance

anddepreciation.

Controllable

Costs

Controllable costs are costs that can be

controlled.

Typeofsuppliesused

Uncontrollable

Costs

Uncontrollablecostsarecoststhatcannot

becontrolled.

Promotionalcosts

SunkCosts

Sunkcostsarecoststhatarealreadyspent

andisirrelevanttoanyfurtherdecisions.

Development costs, earlier

investmentcosts

Differential

Costs

Differential costs are costs that can be

definedasthedifferencebetweenthecost

oftwoalternativedecisionsorachangein

outputlevel.

Thedifferenceincostbetweena

fully automated system and a

system that requires manual

labour

Opportunity

Costs

Opportunity costs are costs that can be

seenas the costofnot selecting thenext

bestchoicewheninvestingresourcesinan

A good example of opportunity

costs,isthecostthatwouldhave



66 | P a g e


activity.Opportunitycostsdoesnotappear

in the financial records,but canbeuseful

whendoingfinancialanalysis.

been earned during a training

period.

ManyofthecosttypesmotionedinTable10overlap.Afixedcostcanalsobecategorisedasaperiod

cost,anuncontrollablecostorevenasunkcost.Judgementmustbeusedinidentifyingspecificcost

whendevelopingcostestimates(AccountingTools,2015).

3.3.2 Sensitivity analysis

Sensitivityanalysisisavaluabletechniquethatisusedtoillustratehowthecostsofastart-upwill

beaffectedbychanges invariablesorbyerrors in thedata input.Sensitivityanalysesareoften

referredtoas“whatif”analyses,becausethisisthequestionthatasensitivityanalysisaimstoask.

A sensitivity analysis usually starts establishing a base of the situations that aremost likely to

happen.Oncethemostlikelyelementsorthebasecasesareestablished,thekeyvariablescanbe

selectivelychangedtodeterminetheresultsoftheimpact.Thevariablewiththemostnegativeas

wellasthevariablewiththemostpositiveaffectcanalsobedetermined.Thebiggertheaffectthat

avariablehasonthestart-up,themoresensitivethisvariablemustbeestimated.Thus,thepurpose

ofasensitivityistodeterminethevariablesthathasthebiggestimpactontheoutcomethestart-

up’sfinancialfeasibility.Sensitivityanalysiscanbeusedeffectivelytodeterminetheconsequence

ofchangeinavariable.

Therearealotofdifferenttypesofsensitivityanalysesmethods.Thesemethodscanrangefrom

thesimplebreakevenmethodtothecomplexquantitativemodel-independentmethodforglobal

sensitivity analysis(Stevens&Sherwood,1982; Saltellietal., 1999). This studydoesnotprovide

informationondifferenttypesofmodelsandwhatmodelsworkthebest.

3.3.3 Risk analysis

Theriskanalysisgoeshand inhandwithasensitivityanalysisandpicksupwherethesensitivity

analysisstops.Asensitivityanalysisonlyasksthequestionwhatif,butcannotidentifythelikelihood

ofachangeinavariableoccurring.Ariskanalysisistheprocessofidentifyinganddeterminingthe

degreeoflikelihoodofchangesinvariablesandtheaffectthatthischangewillhaveonthefeasibility



67 | P a g e

ofastart-up.Ininformationtechnology,ariskanalysisisoftenusedtoalignthetechnology-related

objectiveswiththebusinessobjectivesofacompany(Stevens&Sherwood,1982;Vose,2008).

Therearetwotypesofriskanalyses,namelyqualitativeandquantitativeriskanalyses(Whatisrisk

analysis? -Definition fromWhatIs.com,2010).Aquantitative riskanalysis canbedonebyusing

variousnumericalmethodsthatdeterminetheprobabilityofvariouseventsandthelikelylosesof

thateachoftheseeventscancause(Rideretal.,2000;Vose,2008)

The qualitative analysismodel is usedmore often and easier to use than the quantitative risk

analysis.Insteadofinvolvingnumericalmethods,thequalitativeanalysissimplyinvolvesdefining

thevariousrisksthatcanoccuranddeterminingtheextentofeachriskandhoweachriskcanbe

mitigated(Rideretal.,2000;Vose,2008).Thismethodwillbemuchmoreefficientfore-business

start-ups,becauseitismuchmoretimeefficientandrequiresalotlessdata.

3.3.4 Return on investment

ReturnoninvestmentormorecommonlyreferredasROI,issimplyputhowmuchtheinvestment

returnsonanannualbasis.ROIcanhelptomeasuretheperformanceofaninvestment,start-upor

any project and then evaluate the efficiency of the investment. It can be seen as the most

meaningfulandpopularmeasureoffinancialsuccess.TheROIitselfhoweverdoesnotmeasurethe

riskoftheinvestment,itonlyfocussesontheperformancethatisexpressedasapercentageora

ratio.Inotherwords,ROIisveryhelpfulindeterminingthehealthofastart-up,becauseitmeasures

theamountofreturnonaninvestmentrelativetowhattheinvestmentcost.(Stevens&Sherwood,

1982;Phillips,2002)

Tocalculatethereturnoninvestment,thenetprofitisdividedbythetotalinvestmentrequiredto

generatetheprofit.Theformulaforcalculatingreturnoninvestmentis:

!"#$%&(&)&*"+#,"&#(!./) = 2"#3%(4)#

5(#67)&*"+#,"&#

Returnoninvestmentisapopularandeasytousemetric,becauseitisveryversatileandsimple.

Essentially, ROI can be used as a basic funnel for the profitability of an investment, making it

applicableforawidevarietyofdifferentinvestments.Thismetriconlyappliesiftheinvestmentdoes

nothaveapositivereturnoninvestment(StevensandSherwood,1982;ReturnOnInvestment-ROI,

2017).



68 | P a g e

TherearehoweverafewlimitationswhencalculatingtheROIofaninvestment.Thiscanleadto

incorrectconclusionsabouttheprofitabilityofaninvestment.ThebiggestlimitationsthatROIhas,

isthatitdoesnotinherentlyaccountfortheamountoftimeduringwhichtheinvestmentistaking

place. This limitation can be prevented by comparing othermetricswith return on investment.

These metrics include, net present value and internal rate of return. Both these metrics are

explainedinSection3.3.5.AnotherlimitationisthatROIcaneasilybemanipulatedtosuittheuser’s

purposeandtheresultscanbeexpressedinvariousways.ItisimportanttonotjustlookattheROI,

butalsoatthebiggerpicture(ReturnOnInvestment-ROI,2017).

3.3.5 Financial analysis

Whenanalysingan investment thereareothermethodsthatcanbeusedto furtherexplain the

performanceofaninvestmentandprovideadditional informationthatthereturnoninvestment

doesnotprovide.Therearetwotypesofmethodswhenmeasuringthevalueofaninvestment,time

valuemethodsandnon-timevaluemethods.Returnoninvestmentisanon-timevaluemethodand

as mentioned in Section 3.3.4, this method has some limitations. Three concepts commonly

associatedwithtimevaluemethodsarenetpresentvalue,internalrateofreturnandpresentvalue

index.Thesemethodsalongwiththeiradvantagesanddisadvantagesareexplainedbelow:

3.3.5.1 Netpresentvalue(NPV)

Thenetpresentvalue’sbasicideaistoovercomethedisadvantagesofthenon-timevaluemethods,

byproviding theperfect balancebetween the investment cost and the futurebenefits that the

investmentmayprovideoveratimeperiod.Simply,thenetpresentvaluecanbeexplainedasthe

differencebetweenthepresentvaluecashinflowsandthepresentvaluecashoutflows.Thenet

presentvaluecanbecalculatedbythefollowingformula:

2"#8%"+"&#*67$" 239 =:;

(1 + %);

>

;?@

− :B

:; = &"#C6+ℎ)&47(EF$%)&G8"%)(F#

:B = #(#67)&)#)67)&*"+#,"&#C(+#

% = F)+C($&#%6#"

# = &$,H"%(4#),"8"%)(F+



69 | P a g e

Thenetpresentvalueformuladeterminesthepresentvalueofthenetinvestmentcost,estimates

the future cash flowaswell asdiscounting theestimated cash flows topresent valueand then

subtractingthenetinvestmentcostsfromthepresentvalueoftheestimateddiscountedcashflows.

Theamountthatisderivedfromtheformulacandetermineiftheinvestmentisprofitableornot.If

theamountderivedfromtheformula isapositiveNPVwillbeprofitableand if theamount isa

negative NPV will result in a net loss. A positive NPV thus indicates that the project earnings

projected over a certain period is more than the net investment. It can be assumed that the

investmentshouldonlybemadeifthenetpresentvalueispositive.

NPVisafairlysimpletounderstandandeasytousemethod,thatconsidersthetimevalueofmoney

aswellasconcentratesonthevalueofcostsandprofitsinacomparabletimeframe.Thismethod

howeverassumesthatcashflowscanbeestimatedforthelifetimeoftheinvestment.Itisalsovery

sensitivetochangestheinterestratethatisuseddiscountthevalues.

3.3.5.2 Internalrateofreturn(IRR)

Theinternalrateofreturncansimplybeseenastheyieldoftheinvestment.Itisthediscounted

ratethatittakestomakeallthenetpresentvaluesofthecashflowsfromaninvestmentequalto

zero,meaningthatinternalrateofreturnisthediscountedratethatmakesthefuturecashflows

equaltotheinvestmentcost.TheIRRisalsoatimevaluemethodandcanbecalculatedwiththe

sameformulaasnetpresentvaluewithaslightvariation.InsteadofcalculatingtheNPV,theNPVis

madezeroandthenthediscountrateissolved.ThediscountrateinthisinstancewillbetheIRR.

When lookingatthe internalrateofreturnofan investment,thehigherthe IRR,thebetterthis

investmentwillbe.Theinternalrateofreturniscloselyrelatedtothenetpresentvalue,makingit

easy to use with the NVP method. This method is very difficult to calculate without software

programmed to calculate IRR. The length of life of an investment also influences the IRR

considerably,makingitmisleadingifusedalone.

3.3.5.3 Presentvalueindex(PVI)

Thepresentvalueindexmethodissimilartothenetpresentvaluemethod.Theonlydifferenceis

thatthe insteadofsubtractingthenet investmentcost fromthepresentvalueof theestimated

discountedcashflows,thepresentvalueoftheestimateddiscountedcashflowsisdividedbythe

net investmentcosts.Thismethodcanbeseenasthebenefitovercostratioofdiscountedcash



70 | P a g e

flows. The only reason that the PVI is important, it can show the difference between several

alternativeinvestmentsthathavesimilarNVP.

3.3.5.4 Netprofitandrevenue

Revenuesimplyput,isthetotalamountofmoneythatacompanymakebysellingaproductora

service.Theamountofgoodssoldmultipliedbytheactualcostofgoodssoldequalstherevenue.

Top line or gross income are other terms that can be used to describe revenue (Porter, 2001;

Revenue,2017,revenueMeaningintheCambridgeEnglishDictionary,2017).

Thenetprofitofacompanyistheamountthatisleftafterthetotalexpensesaredeductedfrom

therevenue.Netincome,netearningsorthebottomlineareallcommontermsthatcanbeusedto

describethenetprofitofacompany.Thetotalexpensesthatmustbedeductedfromtherevenue

todeterminethenetprofitconsistofoperatingexpenses,interestexpensesandtaxes(NetProfit

Definition&Example|InvestingAnswers,2017,GrossProfitVs.NetProfit|Chron.com,2017).


ThischapterintegratedtheresearchdomainsthroughtheauthorsconceptualizationofChapter2,

toprovideliteratureontheoverlappingpartofallthreeresearchdomains.Theliterature inthis

chapterwasusedtocreatetherestoftheframeworkrequirementsnecessaryasbuildingblocksto

createtheframework.


Framework development

71 | P a g e

4 DEVELOPINGTHEFEASIBILITYSTUDYFRAMEWORKFOR

E-BUSINESSSTART-UPS

In this chapter, the requirements that were subjectively extracted from the literature to help

develop the feasibility study framework for e-business start-ups, are presented and explained.

Theserequirementsarecategorisedtohelpfurtherbreakdownintodifferenttypesofrequirements

thatcouldbeusedtohelpdeveloptheframework.Theliteratureintheprecedingchaptersprovided

an extensive overview that helped create the requirements afterwhich the requirementswere

categorisedtosupportthedevelopmentofthefeasibilitystudyframeworkfore-businessstart-ups.

Figure19summarisesthechapterlayoutandmentionsthesub-research,asseeninSection1.3that

isaddressedinthischapter.


4.1 Need for framework design

Feasibilityforstart-upsneedstherequirementstobuildtheframework.Thisframeworkwillbethe

resultoftheresearch. It is thus importanttoensuretheserequirementsalignwiththeresearch

conductedearlierastheywerealignedtothepurposeoffulfillingtheproblemstatement.

4.2 Requirements for framework design

TherequirementsarecategorisedasbythecategorisationmethodcreatedbyvanAkenetal.(2007)

andusedbyBrockmöller(2008),Weber(2011)andKrauseetal.(2015).Thefollowingsub-chapters

firstly explain the different requirement categories and then categorise the requirements. The

requirementsarestatedundereachcategorywithamotivationforeachrequirement.



72 | P a g e

4.2.1 Requirement categories

Beforetheframeworkcanbedesignedanddeveloped,therequirementsfirstneedtobecreated.

TherequirementsaredividedintofivedifferenttypesasdesignedbyvanAkenetal.(2007).These

categoriescanbedefinedas:

1. Userrequirements(U):Specificrequirementsfromtheviewpointoftheuserwhichexplains

theconstraintsaswellashowtheuserwillusetheframework.

2. Functionalrequirements(F):Thisformsthecoreoftherequirementsspecifications.These

requirementsare in the formofperformanceor resultdemands for the framework that

needstobedesigned.Thefunctionalitythattheframeworkisdesignedtohave.

3. Designrestrictions(R):Thesearetherestrictionsthatthepreferredsolutionwillhave,but

thisframeworkwillnothave.Elementsthatarenotcoveredinthedesignaswellasthelimits

andtheexclusionsofthedesign.

4. Attentionpoints(A):Thesearerequirementsthatarerelevantfortheframework,butdoes

nothavetobemetanddoesalsonotrestrictthedesignoftheframework.

5. Boundaryconditions(B):Theserequirementsarerulesthatmustbemetunconditionallyand

canundernocircumstancebealteredinanyway.Examplesmayincludelegislations,ethical

habits,codeofconduct,etc.

Therearesomerequirementsthatcanbecategorisedasmoreimportantthanothers,e.g.functional

versustheattentionpoints,butprovidingarequirementisshowingusthatitisonethatrequires

consideration.Theassignmentoftherequirementscanbeseenassubjective,becauseitwasdone

byaneducatedguessandwiththeperspectiveoftheliteraturestudy.Thisisthereasonforsome

requirements categories being more important than others in some cases. Nevertheless, each

requirementisimportantfortheframeworkandcannotbedeemedmoreimportantthananother

requirementinthesamecategory.

4.2.2 User requirements

Theusersthatwereconsideredintheuserrequirementswerethefoundersofe-businessstart-ups

andtheliaisonmanagersofstart-upincubators.AspreviouslymentionedinSections2.2.3and2.2.4,

theknowledgeofaliaisonofficerandentrepreneurvariesforeachcase,buttheframeworkwillbe

designed for a liaison officer with the ground level experience and an entrepreneur with no



73 | P a g e

experience.TherequirementsinTable11areverifiedinChapter6toensurethattheframework

satisfies its goal. The user requirements with its motivation and reference to its extraction in

literaturearelistedinTable11.

Table 11 - Feasibility study framework for e-business start-ups - User requirements

RequirementID Typeofrequirement

U1

Requirement

The Framework should consider the environment of e-

businessstart-ups.

Motivation

The e-environment can be different for all types of e-

businessstart-ups.Thedifferencebetweeneachstart-up

can be tremendous. The framework should allow for e-

business start-ups that differ in constraints, such as

numberofemployees,accesstoresources,education,etc.

The difference of the e-environment can be seen in

Sections2.1and2.3.1.

U2

Requirement

Whenusing the framework,auser shouldbeallowed to

applytheirowndiscretion.

Motivation

Theframeworkshouldbedesigned,sothatitcanbeused

forallthedifferentcircumstancesofthee-businessstart-

up founders or incubator liaison officers that use the

framework.(Sections2.2.3&2.2.4)

U3

Requirement

The framework should be user friendly and straight

forward.

Motivation

Theframeworkshouldconsiderthee-businessstart-upis

still in the idea phase and as seen in Section 2.3.4 the

founder does not necessarily have the knowledge or

backgroundforacomplexframework.



74 | P a g e


U4

Requirement

Theframeworkshouldbeconsideredasadecision-making

toolfortheuseroftheframework.

Motivation

Duringthe ideaphaseofastart-up,therecanbe lotsof

uncertaintyabout the futureand thepossible successof

the start-up as seen in Sections 2.2.3 and 2.3.4. The

framework needs to help founders as well as incubator

liaisonofficersdecideifit’sworthtakingtherisk.

U5

Requirement

The framework should provide clear definitions and

explanations for at least a liaison officer to understand

completely.

Motivation

In other words, the framework should provide enough

information to ensure correct application, clear

explanations on what each component needs to be

determined(Sections2.2.3&2.2.4).

U6

Requirement

Theframeworkshouldallowforallthedifferentsectorsof

thee-businesslandscape.

Motivation

Thee-businesslandscapeconsistsofvariousindustriesand

theframeworkshouldallowforallthedifferentindustries

thatane-businesscanfunctionin(Section2.1)

U6

Requirement

The framework must be able to evolve as the e-

environmentevolves.

Motivation

With the ever-changing e-environment as mentioned in

Section2.1,therewillconstantlycomenewfactorsthatwill

have a big influence on e-business start-ups. This



75 | P a g e


framework must also be able to evolve and adjust to

accommodatenewfactors.

Theserequirementsprovidethebasistoguidethedesignoftheframeworkforthespecificuser’s

experience. Theuser experiencewill consist of constraints aswell as how theuserwill use the

framework.

4.2.3 Functional requirements

Thefunctionalrequirementsprovidethecoreoftheperformanceanddemandsoftheframework.

In other words, this means the functional requirements provide the guidelines of what the

frameworkmustallowtheusertodo.Tomakethisprocesseasierthefunctionalrequirementscan

be separated into two groups, the essential- and the desirable functional requirements. The

essential requirements of the framework, are the requirements thatmust be addressed by the

feasibility study framework for e-business start-ups and the desirable requirements are the

requirements of the framework that do not place strict controls on the framework, but shows

requirementsthatcanbecomebestpracticeoneday.Inotherwords,desirablerequirementswill

add value to the way the users use the framework, but the framework will not fail if these

requirementsareexcluded.Thefunctionalrequirementsforthefeasibilitystudyframeworkfore-

businessstart-upswithmotivationarelistedinTable12.

Table 12 - Feasibility study framework for e-business start-ups - Functional requirements


Desirablefunctionalrequirements

F1

Requirement

The framework should determine if an e-business

start-upwillhavethepotentialtobefeasible.

MotivationThisisthemaingoaloftheframeworkandshouldbea

requirementtoensurethattheframeworkdetermines



76 | P a g e


potential feasibility to help an e-business start-up

improveitschancesofsurvival(Section2.2.2).

F2

Requirement

The framework should support the continued use of

theframework.

Motivation

Iftheframeworkdeterminesthatane-businessstart-

updoesnothavethepotentialtobesuccessfulandthis

start-up pivots in another direction (Section 2.2.2),

thentheframeworkmustbeeasytouseagain.

F3

Requirement

The frameworkmust provide enough information to

helpane-businessstart-updeterminewhatitwilltake

topotentiallybefeasible.

Motivation

Itisveryeasyforastart-uptofailandtheframework

mustbethoroughenoughtohelpane-businessstart-

uptoseewhatitwilltaketopotentiallybefeasiblein

suchaharshenvironment(Sections2.1.1&2.2.2).

F4

Requirement

The framework should promote a learning capability

one-businessstart-upsandthee-environment.

Motivation

Theframeworkshouldmakeitpossiblefore-business

start-up founders to learn about the e-environment

that they will start their business in as well as the

market demand and the different market segments

(Sections2.1.1&3.2.1).

F5 Requirement FrameworkmustdeterminepotentialROI.



77 | P a g e


Motivation

AsseeninSection3.3,theROIisthemainfactorthat

determinesthepotentialfeasibilityofabusiness.

F6

Requirement

TohelpdeterminetheROIitisimportanttodetermine

thedemandanalysis.

Motivation

Section3.2explainsthatbeforedeterminingtheROIof

abusiness themarketpotentialmustbedetermined

bydoingademandanalysis.

F7

Requirement

Framework needs to include other important aspect

thatmakeitapplicableforspecificallye-businessstart-

ups(Acquisitioncost.Customerlifecycleetc.).

Motivation

It is important that the framework includes aspects

that is only applicable for e-business start-ups, to

ensurethat the framework is focussedone-business

start-ups and not on all start-ups (Sections 2.1.3 &

2.1.5).

Desirablefunctionalrequirements


F8

Requirement

Theframeworkshouldrecommendextracomponents

that can assist the ideal user or other users with

determining thepotential feasibilityof ane-business

start-up.

Motivation

Itisveryimportanttohelptheuserasmuchaspossible

and by recommending tools that can help the user

completetheframeworkitalsospeedsuptheprocess



78 | P a g e


considerably.Althoughnotmeanttobeanexhaustive

manual, a proposed list of tools would support

reachingthegoaloftheframework.

F9

Requirement

Theframeworkshouldbeuseableforstart-upsthatare

pasttheideaphase.

Motivation

Somestart-upscanalreadybe functionalandstilldo

notknowifthestart-upwillbefeasible.Theframework

shouldmakeadjustmentsforstart-uppastideaphase

(Section2.3.4).

F10

Requirement

The framework should follow and effective and

efficientprocessanddesign.

Motivation

This framework should not be a timely process. The

ideaphaseof thestart-upshouldnot take toomuch

time.Thequickerthestart-upcanstart,thebetter.This

shouldalsobeaquickprocess for the liaisonofficer.

The liaison officer does not have a lot of time and

needs to helpmore than just one start-up (Sections

2.3.4&2.2.4).

F11 Requirement

The framework should be structured that a start-up

foundercanusetheframeworkwithoutthehelpofan

incubator liaison if the founder has the necessary

knowledge.



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Motivation

If the founder is not a first-time founder, then the

founder has the potential to use the framework

withoutthehelpandknowledgeofanincubatorliaison

officer.(Chapter2.2.3&2.2.4)

F12

Requirement

Framework must at least determine one of the

followingtoassisttheROI–NPV,IRR,PVI.

Motivation

Insomecases,ROIwillnotgivetheexactpictureofthe

potentialfeasibilityofastart-upandthatiswhythese

other financial methods can contribute when

conducting a financial analysis of a start-up (Section

3.3.5).

F13

Requirement

Theframeworkshoulddetermineariskanalysisaswell

assensitivityanalysis,toensureamoreaccurateresult.

Motivation

Theseanalysescanonly improvetheaccuracyof the

frameworkbytakingotherimportantfactorsthatcan

influence the result of the framework into account

(Sections3.3.2&3.3.3).

F14

Requirement

The framework should consider the e-customer

behaviour.

Motivation

Asmentioned inSection2.1.6,e-customerbehaviour

canprovideimportantmetricsthatcanhelpfounders

tounderstandthewholecustomerlifecycle.



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F15

Requirement

Acompetitoranalysisandindustryoverviewmustbe

conducted to improve the accuracy of the demand

analysis and give the founder more informed about

howtoenterthemarket.

Motivation

Section3.2.2explainstheimportanceofacompetitor

analysisandanindustryoverview.Highlightingthefact

thatthesecomponentscanonlybebeneficialforthe

founder.

Theserequirementsprovidethebasistoguidethedesignoftheframeworkforthefunctionality

thattheframeworkneedstohave.Thefunctionalityisthecoreoftheframeworkandthereforhas

themostrequirements.

4.2.4 Design restrictions

Thedesignrestrictionsoftheframeworkshouldprovidethelimitsofthedesign.Inthiscase,the

designrestrictionsfocusonthepreferredsolutionspaceofthefeasibilitystudyframeworkfore-

businessstart-ups thatmustbedesigned.Thedesignrestrictionscan limit theusefulnessof the

frameworkmakingtheframeworktoonarrowortoobroad.Thedesignrestrictionsforthefeasibility

studyframeworkfore-businessstart-upswithmotivationarelistedinTable13.

Table 13 - Feasibility study framework for e-business start-ups - Design restrictions


R1 Requirement

Theframeworkisnotmeanttoincludeanexhaustivesetof

components and methods to reach the objective of the

framework, but should be complete enough to suggest

sufficientcomponentsthatcanhelptoachievethegoalofthe

feasibilitystudyframeworkfore-businessstart-ups.



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Motivation

Itisveryimportanttohelptheuserasmuchaspossibleand

by recommending components that can help the user

complete the framework. Although not meant to be an

exhaustive manual, a proposed list of components would

supportreachingthegoaloftheframework.

R2

Requirement

Theframeworkisintendedfore-businessstart-ups,butsome

principlesorsuggestedcomponentsmaybeapplicableforall

typesofstart-ups.

Motivation

The focus of the framework should be only relevant to e-

business start-ups, but some of the concepts might be

relevanttostart-upsthatdoesnotusetechnologyorevenfor

techstart-ups.Thedifferencebetweentech-start-upsande-

businessstart-upsareexplainedinSection2.1.2.

R3

Requirement

Theframeworkisnotalegalorlegislativeguide.Thistypeof

guiderequiresspecialists.

Motivation

Alle-businessstart-upsmusthavesomesortoflegalaspects

andtaxlegislationsinplace.Thisframeworkhoweverdoesnot

take account of tax or any legal issues such as terms and

conditionsforthee-businesscomponentofthestart-up.

R4

Requirement

Theframeworkdoesnotguaranteethatane-businessstart-

upthatispotentiallyfeasiblewillbesuccessful.

Motivation

AsmentionedinSection2.2.2,start-upsfailveryoften.Being

potentially feasible doesnotmean that the start-upwill be

successful.Therearealotofotherfactorsthatalsoplayarole

inthesurvivalofastart-up.



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R5

Requirement

The framework does not focus on management- or team-

feasibilityofane-businessstart-up,onlyonthemarket-and

financial-feasibility.

Motivation

Thereisabigdifferencebetweenastart-upbeingsuccessful

andbeingfeasible.Thisstudywillonlyfocusonthefeasibility

andnotonallthecomponentsthatmakeastart-upsuccessful

(Section1.3).

R6

Requirement

Theframeworkisintendedfore-businessstart-upsinSouth

Africa, but may have some principles or suggested

components can be applicable for e-business start-ups in

othercountries.

Motivation

E-business start-ups in other countries have a different

landscape and thus have different characteristics than e-

businessstart-upsinSouthAfrica.Theframeworkshouldbe

relevant for e-business start-ups in South Africa. E-business

start-ups in other countries will still be able to use the

frameworktosomeextent.

4.2.5 Attention points

Theattentionpointsoftheframeworkarerequirementsthatarerelevanttothedesignandshould

benoted,butdiffer from thedesign restrictionsof the framework.Theattentionpointsdonot

constrain the design of the framework, because they are not hard requirements. The attention

points for the feasibility study framework for e-business start-ups with motivation of each

requirementarelistedinTable14.



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Table 14 - Feasibility study framework for e-business start-ups - Attention points


A1

Requirement

Someofthefactorsincludedintheframeworkmayvaryfor

differenttypesofe-businessstart-ups.

Motivation

An e-business start-up canbe any typeof businesswith an

online component asmentioned in Section 2.1. Thismeans

thattherecanbevariabilitybetweene-businessstart-upsand

differentelementseffectingthedecisionmakingofthestart-

up.Theframeworkwillallowforflexibilityintheprocess.

A2

Requirement

Feasibilitystudyframeworksarenoteasilyavailableandthere

is no clear expert in the field of feasibility studies. This

framework was set up without clear guidelines of how to

createafeasibilitystudy.

Motivation

AsmentionedinSection1.2therearenotalotofproperset

upfeasibilitystudyframeworksavailable.Theframeworkwill

beguidedbythedesignrequirementstopresentaproperly

structuredframework.

A3

Requirement

The framework should be used to determine the potential

feasibilityofane-businessstart-upforthefounderofthee-

businessstart-up.

Motivation

The framework must not be used by investors or other

stakeholders to determine the potential feasibility of an e-

businessstart-up.

4.2.6 Boundary conditions

Theboundaryconditionsaremorerulesofusethanrequirements.Thismeansthattheboundary

conditionsmustbemetunconditionallyforthedesignoftheframework.Theboundaryconditions



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arenotsupportedbytheliteraturereview,theyarecreatedfromtheguidelinesandworkfromvan

Akenetal.(2007).Theattentionpointsforthefeasibilitystudyframeworkfore-businessstart-ups

withmotivationofeachrequirementarelistedinTable15.

Table 15 - Feasibility study framework for e-business start-ups - Boundary conditions


B1

Requirement

Theframeworkshouldbeusedinanethicalandlegalwayby

e-business start-up founders as well as incubator liaison

officers.

Motivation

Whentheframeworkisused,theauthoroftheframeworkhas

nocontrolabouthowtheframeworkisused.Theframework

should be used in a legal and ethicalway, also adhering to

corporategovernanceandotherrelevantrestrictions.

B2

Requirement

Theframeworkshouldbebeneficial forallstakeholdersand

potentialstakeholders.

Motivation

Themaingoaloftheframeworkshouldbetodeterminethe

potential feasibility of e-business start-ups. The process as

well as the resultmust help all parties that are involved to

decideaboutthee-businessstart-up.Thus,beingbeneficialto

bothparties.

B3

Requirement

The framework should not be used negatively towards any

partyinvolvedinusingtheframework.

Motivation

Nobody should be exploited or overpowered by the other

involvedparty.Theframeworkshouldbeusedwiththeaimof

benefittingbothpartiesinvolved(Weber,2011).



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B4

Requirement

Theframeworkassumesthatthetechnologyofthee-business

start-upisfeasible.Noneedforanytechnologytobebuiltfor

e-businessstart-uptoworkintermsoftechnologythatdoes

notexist.

Motivation

The fundamental difference between a technology start-up

and an e-business as explained in Section 2.1.2 is the

technology.Ane-businessdoesnotbuildnewtechnology, it

usestechnologythatalreadyexists.


Theliteraturegivesenoughbackgroundaboutfeasibilityande-businessstart-upsaswellasthee-

environmenttodrawuptheframeworkrequirements.Nowthattherequirementshavebeendrawn

up,thedesignanddevelopmentofthefeasibilitystudyfore-businessstart-upscanbeinitiated.


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5 FEASIBILITY STUDY FRAMEWORK FOR E-BUSINESS

START-UPS

The research objective is to create a feasibility framework for e-business start-ups that can

determine thepossible feasibilityof ane-business start-upbefore the start-uphas left the idea

phase. Chapter5documentsthedevelopmentofthefeasibilitystudyframeworkfore-business

start-ups.RequirementsfortheframeworkweresetoutinChapter4andwereconstructedbyan

extensive literature review inChapters2&3.These requirementswereconstructedasbuilding

blocksandservedasthefoundationoftheframework.Themethodologythatwasusedtocreate

theframeworkisexplainedinSection5.1.3.TheframeworkispresentedasadiagraminSection5.2.

ThemainobjectivesoftheframeworkaresummarisedinSection5.1.1.Aftertheframework,an

illustrative example of the framework follows in Section 5.3. Figure 20 summarises the chapter

layoutandmentionsthesub-research,asseeninSection1.3thatisaddressedinthischapter.


5.1 Introduction

The introduction briefly explains the objectives, the ideal users and the methodology of the

framework.Itisimportanttounderstandallthesesectionsbeforetheframeworkcreationprocess

canbeexplainedinSection5.2.

5.1.1 The main objectives of the framework

AsmentionedinSection1.2,itisdifficultforstart-upfounderstodetermineifitisfeasibletostart

astart-up,thiscanbeduetovariousfactors.Togetherwiththis,thenumberofstart-upsthatfailis

significantlyhigherthanthenumberofstart-upsthataresuccessfulasmentionedinSection2.2.2.


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AsmentionedinSection1.2thereisareallackoffeasibilitystudyexamplesandguidelinesandthis

highlights the need for a feasibility study framework for e-business start-ups. There is no

predominantexpertinthisfieldofstudyandnoclearacademicresearchthatshowsthecorrectway

ofconductingafeasibilitystudyfore-businessstart-ups.

Recently, start-upshavegrownmoreandmorepopularand it is starting tobecomepartof the

currenteconomy(Section2.1.1).Withthehighfailurerateaswellasthedifficultyofstartingane-

business start-up the feasibility study framework for e-business start-ups can be used by the

foundersofthestart-uptoincreasethechancesofsurvival.

With the increase in start-up popularity, there has been an increase in the growth of start-up

incubators.As seen in Section2.2.4 start-up incubators canalso contributeby filtering the vast

numberofstart-upsthatapplyforincubation.Thistedioustaskhasnotbeenstreamlinedbyavery

easy system that filters through start-ups. By having a framework that the liaison officer of an

incubatorcanusetonotonlystreamlinethetaskofchoosingstart-upsthatcanjointheincubator,

butalsohelpingastart-uptodeterminepotentialfeasibilityliaisonofficerscancontributemoreto

theirincubator.

Theframeworkcanalsobebeneficialforpotentialinvestorsthatareinterestedtoinvestinearly

statestart-ups.Byincreasingthechangesofanearlystagestart-uptosecureinvestors,thechanges

ofastart-upssurvivaldrasticallyimprove.

Itisclearthatafeasibilitystudyframeworkfore-businessstart-upscanbebeneficialformorethan

oneuser.Theobjectiveofthefeasibilitystudyframeworkwastodeterminethepotentialfeasibility

of an e-business start-up. By answering the research questions in Section 1.3, the framework

reachedtheresearchobjective.

5.1.2 Potential users

Itcanbedifficulttoidentifyoneclearuserfortheframework.Theframeworksolvesaproblemfor

morethanonetypeofuserandthismakesitpossiblefortheframeworktohavemorethanone

user.

Eventhoughtheframework isdesignedforstart-ups, the idealuser isnotnecessarilyastart-up

founder.Tousetheframeworkwiththebestpossibleoutcome,theuseroftheframeworkmustat

leasthavebackgroundorexperience in thee-business start-upenvironment.Thismakes it very


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difficultforafirst-timestart-upfoundertousetheframeworktoitsfullpotential.Theframeworkis

designedtobeusedwhenthestart-upisinitsideaphase,thismeansthatsomefoundersmight

havenoexperienceatall.Ifastart-uphasmorethanonefounder,theframeworkmightbeeasier

forthemtouse.Inthiscase,thepotentialidealuserwillbeifateamofmorethanonefounderof

ane-businessstart-upthatusetheframeworktogether.

Start-upincubatorsgenerallyhavealiaisonofficerormentorthathasacloserelationshipwiththe

allthestart-upsintheincubator.Anotherexampleofthepotentialidealuserfortheframeworkis

ane-businessstart-upfounderthatisassistedbyaliaisonofficer.Theframeworkcanbeexplained

orsimplifiedbytheliaisonofficerifnecessary.

The third and final potential user can be investors. Investors can ask start-ups that they are

interestedinforpotentialfunding,tocompletetheframework.Thiscanhelpinvestorsandstart-

upswithpotentialearlystagefunding.

5.1.3 Framework methodology

Themethodologyfollowedtocreatethefeasibilitystudyframeworkfore-businessstart-upswas

followedtocreateaframeworkthatcanevolveovertimeasthee-environmentchanges.Thee-

business start-up environment is an ever-changing environment that changes as technology

develops and innovation is used to improve current processes. Section 2.1.1 explains the e-

environmentandhoweasyitcanchange.InSection4.2.2,it isalsomentionedasarequirement

that the frameworkmustbeable toevolveas thee-environmentchanges.This feasibility study

frameworkfore-businessstart-upscaneasilybeadjustedtoaccommodateinnovationandchanges

inthee-businessstart-upsenvironment.

Theprocessstartswithanextensiveliteraturereviewaboutallthefactorsthataffectthefeasibility

ofane-businessstart-up.Chapters2and3covertheliteraturefore-businessstart-upsaswellas

the feasibility for this research study. After an extensive literature review, the framework

requirementsaresetupaccordingtothemethodcreatedbyvanAkenetal.(2007)andusedby

Brockmöller (2008), Weber (2011) and Krause and Schutte (2015). The requirements for this

researchstudywascreated inChapter4.The framework requirementsareusedas thebuilding

blocksof the framework. If something anew component arises that affects the feasibility of e-

businessstart-ups,itmustbeaddedasarequirementbeforeitisaddedintheframework.Afterthe


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89 | P a g e

newrequirementhasbeenadded,thenewcomponentmustbeaddedtotheframework.Thiscan

bedonebyaddingitanewstepinthecreationprocess.Thenewframeworkcanthenbeverified

andvalidatedtomakesurethenewcomponentisaddedintherightplace.Theframeworkforthis

researchstudycanbeseeninSection5.2.

5.2 Feasibility study framework for e-business start-ups creation

process

Thecomponentsaswellasthecreationprocessoftheframeworkisexplainedinthissection.The

frameworkcreationprocessconsistsoffivesteps.Eachstepexplainshowapartoftheframework

fitsintothefinalframeworkaswellasmentionstherequirementsthatisapplicableforeachstep.

5.2.1 Components

The main components are all the components that work together to determine the potential

feasibilityofane-businessstart-up.Therearefourdifferentgroupsofcomponentsthatarerequired

todeterminethefeasibilityofane-businessstart-up.Thesecomponentgroupscanbedividedinto

fivestepswhencreatingtheframework.

The framework creation process as illustrated in Section 5.2.2 to Section 5.2.6 shows all four

componentgroupslinkedtogetherwithamutualcomponent,namelymarketpotential.Themarket

potential is thecentralcomponentof the frameworkthat linksall fourmaincomponentsof the

framework.Thecentralcomponentlinksdifferentlywithallfourmaincomponents.Thisisexplained

ineachstepoftheprocess.TherestofSection5.2illustrateshowallfourcomponentgroupsare

linkedtogetherinthefivecreationstepsaswellastheprocess.Step4ofthecreationprocessshows

allthefactorsthatcanhaveaninfluenceonthefeasibilityofane-businessstart-up,buttheseare

not essential functional requirements as mentioned in Section 4.2.3. This means that these

componentsarenotessentialwhendeterminingthepotentialfeasibilityofane-businessstart-up,

butcanaddtotheknowledgeofpotentialfeasibility.

Therestofthecomponentsintheframework,step1tostep3,allhaveadirectinfluenceonthe

potential feasibility of an e-business start-up. These components are clearly mentioned in the

essentialfunctionalrequirementsforafeasibilitystudyframeworkinSection4.2.3.


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As mentioned in Section 5.1.3, the framework methodology was set up to consider the ever-

changingenvironmentof e-businesses. If any thereareany changes in thee-environment,new

componentsthataffectthefeasibilityofe-businessstart-upscanarise.Thesecomponentscanbe

addedtotheframeworkbyaddinganewsteptotheframework.

5.2.2 Feasibility study framework creation process step 1

Theframeworkcreationprocessstartswiththemostimportantfactorfordeterminingthepotential

feasibilityofane-businessstart-up,theROI.Step1,Figure21illustratesallthecomponentsneeded

to determine theROI as well how these components linkwith the central component,market

potential.AsexplainedinSection3.3.4ROIcanbedeterminedifthetotalinvestmentaswellasthe

netprofitaredetermined.

First,thetotalinvestmentiscalculatedasexplainedinSection2.2.5bylookingattheentireinput

ofthefoundersinthee-businessstart-up.Theinputcanbeexplainedasthetotalcontributionthat

isneededtogetthee-businessstart-upstarted.Thiscontributioncanbedividedintwocomponents

on theonehand it canbeacapital investment andon theotherhand it canbeanon-financial

investment,likethetimeandexpertisethatthefounderwillinvest.Thecapitalinvestmentcanbe

aninternalorexternalinvestment.Internalmeansthefoundingteaminvestingtheirownmoney

andexternalmeansgettinganindependentinvestor.

Second,thenetprofitmustbecalculatedasexplainedinSection3.3.5.4bycalculatingthegross

profitandoperatingexpenses.Theoperatingexpenseswillhavetwosides.Theonesidewillinclude

operatingexpensessuchasrent,salariesandutilities.Ontheothersideofoperatingexpenseswill

be themarketingcost.Marketingcost isa componentused in step1aswell as step3 thatare

explainedinSection5.2.4.Todeterminethegrossprofit,therevenueandcostofgoodsareused.

Revenue is the component that links ROI to the central component, market potential. For the

revenueofane-businessstart-uptobedetermined,themarketpotentialneedstobedetermined

asmentionedinSection3.2.1.3andSection3.3.5.4.Thisistheonlycomponentthatlinkswiththe

centralcomponentinthisway.Whatthismeansisthatrevenuereliesonmarketpotentialmaking

it essential for the Market potential to be determined before the ROI component can be

determined.


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Step1of the creationprocess is illustrated in Figure21andwas createdusing requirements in

Section4.2.Thespecificrequirementsusedforstep1arerequirementF5fromSection4.2.3and

requirementU1fromSection4.2.2.


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Figure 21 - Step 1 of the framework creation process


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Step 2 of the framework creation process starts with the second most important factor for

determiningthepotentialfeasibilityofane-businessstart-up,thedemandanalysis.Step2,Figure

22, illustrates all the componentsneeded todetermine thedemandanalysis aswell how these

componentslinkwiththecentralcomponent,marketpotential.AsexplainedinSection3.2.1,the

marketpotentialiswhatthedemandanalysisaimstodetermine.

Thedemandanalysisisdividedintotwocomponents,namelymarketsegmentsandmarketfactors.

These components are explained in Section 3.2.1.1 and Section 3.2.1.2 respectively. Both these

components are linkedwith the central componentmarket potential. Asmentioned in Section

3.2.1.3,boththemarketsegmentsandmarketfactorsareneededbeforethemarketpotentialcan

bedetermined.

Step2ofthecreationprocessisillustratedinFigure22.Thespecificrequirementusedforstep2is

requirementF6mentionedinSection4.2.3.


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For Step 3 of the framework creation process, there are two components that need to be

determined,customerlifecycleandacquisitioncost.Step3,Figure23,illustratesallthecomponents

neededtodeterminethecustomerlifecycleaswellastheacquisitioncostaswellhowtheseboth

thesesetsofcomponentslinkwiththecentralcomponent,marketpotential.

The acquisition cost on the right side of the framework is divided into two components, the

marketingcostandthenumberofconversions.This isexplainedinSection2.1.5.Thenumberof

conversions is the component that links acquisition cost to the central component, Market

potential.Asmentioned inSection5.2.2, thecomponentmarketingcost isused instep1of the

frameworkcreationprocessaswellas instep3.Thiscomponent linksthereturnon investment

componentwiththeacquisitioncostcomponent.

The customer life cycle as described in Section 2.1.3 consists of five different components that

influencesthefeasibilityofane-businessstart-up.Thesefivecomponentsareinsequenceinthe

framework.Thecustomerlifecyclestartswiththecomponentreach,thencomesthecomponent

acquisition,thenextcomponentisconversionandthepenultimatecomponentforthecustomerlife

cycle is retention. The final component of the customer life cycle is loyalty, this is also the

componentthatconnectsthecustomerlifecycletothecentralcomponent.

Step3ofthecreationprocessisillustratedinFigure23.Thespecificrequirementsusedforstep3

arerequirementF7fromSection4.2.3andrequirementU1fromSection4.2.2.


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Step4oftheframeworkcreationprocessisdifferentthantheprevioussteps.Thisstepdoesnot

addacomponentthatislinkedwiththecentralcomponent.Thissteponlyshowsallthecomponents

thatcaninfluencethefeasibilityofane-businessstart-up,butwerecategorisedbytheliterature

reviewtobeoutsidetheimmediateimpactzoneoftheframeworkasseeninFigure24.

Theimmediateimpactzonemeansthateverythingonorinsidethiszoneaffectsthefeasibilityofe-

businessstart-upsenoughtotakeitintoaccount.Ifallthefactorsoutsidetheimmediateimpact

zonealsogetsconsidered,theframeworkwillbetoocomplexandaccordingtorequirementU3in

Section4.2.2theframeworkmustbesimpleandeasytouse.

Instep4thereareeightcomponentsthatarenotinsidetheframework.Thesecomponentsinclude

present value index, net present value, internal rate of return, e-customer behaviour, industry

overview,competitoranalysis,sensitivityanalysisandriskanalysis.Thesecomponentsarebelieved

tonothaveabigenougheffectonthefeasibilityofastart-uptobeaddedintotheframework.These

componentsstillneedtobeconsideredandcanbecomputedtobroadentheviewonthefeasibility

ofane-businessstart-up.

Step4ofthecreationprocessisillustratedinFigure24.Thespecificrequirementsusedforstep4

are requirements F12, F13, F14 and F15 from Section 4.2.3 and requirementsU1 andU2 from

Section4.2.2.RequirementsF12–F15arealldesirable functional requirements,asexplained in

Section4.2.3.


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ForStep5oftheframeworkcreationprocesslooksatthecompleteframework.Thisstepmadesure

thatstep1to3linksupatthecentralcomponentandbringstogetherthecomponentsinstep4

thatisnotintheframework.

Requirementsthatwereusedthroughoutthefeasibilitystudyframeworkfore-businessstart-up

creationprocesscanbefoundinSection4.2.Step5ofthecreationprocessisillustratedinFigure

25.Thespecificrequirementsusedforstep5arerequirementsF1,F2andF3fromSection4.2.3,

requirementsU2andU6fromSection4.2.2,requirementsR1,R2,R4,R5andR6fromSection4.2.4

andfinallyrequirementB4fromSection4.2.6.


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5.3 Framework method and illustrative example

Section5.3consistsoffivephases.Eachphaseexplainshowastepoftheframeworkisusedwith

an illustrative example of an e-business start-up. The phases are different from the framework

creationprocesssteps,becausetheorderisdifferent.Howtheframeworkisuseddiffersfromhow

itwascreatedmainlybecausethestepsandphasesorderarenotthesame.Thee-businessstart-

upthatwasusedasanexampletoillustratethisprocessisthee-businessstart-upcalledSxuirrel

storage.

Sxuirrel isapeer-to-peerself-storagecompanythatusesanonlinewebplatformandinteractive

mobileapplicationtomaketheprocessmoreaccessibletoeveryone.Efficientlyprovidingaplatform

forbothstorage-spaceproviders,andthoseinneedofstorage-solutionsthroughtheonlineweb

platformandinteractivemobileapplication,Sxuirrelaimstorevolutionisetheself-storageindustry.

AsmentionedinSection4.2.2andSection4.2.3,requirementsU3andrequirementF10statethat

the frameworkmust be set up to be user friendly, straight-forward and have an effective and

efficientprocess.Tomaketheframeworkasuserfriendlyandstraightforwardtheremustbean

effective and efficient process that needs to be followed. Therefore, the five-phase framework

methodologyissetouttohelptheuseroftheframework.

5.3.1 Phase 1

Thefirstphaseoftheframeworkcomputesthecentralcomponentoftheframework,themarket

potential.Itisimportanttodeterminethecentralcomponentoftheframeworkfirst,becauseall

thefactorsoftheframeworklinkwiththecentralcomponent.Figure26illustratesallthefactors

neededtodeterminethemarketpotential.Thedemandanalysisdeterminesthemarketpotential

byfirstdeterminingthedifferentmarketsegmentsandthemarketfactorsthatcaninfluencethese

segments.


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Figure 26 - Phase 1 of the framework methodology

ForSxuirrel,marketcanbedividedintotwodifferentmarketsegments,namelythesupplysideand

thedemandside.Thesupplysideispeoplewithavailablespaceandthedemandsideispeoplein

needofavailablespace.Theillustrativeexampleonlyfocussesonthedemandside.Therearealot

ofmarketfactorsthatneedstobeconsidered.Thesefactorsincludethefactthatnotallpeopleare

accustomedtoe-businesses.Thepeer-to-peermarketraisesalotofsafetyissuesandanewbrand

mustfirstbuildtrustinitsusers.

TheSouthAfricanself-storageindustryisabillion-randindustry.Sxuirrelwillunfortunatelynotbe

abletousethewholemarketasapotentialmarket,becauseofthemarketfactorsthatcanaffect

themarketpotential.Thismarketcanbesegmentedintodifferentagegroups.Theoldestmarket

segment, people older than 65, will be left out of the potential market, because of their low

technologyadoptionrate.


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Thismeansthatthebillion-randself-storagemarketwillbereducedby90percent,meaningthat

thepotentialmarketofSxuirrelis100millionrand.Thismarketpotentialwillfurtherbereducedby

phase2andphase3,beforethefinalmarketpotentialcanbedetermined.

5.3.2 Phase 2

Phase2,Figure27,oftheframeworkmethodologywillcomputetheacquisitioncostofcustomers.

Thiscomponentaffectsthemarketpotentialbylookingatthepercentageofmarketthatwillbe

converted by the marketing. Acquisition cost consists of two components namely number of

conversions andmarketing cost. The number of conversions component links with themarket

potential.Marketingcostwillbeusedduringphase4oftheframeworkmethodology.


ThemarketpotentialofSxuirrel iscurrentlyaR100million, thismarketpotentialwillbe further

reduced.Thereasonforthisis,thatSxuirrelisastart-upwithalimitedmarketingbudgetandnot

theentiremarketpotentialwillbeconvertedintousers.IfSxuirrelaimstogetagoodconversion


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rate,thenumberofconversionswillbe20percentofthemarketpotential.Thismeansthatthe

marketpotentialofR100millionwillnowbeR20million.

5.3.3 Phase 3

Phase 3 of the frameworkmethodology will compute the customer life cycle. This component

affectsthemarketpotentialbylookingatthepercentageofmarketthatwillbeloyal.Loyalusers

arethetypeofusersthate-businessstart-upsarelookingfor,becausetheycanspendmuchmore

thanone-timecustomersasmentionedinSection2.1.3.Figure28illustratesthesecondphaseof

theframeworkmethodology.


Fore-businesses,thecustomerlifecycleisimportant.Loyalcustomersaremuchmorevaluablethan

onceofcustomers.Sxuirrelaimstohave15percentofthemarketpotentialasloyalusersthatwill

usetheirservicefortheirentirelifecycle.ThismeansthatthemarketpotentialofR20millionwill

nowbereducedtoR3millionperyear.


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5.3.4 Phase 4

The fourthphaseof the frameworkmethodologycomputes theROI.This is themost important

componentandwillbeusedasthemainfactorwhendeterminingthepotentialfeasibilityofane-

business start-up. The central component can be used to determine the revenue, which is the

componentthatlinksmarketpotentialwithROI.Marketingcostwillalsobeusedtodeterminethe

ROI.ThiscomponentwasdeterminedinSection5.3.2.Figure29showsallthecomponentsthatare

necessarytodeterminetheROI.


Bythecalculationsmadeduringphase1tophase3,therevenuecannowbedeterminedfromthe

marketpotentialasR3millionperyear.ThecostofgoodsinSxuirrel’scaseisthetransactioncost.

ThetransactioncostcanbedeterminedasR4pertransactionandcloseto3000transactionsper

monthtogetarevenueof3millionperyear.ThismeansthatthecostofgoodswillbeR140000per


Framework

106 | P a g e

year.Thesalariescanbeestimatedbythenumberofemployeesnecessary,inthiscaseitwillbe

R840000peryear.TherentandmarketingareestimatedasR1.02millionperyear.Theoperating

expensesaddsuptoR1.86millionandthegrossprofitaddsuptoR2.86millionperyear.Thenet

profitcanbedeterminedasR1millionperyear.

ThetotalinvestmentofSxuirrelcanbecalculatedasR5million.TheROIcanthenbedeterminedby

dividingthenetprofitwiththetotalinvestment.TheROIforSxuirrelwasdeterminedas20percent.

5.3.5 Phase 5

The final phase of the frameworkmethodology, is a look at the whole framework and all the

components that are outside the framework. This is an important phase that will ultimately

determinethepotentialfeasibilityofane-businessstart-up.



Framework

107 | P a g e

Withareturnoninvestmentof20percentSxuirrelispotentiallyfeasible.Otherfactorscaninfluence

thepotentialfeasibilityofSxuirrel.Itisimportanttobeawareofthesefactors.Whenlookingatthe

wholeframework,Sxuirrelwillbepotentiallyfeasible.Witha20percentROI,abigdemandanalysis,

acquisition cost that is not to high and a good customer life cycle Sxuirrel can be classified as

potentiallyfeasible.

5.3.6 Illustrative case study result

The illustrative case study done on Sxuirrel, determined that Sxuirrel will be feasible. A lot of

assumptionshadtobemade,butthewholecasestudyillustratedthepracticalityoftheframework.

However,thecasestudyonlyfocussedonthedemandsideofthestart-up.Theframeworkdidnot

incorporate the supply side of the e-business start-up. The framework can be adjusted to

incorporatethesupplysideofane-businessstart-upinfutureresearch.


This chapter explained the creation process of the framework step by step. By including the

requirements thatwas used in each step of the creation process, the framework can easily be

verifiedinthefollowingchapter.Theillustrativecasestudyexampleinthischapterexplainshow

theframeworkmustbeusedin5phasesandservesasthefirststepofthevalidationprocess.


Verification and validation

108 | P a g e

6 VERIFICATION AND VALIDATION OF THE FEASIBILITY

STUDYFRAMEWORKFORE-BUSINESSSTART-UPS

This chapter deals with a verification and validation process that seeks to establish that the

framework has achieved the stated goals of this study. Focussing on the set-out framework

requirements,thischapterensuresthattheframeworksatisfiestheset-outrequirementsthrough

the verification process. The validation process will consist of the illustrative example done in

Section5.3andaroundofinterviewswithexperts.Therewillalsobeimprovementsthatcanbe

madetotheframeworkbasedonthefeedbackobtainedfromthevalidationprocessthatwasdone

inthischapter.Figure31summarisesthechapterlayoutandmentionsthesub-research,asseenin

Section1.3thatisaddressedinthischapter.


6.1 Verification of the feasibility study framework for e-business start-

ups

Thedifference between the verification and the validation of a framework can be explained as

follows.Verificationisbuildingthesystemrightandverificationischeckingwhethertherightsystem

wasbuilt(Boehm,1984).Certainspecificationsweresetoutbeforetheframeworkwasbuiltand

the verification process must check if the framework has been developed according to the

specifications.TherequirementsinChapter4weresetoutasspecificationsfortheframework.

TherequirementsinChapter4weresetoutinfivedifferentcategories,namely:

1. userrequirements;

2. functionalrequirements;



109 | P a g e

3. designrestrictions;

4. attentionpoints;and

5. boundaryconditions.

Eachrequirementwasusedtocreatetheframework.Therequirementswereverifiedindividually

bycheckingiftheyaresatisfiedbytheframework.Arequirementcanbesatisfiedbytheframework

or by a specific step in the framework creation process. The verification process was done by

comparing each requirement to an applicable stage to testwhether the requirement has been

satisfied.

6.1.1 User requirements

Theuserrequirements,providedinSection4.2.2,affecttheframeworkasawhole.Insomecases,

therearecertainstepsoftheframeworkcreationprocessthatareaffectedbytheserequirements.

Table16 illustrates theverificationof thesatisfactionof theuser requirements in the feasibility

studyframeworkfore-businessstart-ups,byshowingexactlywheretherequirementsaresatisfied.

Table 16 - The verification of the satisfaction of the user requirements in the framework

Requirements

Step 1 –

Determining

ROI

Step 2 –

Market

Potential

Step 3 – E-

customer

components

Step 4 –

Outside

components

Step 5 –

Complete

framework

The

framework

asawhole

U1-TheFrameworkshouldconsider

theenvironmentofe-business start-

ups.

P P P P

U2 - When using the framework, a

usershouldbeallowedtoapplytheir

owndiscretion.

P P P

U3 - The framework should be user

friendlyandstraightforward.P

U4 - The framework should be

consideredasadecision-makingtool

fortheuseroftheframework.

P

U5 - The framework should provide

cleardefinitionsandexplanationsforP



110 | P a g e

Requirements

Step 1 –

Determining

ROI

Step 2 –

Market

Potential

Step 3 – E-

customer

components

Step 4 –

Outside

components

Step 5 –

Complete

framework

The

framework

asawhole

atleastaliaisonofficertounderstand

completely.

U6-Theframeworkshouldallowfor

all the different sectors of the e-

businesslandscape.

P P

U7-Theframeworkmustbeableto

evolveasthee-environmentevolves. P

6.1.2 Functional requirements

Thefunctionalrequirements,providedinSection4.2.3,aresatisfiedbythedifferentstepsinthe

frameworkcreationprocess.Someoftherequirementsaresatisfiedbytheframeworkasawhole.

Table17showswheretheessentialfunctionalrequirementsaresatisfiedandwherethedesirable

functionalrequirementswillbesatisfiedinbestpractice.

Table 17 - The verification of the satisfaction of the functional requirements in the framework

Requirements

Step 1 –

Determining

ROI

Step 2 –

Market

Potential

Step 3 – E-

customer

components

Step 4 –

Outside

components

Step 5 –

Complete

framework

The

framework

asawhole

Essentialframeworkrequirements

F1-Theframeworkshoulddetermineif

an e-business start-up will have the

potentialtobefeasible.

P

F2-Theframeworkshouldsupportthe

continueduseoftheframework.P P P P P

F3 - The framework must provide

enough information to help an e-

businessstart-updeterminewhatitwill

taketopotentiallybefeasible.

P



111 | P a g e

Requirements

Step 1 –

Determining

ROI

Step 2 –

Market

Potential

Step 3 – E-

customer

components

Step 4 –

Outside

components

Step 5 –

Complete

framework

The

framework

asawhole

F4 -The frameworkshouldpromotea

learningcapabilityone-businessstart-

upsandthee-environment.

P P P P P

F5 - Framework must determine

potentialROIP

F6 - To help determine the ROI it is

important to determine the Demand

analysis.

P

F7-Frameworkneedstoincludeother

important aspect that make it

applicable for specifically e-business

start-ups (Acquisition cost. Customer

lifecycleetc.).

P

Desirableframeworkrequirements

F8-Theframeworkshouldrecommend

extra components that can assist the

ideal user or other users with

determiningthepotential feasibilityof

ane-businessstart-up.

P

F9-Theframeworkshouldbeuseable

for start-ups that are past the idea

phase.

P

F10-Theframeworkshouldfollowand

effective and efficient process and

design.

P

F11 - The framework should be

structured thata start-up foundercan

usetheframeworkwithoutthehelpof

an incubator liaison if the founderhas

thenecessaryknowledge.

P



112 | P a g e

Requirements

Step 1 –

Determining

ROI

Step 2 –

Market

Potential

Step 3 – E-

customer

components

Step 4 –

Outside

components

Step 5 –

Complete

framework

The

framework

asawhole

F12 - Framework must at least

determineoneofthefollowingtoassist

theROI–NPV,IRR,PVI.

P P

F13-Theframeworkshoulddetermine

a risk analysis as well as sensitivity

analysis, to ensure a more accurate

result.

P P

F14 - The framework should consider

thee-customerbehaviour. P P

F15-Acompetitoranalysisandindustry

overview must be conducted to

improve the accuracy of the demand

analysis and give the founder more

informed about how to enter the

market.

P P

6.1.3 Design restrictions

ThedesignrestrictionsprovidedinSection4.2.4affecttheframeworkasawhole.Insomecases,


Table18 illustrates theverificationof the satisfactionof thedesign restrictions in the feasibility


Table 18 - The verification of the satisfaction of the design restrictions in the framework

RequirementsStep1–

DeterminingROI

Step2–MarketPotential

Step3–E-customer

components

Step4–Outside

components

Step5–Completeframework

Theframeworkasawhole

R1 - The framework is not meant to

include an exhaustive set of

componentsandmethodstoreachthe

objectiveoftheframework,butshould

be complete enough to suggest

sufficientcomponentsthatcanhelpto

Theframeworkusedtheliteratureinchapter2,tofindthecomponentsthatwilldetermine

thefeasibilityofane-businessstart-up.



113 | P a g e


DeterminingROI


Step3–E-customer

components

Step4–Outside

components



achievethegoalofthefeasibilitystudy

frameworkfore-businessstart-ups.

R2 - The framework is intended for e-

businessstart-ups,butsomeprinciples

or suggested components may be

applicableforalltypesofstart-ups.

Someofthecomponentsoftheframeworkappliesforalltypesofstart-ups.Thisdoesnot

meanthattheframeworkcanbesuedtodeterminethepotentialfeasibilityofalltypesof

start-ups

R3 - The framework is not a legal or

legislative guide. This type of guide

requiresspecialists.

The framework assumes that the user of the framework would know the legislative

requirements for their decisions andwhere necessary, that theywould knowwhen to

obtainanopinionfromalegislativespecialistinthefield.

R4-Theframeworkdoesnotguarantee

that an e-business start-up that is

potentiallyfeasiblewillbesuccessful.

Thereareotherfactorsthatalsodeterminethatarenotconsideredintheframeworkthat

determinesthesuccessofane-businessstart-up.

R5-Theframeworkdoesnotfocuson

management-or team-feasibilityofan

e-businessstart-up,onlyonthemarket-

andfinancial-feasibility.

Themanagement-andteam-feasibilitycannotbemeasuredwhenastart-upisstillinthe

ideaphase.Theframeworkjustfocusedonthemarket-andfinancial-feasibilitythatcanbe

measuredearlyon.

R6- Theframework is intendedfore-

business start-ups in South Africa, but

mayhavesomeprinciplesorsuggested

components can be applicable for e-

businessstart-upsinothercountries.

Therearecomponentsthathavebeenprovidedthatcansatisfyuseinothercountries.The

useoftheframeworkinothercountrieswillrequireaninvestigationintothecharacteristics

andconstraintsofthespecificcountrytoensurethattheuserrequirementsareaddressed

intheframework.

6.1.4 Attention points

Theattentionpoints,providedinSection4.2.5,affecttheframeworkasawhole.Table19illustrates

theverificationofthesatisfactionoftheattentionpointsinthefeasibilitystudyframeworkfore-

businessstart-ups,byshowingthattheyaresatisfiedintheframework.

Table 19 - The verification of the satisfaction of the attention points in the framework


DeterminingROI


Step3–E-customer

components

Step4–Outside

components



A1 - Some of the factors included in theframeworkmayvaryfordifferenttypesofe-businessstart-ups.

Theframeworkwasdesignedtobeflexiblefortheuser.Eachusercanapplytheirowndiscretionandusetoframeworktobestsuittheirstart-upscharacteristics.



114 | P a g e

A2 - Feasibility study frameworks are noteasilyavailableandthereisnoclearexpertin the field of feasibility studies. Thisframework was set up without clearguidelines of how to create a feasibilitystudy.

The literature where all three research domains overlap are very limited. Theliterature of the domains was synthesised from the elaborative research withoutproperguidelinestosetuptheguidelinesthatwasusedtocreatetheframework.

A3 - The framework should be used todeterminethepotential feasibilityofane-businessstart-up for the founderof thee-businessstart-up.

Thefounder is themainstakeholder inthee-businessstart-upandwillbenefit themost from using the framework. Thus, the framework must be used to help allstakeholders,butthefoundermustbethemainbeneficiary.

6.1.5 Boundary conditions

Thedesignrestrictions,providedinSection4.2.6,affecttheframeworkasawhole.Insomecases,


Table20 illustrates theverificationof the satisfactionof thedesign restrictions in the feasibility


Table 20 - The verification of the satisfaction of the boundary conditions in the framework


DeterminingROI


Step3–E-customer

components

Step4–Outside

components



B1-Theframeworkshouldbeusedinan

ethicalandlegalwaybye-businessstart-

up foundersaswellas incubator liaison

officers.

Theframeworkshouldbeusedforthepurpose,todeterminethepotentialfeasibility

ofane-businessstart-up.Anyuseoftheframeworkbeyondthiswillbeinthecontrol

oftheuser,whocontrolshowtheframeworkisused.

B2-Theframeworkshouldbebeneficial

for all stakeholders and potential

stakeholders.

Theframeworkwascreatedtobenefitallstakeholdersinthee-businessstart-upthat

usestheframework,ensuringthattheresultoftheframeworkwillprovideenough

informationaboutthestart-uptobenefitsallstakeholders.

B3-Theframeworkshouldnotbeused

negativelytowardsanypartyinvolvedin

usingtheframework.

The frameworkwas built to improve e-business start-up survival, ensuring that all

involvedpartiesbenefitfromtheframework.

B4 - The framework assumes that the

technologyof thee-business start-up is

feasible.Noneedforanytechnologyto

bebuiltfore-businessstart-uptoworkin

termsoftechnologythatdoesnotexist.

P P

6.1.6 Verification conclusion

Eachofthe34requirementsinChapter4havebeenshowntobesatisfiedthroughthecompletion

oftheStepintheprocessasseeninSection6.1.Section6.1alsoshowswheretherequirements



115 | P a g e

weresatisfiedandbydoingthisverifiesalltherequirements.Therequirementswereeithersatisfied

bytheframeworkorbyoneofthestepsintheframework,namelythecreationprocess.

6.2 Validation of feasibility study framework for e-business start-ups

Thevalidationoftheframework isevaluating ifthecorrectframeworkhasbeendeveloped.The

validation process was divided into two parts. The first part of the validation process is the

illustrativeexampledoneinSection5.3.Theexamplecanbeusedasacasestudytovalidatethe

framework,showingthattheframeworkcanbeappliedtoareale-businessstart-up.Thesecond

partofthevalidationprocessisaroundofinterviewswithexperts.

6.2.1 Illustrative case study

TheillustrativeexamplewasusedinSection5.3toshowhowtheframeworkisused.Itcanalsobe

usedasthefirstpartofthevalidationprocessbyshowingthattheframeworkcanbeusedona

practicalleveltodeterminethepotentialfeasibilityofane-businessstart-up.Byusingthefeasibility

study framework on the e-business start-up Sxuirrel, the illustrative case study shows that the

frameworkcanbeusedpracticallyonane-business start-up.Thispartof thevalidationprocess

highlightedthattheframeworkdoesnotaccountofthesupplysideofthee-businessstart-up.For

thee-businessstart-up,Sxuirrel,thesupplysideisanessentialpartofthebusiness.

6.2.2 Interview validation

The second part of the validation process was done by interviewing industry experts. The

interviewees were chosen to validate the framework by making sure that the three main

stakeholdersinane-businessstart-upwasinterviewed.Thismeantthattherewerethreedifferent

groupsinterviewed,namelye-businessstart-upfounders,incubatorliaisonofficersandinvestors.

ThepeopleinterviewedisshowninSection6.2.2.1.Theinterviewsweresemi-structured,toensure

that thedatacollectedwas reliable,comparableandqualitative.The interviewalsoallowedthe

intervieweestoexpresstheirviewsfreely(Whiting,2008).

Each intervieweewasgivenapresentationon the frameworkasseen inAppendixA - Interview

presentationsNovember2017.Theintervieweewasalsoallowedtoaskanyquestionsduringthe

presentation to ensure that each interviewee understood the framework completely. Each

interviewhadanallocatedtimeof30minutesandthiswasenoughtimeforalltheinterviews,but



116 | P a g e

afurther30minuteswereallowed, ifneeded.The interviewquestionsandexplanationforeach

questionarepresentedinTable21.

Table 21 - Interview questions and explanations

Question Explanation

1. Whatisyourrolewithe-

businessstart-ups?(founder,

workingwith,investedinetc.)

Tounderstandthepersonthatisbeinginterviewedand

theirrolewithe-businessstart-upsandtheirexperience.

2. Willitimproveyourrolewith

ane-businessstart-upifyou

knowthepotentialfeasibility

ofthestart-upbeforeit

started?

Thisquestioncanvalidatethereasoningfortheframework

andhelpunderstandwhythepersonbeinginterviewed

needstheframework.

3. What,doyouthink,arekey

factorsfordeterminingthe

potentialfeasibilityofane-

businessstart-up?

Thisquestionandthefollowingquestionwillvalidatethe

frameworkbyfirstaskingdifferenttypesofuserswhatis

importantforthemintermsoffeasibilityandthenifthis

frameworkaddressesthesefactors.

4. Wouldthesefactorsbe

adequatelyaddressedbythe

framework?

Thisquestionaswellasthepreviousquestionwillvalidate

theframeworkbyfirstaskingdifferenttypesofuserswhat

isimportantforthemintermsoffeasibilityandthenifthis

frameworkaddressesthesefactors.

5. Whatdoyouthinkthe

frameworkdoesnotaddress

whichwouldresultinitfailing

initsobjective?

Thisquestionwillhighlightwhatismissinginthe

frameworkandwhatpeoplewithexperienceinthee-

businessstart-upsthinktheframeworkneeds.



117 | P a g e

Question Explanation

6. Valuablerecommendations

andcommentsusedfor

frameworkimprovement?

Theserecommendationsandcommentscanbeusedto

improvetheframework.

Some of the interviews had further discussions that were not asked in the questions. These

discussionscanbeseen,astranscriptsofallinterviews,inAppendixB-Interviewtranscripts.

6.2.2.1 Interviewees

Thelistofthesevenintervieweesaswellasthereasonwhytheywerechosentobeinterviewedcan

beseeninTable22.Summariesofallthequestionsaswellastheresultsoftheinterviewswillbe

discussedintherestofthischapter.

Table 22 - Professionals interviewed

Date Interviewee

Role in an e-

businessstart-

up

Rationaleforincludingintervieweeinthevalidation

07-

Nov-17DavidKrige

Incubator

liaisonofficer

DavidKrigeprovidesanimportantperspective,with

hisengineeringbackgroundandexperienceworking

withe-businessstart-upsformtheideaphase.

07-

Nov-17JDNel

Incubator

liaisonofficer

JD’sexperienceincoachingstart-ups,givehimavery

goodopinionaboutwhattheyneedwhenstillinthe

ideaphase.

07-

Nov-17

Brandon

Paschal

Incubator

liaisonofficer

Brandon’sinternationalexposuremeansthathecan

provide a good view from an international

perspective.



118 | P a g e

Date Interviewee

Role in an e-

businessstart-

up

Rationaleforincludingintervieweeinthevalidation

08-

Nov-17PhillipMarais

CEO of

incubator and

former VC

employee

Phillipwillprovideanopinionoutofaninvestors

perspective,whilealsohavingalotofexperience

workingwithstart-ups.

08-

Nov-17

Leonard

Brewer

E-business

start-up

founder

Beingane-businessstart-upfounder,Leonard

knowsfromhisexperiencewhatane-businessstart-

upneedstobefeasiblecanbeveryimportantto

validatetheframework.

08-

Nov-17

Thinus

Pretorius

E-business

start-up

founder

Hisengineeringbackgroundtogetherwithhis

experienceasane-businessstart-upfounderwill

provideanimportantpointofviewwhenvalidating

theframework.

12-

Nov-17

Graham

Lombard

E-business

start-up

founder

WithGrahambeingaformerfounder,his

perspectivecanprovidedifferentfeedbackthan

start-upfoundersthatarestillinvolvedwiththeir

ownstart-ups.

6.2.2.2 Whatisyourrolewithe-businessstart-ups?

AspersummaryinTable22above,alltheintervieweesexplainedtheirrolewithe-businessstart-

ups.Threeoftheintervieweeswerestart-upfounders,threewereliaisonofficersatanincubator

andthelasttwowereinvestorsinstart-ups.

6.2.2.3 Will it improve your role with an e-business start-up if you know the potential

feasibilityofthestart-upbeforeitstarted?

Alltheintervieweessaidthatknowingifthee-businessstart-uptheyareinvolvedinwillpotentially

befeasiblewhenstillintheideaphase,itwouldimprovetheirrolewiththee-business.Someofthe

intervieweesusetheirgutfeelinsteadofasetoutprocesstodeterminethepotentialfeasibilityof



119 | P a g e

ane-businessstart-up.Theythenmakedecisionsbasedontheirgutfeelthatcaninfluencethee-

businessstart-up.

6.2.2.4 Whatdoyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-

businessstart-up?

Therewerealotofsimilaranswersforthisquestion.Themostfactorthatcameupthemostwas

the market. Understanding your market and how it works as well as understanding how the

customerthinksisthemostimportantfactor.Otherimportantfactorsthatwasmentionedbythe

intervieweesarecompetitoranalysis,initialinvestmentcostandtimeneededtostartthebusiness.

6.2.2.5 Wouldthesefactorsbeadequatelyaddressedbytheframework?

Allthesefactorsareaddressedbytheframework,butsomeofthefactorsareonlymentionedand

notpartofthecomponentsintheframeworkthatneedstobecalculated.Thecompetitoranalysis

andtheriskanalysisareincludedintheframework,butarenotoneofthekeycomponents.Some

ofthe intervieweesmentionedthatthesearethemost importantfactorsandthatthesefactors

needtomovefromoutsidetheframeworktotheinsideoftheframework.Thecomponentsofthe

frameworkonahighlevelareadequate,butitiswhathappensinsideeachcomponentthatisreally

important.Thiscannotbemeasuredbyjustlookingattheframeworkinaninterview.

6.2.2.6 Whatdoyouthinktheframeworkdoesnotaddresswhichwouldresultinitfailingin

itsobjective?

Thefirstfactorsthattheframeworkdoesnotaddressisthecompetitoranalysisandtheriskanalysis.

Thesefactorsarementioned,sotheyarenotneglected,buttheimportanceofthesefactorsshould

beraised.

Thesecondthingthatwasmentionedbytheinterviewees,wasthefactthattheframeworkdoes

notcaterforthesupplysideofamarketplace4e-business.Amarketplacestart-upcanalsobean

e-business.

Otherimportantfactorsthatcantheframeworkdoesnotaddressinclude:

4Marketplaceisabusinessthatcatersforthesupplyanddemandsideofthemarket(Sacks,2011).



120 | P a g e

• Thelevelofimportanceofeachcomponent

• Assesthedifficultyofgettingfunding

• Clearlyhighlightthestartingpointandendpointoftheframework

6.2.2.7 Valuablerecommendationsandcommentsusedforframeworkimprovement?

Themostprominentrecommendationwasthattheremustbeaniterationsystemintheframework.

Theframeworkmustsupportcontinuoususeandaftereverytimetheframeworkisused,itmust

allowforchange.

Apracticalrecommendationwastochangethearrowsofphase4mustbechanged.Thearrowsare

pointing from revenue towards the central component market potential. The arrows must be

changedtopointfrommarketpotentialtowardsrevenue,tosupporttheflowoftheframework.

Thefinalcommentwastolookattheframeworkcomponentsinphase5thatdoesnotaffectthe

framework in anotherway. Each user that uses the framework canuse their owndiscretion to

decidewhatfactorsarenecessarytoincludeintheframework.

6.2.2.8 Othervaluablecomments

There were a lot of other comments that are very valuable and can be used to improve the

frameworkortobeusedforrecommendationsforfurtherresearch.

Someofthecommentsthatweremadearenotapplicablefortheframework,becauseitonlycomes

applicablewhenastart-upisnotintheideaphase.Thesecommentsincludeproductdevelopment

andbuilding a prototype to test certain assumptions. It is not always necessary to build a very

complicatedproduct,butratherbuildasimpleanduniqueproduct.

Mostoftheintervieweesmentionedthattheidealuserfortheframeworkwillbeifthestart-up

founderusestheframeworkwiththehelpofanincubatorliaisonofficer.

Anothervaluablecommentwasthattheremustbeausermanualthatconsistofquestionsbehind

theframework.Thesequestionscanbeusedtocompletetheframeworkmoreeasilyandwillmake

surethattheusercollectsrealdata,becauseframeworksareonlygoodiftheyhaverealdata.The

usermanualwillalsohelptobreakdowntheframeworkintoastepbystepguide.



121 | P a g e

6.3 Results and discussion

From the interviews thatwere done, it is clear that the frameworkwill improve the role of e-

businessstart-upfounders,liaisonofficersandinvestorsbydeterminingthepotentialfeasibilityfor

e-businessstart-ups.Thereisaclearneedtodeterminethepotentialfeasibilityofane-business

start-upwhenstillintheideaphase.Thisneedcanbesolvedbyusingtheframework.

Section6.2.2.3highlightsthefactthatincubatorliaisonofficersrarelyuseaprocesstodetermine

whatstart-upsgetacceptedintheincubatorandwhatstart-upsdonotgetaccepted.Thismeans

thatthereisaneedforaframeworkthatcanhelpincubatorliaisonofficers.

Accordingtotheintervieweesthemostimportantfactorofdeterminingthepotentialfeasibilityof

e-businessstart-upsismarketpotentialandthisfactorisaddressedbytheframeworkasmention

in6.2.2.4.Competitoranalysisandriskanalysisarenotinsidetheessentialpartoftheframework,

butarestillconsideredimportanttoconsiderbytheframework.Thismeansthatthefactorsarenot

directlyaddressedbytheframework,butarealsonotneglectedbytheframework.Overall,thekey

componentsaccordingtotheintervieweesareaddressedbytheframework.

InSection6.2.2.5 it ismentionedthat itcannotbemeasuredwhathappensontheinsideofthe

framework.Therefore,theillustrativecasestudywasdone.Toshowthepracticalityandthenitty

grittyoftheframework.

Theriskanalysiswasonlymentionedbyoneoftheinterviewees,butthecompetitoranalysiswas

mentioned by more than one of the interviewees. Based on the frequent mentioning of the

frameworknotincludingthecompetitoranalysis,theframeworkwillbeadjustedtoincorporatethis

component.

Three more design changes will be made to the framework. The starting point will be clearly

indicatedbytheframework,thelevelofimportanceofthecomponentswillbeindicatedandthe

arrowsofphase4willbechangedtosupporttheflowoftheframework.

Theiterationprocesswasemphasisedbytheinterviewees.AccordingtoframeworkrequirementF2

in Section 4.2.3 the framework must be built to support continuous use. This means that the

frameworkwasbuilttosupportiteration,eventhoughitisnotclearlyseenintheframework.



122 | P a g e

Theframeworkwillnotbechangedtocaterforthesupplysideofamarketplace.Theframework

willhavetobechangedcompletelyandalotofextraresearchwillbeneeded.Thisisrecommended

forfuturestudiesinChapter7.

6.4 Framework changes

The pragmatic approach that was followed in the validation process resulted in an improved

framework.Figure32illustratesthenewframeworkwithallthesuggestedchangesmentionedin

Section6.3.

Figure 32 - Changed framework

The framework improvements, mentioned in Section 6.3, resulted in an altered and improved

framework.Thearrows that lead frommarketpotential to the returnon investmenthavebeen

changedto improve the flowof the framework.Thecompetitoranalysishasbeenaddedto the

demandanalysistoimprovethefactorsthattheframeworktakesintoaccountwhendetermining

thedemandanalysis.Thestartandendpointsoftheframeworkhavebeenclearlymarked.Thefinal



123 | P a g e

change that was made to the framework, is the level of importance of the components. The

importanceofthecomponentscanbemeasuredbythesizeofeachcomponentontheframework.


This chapter illustrated the verification and validation process that was followed to verify the

creation process of the feasibility study framework for e-business start-ups and to validate the

framework.Theverificationandvalidationprocessshowswhethertheframeworkhasanswered

theresearchquestionornotandisimportanttodrawaconclusion(Chapter7).


Conclusion

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7 CONCLUSIONANDRECOMMENDATIONS

Thischapterconcludesthestudybypresentinganoverviewofthestudy,discussingthemethod

usedforcompletingthestudy,drawingconclusionsregardingtheresearchobjectivesandproviding

somerecommendationsforpossiblefutureresearch.Figure33summarisethechapterlayoutand

mentionsthesub-research,asseeninSection1.3thatisaddressedinthischapter.


7.1 Overview

E-businessstart-upshaveaveryhighfailureratewithinthefirstfiveyearsofoperation.Oneofthe

reasons that contributes to the high failure rate, is the poor evaluation of the idea early on. A

solutionthatcanhelppreventthisproblem,canbebyconductingafeasibilitystudy.However,there

arenoclearguidelines,oraproperframeworkforconductingafeasibilitystudyframeworkfore-

business start-ups. This problem not only effects start-up founders, but also start-up incubator

liaisonofficersandinvestors.

Tosolvetheseproblems,theobjectiveofthestudywastocreateafeasibilitystudyframeworkfor

e-businessstart-upsthatcanhelpdeterminethepotentialfeasibilityofane-businessstart-upwhen

still in the ideaphase.For the framework tobe successfully created, ithad toanswer themain

researchquestion,

Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityof

thee-businessstart-up?

The research followed a method that will allow the framework to evolve with time as the e-

environmentchangesduetonewtechnologyandinnovation.Thesystemsengineeringprocesswas

followed to reach thisobjective. The setof 32 requirements thatneeded tobe satisfiedby the


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frameworkwerecategorisedintofiverequirementtypeswhichwasusedasthebuildingblocksto

createtheframework.Thefivecategories included;userrequirements, functionalrequirements,

design restrictions, attention points and boundary conditions. Finally, the framework and its

requirementswereverifiedandvalidated.

Thethreeresearchdomains,namelye-business,start-upandfeasibilitystudywereinvestigatedto

find the requirements that were necessary to create the framework. The three domains were

integratedtofindtherequirementsthateachdomaindidnotprovideon itsownandsubjective

inferencesweredrawntoprovideimpetus.

Theframeworkwascreatedwithafive-stepcreationprocessthatusedall32requirements.After

the creation process was completed, the framework was ready to start improvements and

validation.Thefeasibilitystudyframeworkconsistsoffivephasesthatcanbefollowedtodetermine

thepotentialfeasibilityofane-businessstart-up.

7.2 Methodology execution

Theresearchstudyfollowedthesystemsengineeringapproachthatbrokedownthemainresearch

question into sub-research questions in Section 1.3. These sub-research questionswere broken

downtohighlightthefieldsofstudy,theresearchdomains,andtoensurethattheliteraturewas

focussedandspecific.Thesub-researchquestionalsoensuredthattheframeworkrequirements

could be extracted from the literature to create the framework that will lead to the research

objective being achieved. After the framework was created, the sub-research questions also

ensuredthattheaddressedtheserequirements.

Thesub-researchquestionsarereferencedwiththesectionsthatansweredthesequestionsinTable

23.Thesequestionsprovidedtheguidelinetoeachchapteroftheresearchstudy.

Table 23 - Sub-research questions verification

Sub-ResearchQuestionsVerificationthrough

section(s)

Whatisane-business? 2.1.1

Whatisthedifferencebetweenane-businessandanormalbusiness? 2.1.1


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section(s)

Whatarethemostimportantmetricsforane-business?2.1.3,2.1.4,2.1.5,&

2.1.6

Howhase-businesschangedthenormalwayofdoingbusiness? 2.1.1

Whatisastart-up? 2.2.1

Whatmakesastart-updifferentfromanormalbusiness? 2.2.1

Whostartsastart-up? 2.2.3

Howdoesastart-upgrow? 2.2.4&2.2.5

Whatisane-businessstart-up? 2.3.1

Whatisthedifferencebetweenastart-upandane-business? 2.3.1

Howdifficultisittostartasuccessfule-businessstart-up? 2.3.2&2.3.3

Whatisafeasibilitystudy? 2.4

Whatdoesafeasibilitystudyentail? 2.4.1,2.4.2&2.4.3

What is the difference between a feasibility study, a pilot study and a

businessmodel?2.4.4&2.4.5

Whatcomponentsdeterminethefeasibilityofane-businessstart-up? 3.1,3.2&3.3

How will the literature of the research study be extracted to create a

framework?4

Howcantherequirementsbemeaningfullycombinedintoaframework? 5


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section(s)

Istheframeworkaddressingtherequirementsassetoutbytheresearch

domains?6.1

Willtheframeworkdeliveronprovidingawayofdeterminingthepotential

feasibilityofane-businessstart-up?6.2.1&6.2.2

7.3 Results

Theverificationprocessdeterminedthattheframeworksatisfiedalltheframeworkrequirements

bycheckingifeachrequirementwasindividuallysatisfiedbytheframeworkasawholeorbyastep

intheframework,namelythecreationprocess.Thevalidationoftheframeworkwasdoneintwo

parts,thefirstwasanillustrativecasestudyandthesecondaroundofinterviews.Thevalidation

processprovidedfeedbackfortheframeworkthatwaseitherusedtoimprovetheframeworkoras

recommendationsforfutureresearch.

Partoneofthevalidationprocesswasintheformofanillustrativecasestudyonane-businessstart-

up,Sxuirrel.Thispartofthevalidationtestedthepracticalityoftheframeworkaswellashowusable

theframeworkis.Italsohighlightedthattheframeworkwasnotmeantformarketplacestart-ups,

asitonlyfocussesonthedemandside.

Thesecondpartofthevalidationprocesswasaroundofinterviewswithstakeholdersine-business

start-ups.Sevenpeoplewereinterviewedtovalidatetheframeworkandtogainvaluableinsight

into the shortcomings of the framework. This information was either used to improve the

frameworkortoconsiderasrecommendationsforfutureresearch.

Thevalidationandverificationprocessesprovedthattheframeworkwasabletoimprovetherole

oftheuserofthefeasibilitystudyframeworkfore-businessstart-upsbydeterminingthepotential

feasibilityofthee-businessstart-upthattheuserisinvolvedwith.

7.4 Conclusions

Theresearchwasinitiatedaftertheunderstandingofthehighfailurerateofe-businessstart-ups

and the failure to solve this problem by the lack of available feasibility study guidelines or


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frameworks.Theknowledgeofthepotentialfeasibilityofane-businessstart-upintheideaphase

canhaveapositiveeffectonall thestakeholdersof thee-businessstart-up.Thesestakeholders

includethestart-upfounders,thestart-upincubatorliaisonmanagerandtheinvestorsofthestart-

up.

Therearemanyfactorsthatindicatethesuccessfulimplementationoftheframework.Thebestway

todescribeasuccessfulimplementationisbylookingatthegoalthattheframeworkwasbuiltto

achieve.Thegoaloftheframeworkistohelpdeterminethepotentialfeasibilityofane-business

start-upwhenstillintheideaphase.Bydeterminingthepotentialfeasibilityofane-businessstart-

upthatisstillintheideaphase,thestakeholdersofthee-businessstart-upcanallimprovetheir

rolewiththee-businessstart-up.

The feasibility study framework for e-business start-ups will not be successful in all its

implementations,becauseitdoesnotcaterformarketplacesstart-ups.Marketplacestart-upsare

stille-businesses.Thisdoesnotmeanthattheframeworkfaileditsobjective.Theframeworkwas

built to evolve as technology or innovation change the e-environment. The framework can be

changedtoincorporatethesupplysideofmarketplacestart-ups.

7.5 Recommendations for future research

Theever-changingenvironmentofe-businessstart-upshasmadeitpossibleforfutureworkaswell

astheprogressionofresearch.Therecommendationsforfutureworkthathaveresultedfromthis

studyweremade clear by the validationprocess. The recommendations for futurework are as

follows:

• todomoreresearchonmarketplacestart-ups.Thismustincludethedifferencebetweene-

businessstart-upsandmarketplacestart-ups.Theframeworkcanbeadjustedtocaterfor

thesupplysideofmarketplacestart-ups.Thisstudyisexpectedtocreateawholedifferent

framework for the supply side. The supply framework and demand framework can be

combinedandusedasone,todeterminethepotentialfeasibilityofamarketplacestart-up;

• towriteausermanualfortheframeworkthancanbeusedasalistofquestionsthatmust

beansweredbythefounderofthestart-up.Byansweringthesequestions,thefounderwill

completetheframeworkaswellasstartdevelopingtheirstart-up.Therationalebehindthis

isthatfounderswillbeabletousetheframeworkwithoutanyhelp;and


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• tocreateaframeworkthatlooksatmorethanjustfinancialandmarketfeasibilitythatcan

beusedbyliaisonofficerstoevaluateandhelpstart-upsgrowquicker.


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https://www.topmba.com/blog/what-startup-incubator (Accessed: 1 April 2017).

Zott, C., Amit, R. and Massa, L. (2011) ‘The business model: recent developments and future

research’, Journal of management. Sage Publications Sage CA: Los Angeles, CA, 37(4), pp. 1019–

1042.


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AppendixA-InterviewpresentationsNovember2017


Appendix A

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Appendix B

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AppendixB-Interviewtranscripts

Master’s thesis interview – David Krige

Enrolled: MEng(EngineeringManagement)(FullTime)

Nameandsurname: HendrikJohannesBam

Studentnumber: 17140870

Registered: 2016(Firstyear)

Supervisor(s): MrDKennon

Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups

Interviewee: DavidKrige

Rationaleforinterview:

DavidKrigeisaliaisonofficerattheStellenboschUniversityLaunchlabincubator.Heworkswithe-

businessstart-upsdailyandhasaMaster’sdegreeinIndustrialengineering.Davidmightnotbea

start-upfounder,buthehasalotofexperienceinhelpingstart-ups,especiallystart-upsthatarestill

intheideaphase.Hisviewonwhatane-businessstart-upneedstobefeasiblecanbeveryimportant

tovalidatetheframework.

DateofInterview: 7November2017

TimeofInterview: 09:00AM(CentralEuropeanSummerTime)

Totalvalidationanddiscussiontime: 30mins

Present: HenriBam

Background:


Appendix B

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Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat

canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To

achievetheresearchobjectivemainresearchquestionmustbeanswered:

Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-

businessstart-up?

Responses:

1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)

Iworkwith themandsupport themasan incubationportfoliomanager/liaisonofficer. So Igiveadvice,betheshouldertocryonwhentheycry.

1. So,youhaveexperienceinthefieldofwhatdoese-businessstart-upsrequire?

Yes,Ihaveexperiencedthemistakesthatpeoplehavemade.Icanbethesensecheckforideasandask themquestions tomakethemthinkabitharderabout their ideas. Ialsoseea lotofpeoplepitchingtheirideasandbringingforwardnewideasandthenImyselfdecideisitworthmotivatingthemorisitnotgoingtowork.Idon’tuseaframeworkoranything,Idon’tuseaframework,Iuseagutfeeling.

2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof

thestart-upbeforeitstarted?

Yes,definitely.Wehavealotofapplicationsaweek,evenuptofivetimesaweekandwedon’tapplyanysciencetotheapplicationprocess,whichyoucanargueisveryrookieofus.Somethinglikethisframeworkwilldefinitelyhelpusunderstandandtoquicklyandeasilyidentifyideapotential.

3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business

start-up?

Everythingistodowiththemarket,becauseyoucanhavethebestideaandyoucandevelopitasmuchasyoulikeintoanawesomeproduct,butifthemarketdoesn’twantit,youaremakingitfornobody.So,everythingstartsatthemarket,butthensecondly it isaboutexecution.Howdoyouexecute.Youcantaketoolong,themarketisthereandthensomebodyelseentersthemarketbeforeyou.Youcandoitincorrectlyandpoorlyandthensomebodyelseseeswhatyouhavedonewrongandtheycanimproveonthatandtakeoverthemarketbeforeyou.Ithinkthat’sdefinitelythetwothingsthat’scompletelyimportantforme.It’salsotodosomemarketresearchandtounderstandhowthemarketworks,understandhowthecustomerthinks.It’snotjusttohaveanideaandgoandexecute,youhavetovalidateyourideainthemarket.


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4. Wouldthesefactorsbeadequatelyaddressedbytheframework?

The execution factor will not be addressed, but hopefully the learnings you make from thisframeworkwillhelpyouexecutebetter.Forthemarketpotential,Ithinkthecomponentsonahighlevelisadequate,butitiswhatyoudoinsideeachcomponentthatwillreallymatter,becauseIcandoamarketsegmentandcallitamarketsegmentbysayingIamcustomerXandyouarecustomerYandnotbaseitonanyfacts.

HenriQuestion:So,youaresayingthattheidealusecasefortheframeworkwillbewhenastart-upfoundergetsguidancefromaliaisonofficerwhenusingtheframework?

Yes,Ithinkso.Youdon’tknowwhatyoudon’tknow.

5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its

objective?

Itisadifficultone,causeifyourresearchquestionis“Isthisideaviableornot”.ThequestionIhave,istowhatextentdoyou/Howmucheffortcanyouapplyinthisframeworkbeforeyoumakethatdiscussion.The iterationprocessorvalidationprocess ismissing forme.Usethis frameworkandhavealittlebitofassumptionsanduseyourideasincertainways,butyoustillneedtogoandtestif that assumption just to verify if it is right or not. Youwill definitely have to comebackmakeadjustmentsinsidetheframework.Thatistheonethingthatislittlebitlackingforme.Wheredoestheiterationpartfallin?Wherearethedecisiongatesintheframework?Someiterationwouldbecool.

6. Valuablerecommendationsandcommentsusedforframeworkimprovement?

Iterationdefinitely.Someotherthingsmightbe,whatroledoestheinternalinvestmentsplay?Thearrows of revenue would make more sense if they are turned around, just for interpretationpurposes,becauseIseethisasapre-cursertoreturnoninvestment.

Theseresponseswerebeyondthequestioningoftheinterview,butwerevaluableandwerenotedforfurtherinvestigation.

Whencanweimplementit?

Master’s thesis interview – JD Nel






Appendix B

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Interviewee: JDNel


JDNel is a liaison officer at the StellenboschUniversity Launchlab incubator. Heworkswith e-

businessstart-upsdailyandhasbeenastart-upcoachforawhile.JD’sexperienceincoachingstart-

ups,givehimaverygoodopinionaboutwhattheyneedwhenstillintheideaphase.


TimeofInterview: 03:00PM(CentralEuropeanSummerTime)


Present: HenriBam

Background:





businessstart-up?

Responses:


Somyrole,isasacoachfore-businessstart-ups,soIactasasoundingboard,sometimesalsoasaconsultant in certain roles. When I sit with e-business start-ups, they come with their currentchallenges.Iassistthemwheretheyarecurrentlypositioned.Itspeakstowheretheyarepositioninthemarket,whotheircustomersare.Howquicklytheycangettomarketetc.




Appendix B

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Yes,definitely.Ifstart-upscanworkthroughasystematicprocess,soalotofthetimestart-upscomeintothespaceandtheydon’tknowwhattheydon’tknow.Sothereisunconsciousincompetence.Ifyoucanprovidethemwithaclearnetworkorclearframeworkratherthatcanidentifytheareasofincompetent so they can start practicing and work their way towards become unconsciouslycompetent.Thisiswhereyouwantthemtobe.Itislikeridingabike,thefirsttimeyouthinkcandoit,butyoudon’tknowyoucan’tdoit.Bythetimeyouaredoneyouareridingthebikeandyoudon’teventhinkaboutit,butsomebodyhadtoshowyouthestepstogetthere.Sosomebodyknowsthesystemandtheprocess,soifsomebodycanshowyouthesystemandtheprocessstepbystepinthisway,itshoulddefinitelyhelpbringingdowntherateoffailureandtherateofstressandincreaseintransparencyinordertogaintheinvestmentandmarketaccessfaster.


start-up?

Clarity,sowhatdoweneedtoknow.Whatarethemostessentialdatapointsthatweneedtopulloutofanybusiness.Soitspeakstothisunconsciouscompetencethatweneedtogetto.Inordertorideabicycleverywellweneedtocheckcanapersonpetal,balance,pullthebrakes,indicatewhateverythingissupposedtobe.Iwouldsayforane-businessstart-upitisthesame,whatarethekeydatapoints,whatarethekeyactivitiesthatwecanmeasurewithinthestart-upthatthestart-upfoundersareactuallydoingthatcarriesvalue.Sowithinaframeworklikethisyouwouldprobablybeabletoabletoidentifycertainactivitiesunderrent,salaryandutilitiesforexamplethatthepeopleneedtodoinordertodemonstrate.Thatisthefirstkeypointthatyouwillhavetodemonstrate.Thatisfactornumberone.

Factornumbertwoisthecommunicationunderallofthis.Onceyouhavethedata,thatisgreat,buthowdoyouletpeopleknow.Whetheritisyourpotentialinvestorsoryourcustomers,howdoyoucommunicatetothemexactlywhatitisthatyouhave?Howdoyouaccessthat?Howdoyoucreateafunnelinotherword,onceyouknowwhatyouhave?Sofirstyoubuildthefoundationandthenyouchannelthatinformationtothepeople.

AndIthinkthethirdfactor,itisbuildinginfeedback,becausewithanystart-upthereisaniterationprocess.So,onceyouhaveeverythingdoneandyoudoit.Inthesameway,ifyougetonyourbicycleandyoubalance,butyoudon’tdoenoughandyoufall,thefallingprocesstellsyoudidn’tdoitwellenoughandhopefullyyouhavesomebodywithyouthathasobservedwhatyoudoandcantellyoudidthiswrongandyoudidthatwrongetc.Sopotentiallywhatthatmeansis,ifIamjustlookingattheframeworkinfrontofmeisitlooksfantastic.Itisanamazingtool,butinthesamewayyoucanputabicycleinsomeone’shandandifyouarenottheretosupportthemandhelpthemunderstandthekeytheoriesaroundthebusiness,maybeitisbalanceonabicycleorcashflowaroundabusiness.Cashflowvscapitol,thosedifferenceiskeyunderstanding.So,ifthereissomeonethathelpsyouunderstandandprovidethefeedbackandtheinterpretationandthatisprobablywheresomeonelikemyselfwouldplayarole.So,youhaveafacilitatororcoachthatgivesfeedbackthatutilisesaframeworklikethisinordertoassiste-start-upstogaintractionmuchfaster.


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Yes,insomanyinstancesitisnotthewhat,theframeworkitselfcanbereallyamazingandintheoryandonpaperitcanaddressit,butitcomesdowntohowdoweuseit.Whousesit,comesdowntomaybeagaincommunicationrelationship.Howitisutilisedinarelationshipbetweenacoachandthestart-upfoundersofabusinessforexample.Itisnotonlythewhat,butthewhatandthehowtogetherthatcanpotentiallygivethistooltheairtimeandvaluethatitneeds.


objective?

Youcangowithpointone,you’dprobablyhavetogiveaclearindication,thinkingbacknowtothemomentyoushowedme,Ithoughwhereispointnumberone.Imeanlikeasimplethingindicatingyouwouldstarthereandthenmoveout.Likewiththebusinessmodelcanvasyoustartinthecentreandmoveout.Thatcanbepointnumberone.Almostastepbystepguidehowtousethiscanbeuseful. Thenmaybe also at what point do you use this.Who is qualified to use this?What doindividualsneedtoknowbeforetheycanfindthisframeworkusefull,ismyquestionwhenIlookatthis.Forexample,Irecentlywasincontactwithanotherentrepreneur,itwasnotnecessarilyane-businessstart-upbutworkingonadigitalinnovationstart-upintheworldofchildren’sbookthatusesaugmentationanddigitalsourcesinordertoenhancechildren’sbooks.Isentthroughabusinessmodel canvas to this individual and another document as well and his reply was he doesn’tunderstanditanddoesnotknowhowtouseit.Inasimilarwhy,whendoyouknowisapersonreadytousethisanditisobviouslyassociatedwithmypreviousquestionsshouldyouputthisinthehandofaconsultantorcoachordoesthisgodirectlytothehandsofane-start-upfounder.


Aswithanye-start-up,anynewpotentiallydisruptivetechnologythatcomesintothemarket,thereisaniterationprocess,testingprocessandIdon’tknowexactlywhereyouareintermswiththat.Thatisprobablymynextquestionhowdoyoutestthis?Canyouputitinsomeone’shand,canyouhavetwothreefurpeoplerunthisintheire-start-upsandgetfeedbackfromthem?Itisdifficulttolookatsomethinglikethisandthinkaboutitsfunctionalityandvalueorpotentiallack,justofpaper.Onceyoustartputtingitwithastepbystepprocessinplaceandsomebodyusesit,thesamewayyouputsomebodybehindthewheelofacaretc.,inordertogetsomefeedback.Thesamewaythishastobedoneinordertoreallyunderstandthepoweroftheframework.

Master’s thesis interview – Brandon Paschal




Appendix B

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Interviewee: BrandonPaschal


BrandonPaschal isa liaisonofficerattheStellenboschUniversityLaunchlab incubator.Heworks

withe-businessstart-upsdailyandhasaMBA.Brandonhasvisitedotherincubatorsworldwideand

have had international exposure with other incubators and start-ups. This means that he can

provideagoodviewfromaninternationalperspective.




Present: HenriBam

Background:





businessstart-up?


Working with as a liaison manager. I feel invested in, but I don’t have money in one yet, butemotionally.EspeciallythisonecalledSxuirrel.




Appendix B

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Yes,itwould,butthereisalotofassumptionsthatneedtobetested.So,someonecominginwithan idea and they have done a long analysis without talking to actual customers. That is not afeasibilitystudy.


start-up?

Soyourcomparisonbetweentechandane-businessishelpful.Sotechisabrandnewtechnologythatyouarecreatingdemandforande-businessisthereisdemandexistingfortheproduct,youarejustmakingthedeliveryofthatproductmoreefficient.Soifyoucansellthevalueforane-businesswithoutbuildingtheactualsoftware for itanddoingabitofconciergeserviceandwizardofOzservicetosellit,thenitjustifiedtheneedortheinvestmenttobuildane-businessplatform.CanIgiveoutanexample?SoHartslyisthisladythatwantedtobeagourmetchefandshewantedtodeliverwarmnicewholesomefoodfromkitchentotheirdinnertable.Shebuiltalandingpageandaforemansentanemailtoherandshewasabletosellintwomonths500mealsusingemailandWhatsApp.So,shewantedtoprovetherewasdemandforthatproductandservice,butwhatshewasnotabletodowasmitigatetheficklenessofthechefs.Therewasanoutlyingvariablethatseundercoveredthatifitwasjustthatifitwasjustwillpeoplebuyitcool.Sheundercoveredasupplyvariablethatwasnotanticipated.


Thisframeworkdoesnotspeaktosupply,nordoesitspeaktosubstitutesorcompetitoranalysis.Itisnotjustisthereanotherdeliveryofgourmetmeals,itisnotjustisthereanothergourmetmealsdeliveryformthekitchentomytable,you'relookingatallthealternatives.Itisnotjusthealthyfoodvshealthyfood,itisconveniencefoodvsconveniencefood.Maybethisframeworkisnotidealformarketplaces.


objective?

Itdoesnotaddressthesupplyissue


Simplifyitandbringinsomesortofwaytotestit.Ithinkthereistoomuchgoingonatoneglance.IfIlookattheframeworkitislikeshoot,mustIdoallthatbeforeIcangetstarted?Whatisstep1?Demandanalysis,cool,butifIlookatallofthisatonceitisoverwhelming.Breakitdownstepbystep.


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Master’s thesis interview – Phillip Marais







Interviewee: PhillipMarais


PhillipMaraisistheCEOoftheStellenboschUniversityLaunchlabincubator.Hepreviouslyworked

intheventurecapitalindustry.Heprovidesanopinionoutofaninvestorsperspective,whilealso

understandinghowstart-upswork.


TimeofInterview: 01:00PM(CentralEuropeanSummerTime)


Present: HenriBam

Background:





businessstart-up?

Responses:



Appendix B

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I fall inwith theworkingwith category.Obviously as theCEOof the LaunchLabandoneof theportfoliomanagerlookingaftercurrentlysixtyoddstart-ups.Mentoringandconnecting,basicallyfacilitatingopportunitiesandvaluableconnectionsforstart-ups.

Iwasalsointheventurecapitalindustryforacoupleofyears.SoIhavealsosatonthatsideofthefence.IunderstandtheVCseedfundingmarket.



Wedon’tdoanintensiveduediligencebeforeweacceptastart-up,wegomoreonagutfee,unlessthereisaverylimitedamountofspaceandwehavetokicksomebodyouttoletthenewonein.ForaVCthiskindofprocesswillbenormal.Ilikethewayyoudoneit.Speaktothemarketandbasedonthatbuildyourfinancialmodel,ishowIwouldsummariseit.IwouldjustsaythatthecompetitoranalysisIwouldbringinearlierratherthanlater,whenyouaredoingyourmarketsegmentation,becauseithelpsyoutoseehowyouaredifferentandthenhelpsyoutochooseyourtargetmarket.OtherwiseIagreewithit.


start-up?

Itisspeakingtothemarket.Ithinkthebiggestmistakethatentrepreneursmakeisfiguringitoutyouknow.Getamodellikethisandfillingitinbygooglesearching,youknowitisgettingoutoftheofficeandspeakingtopotentialcustomersandunderstandingwhatthatcriticalfactorsareforyourcustomer. Once you know what that segment, it is then going and understanding what theacquisitioncostiswithinthatsegment.Seeingifitisrealistic.Yessoitflowsnaturallythiswayinthefinancialmodel.Soyes,it’snottryingtodothisintheory,itsdoingitpractically.Gettingrealdata,notthinkingwhatyouthinktheanswersare.


Again,ifinyourquestioningbehindtheframeworkyousayyouknowintermsofdemandanalysishaveyouspokentofiftypluspotentialcustomers,sothatthemembersusingtheframeworkknowsit isnotatheoreticalexercise.Thisisagetoutoftheoffice, it’sa“tackymeetsthetask”kindofexercise.Frameworksarenogood ifyoudon’thave realdatabehind them. I totally support theframework, itmakessense tome,but theemphasesmustbeonwhereyougetyourdata from.That’swhatdecidesthesuccessoftheframework,iswherethedataisfrom.Ifitisfromyouownheadandnotfromthemarket,yourframeworkisnogood,becauseyourheadisgoingtogiveyouthewronganswer.Ifitisfromthemarket,itwillguideyou.So,yourquestioningshouldmakesureitgetstheentrepreneuroutoftheofficeandintothemarket.


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HenriQuestion:So,youaresayingthattheidealusecasefortheframeworkwillbewhenastart-upfoundergetsguidancefromaliaisonofficerwhenusingtheframework?

Absolutely.Thatpersonneedstotelltheentrepreneurtogetoutoftheofficeandnotgivethemthemarketinformation.Youwantsomebodythatknowshowtoasktherightquestionswithoutgivingtheanswers.


objective?

Thecompetitoranalysis.Welllookit’sthere,soitdoesnotneglectit,Iwouldjustmayberaiseitsimportance.Whatwasnotobvioustomewaswhatisthequestioningbehindthisframework.Astowhataretheactions,whatwillhappen.Ican’tseeifitisrightorwrong,butitisnotapparentwhenIlookattheframework.


Ihaveprettymuchgiventhoseinthepreviousquestion.Thesethingsarenotthatimportant,youmightnotneedtheminitiallybutaninvestormightneedthem(NPV,IRRetc.).TheonlyoneIwouldarguewithisthecompetitoranalysis.Don’tspendtoomuchtimelookingattheindustry,ratherjustgospeaktopeople.That’snotthatimportant.

Master’s thesis interview – Leonard Brewer







Interviewee: LeonardBrewer


Leonardisane-businessstart-upfounderthathasbeenworkingonastart-upforfiveyears.Hehas

beenthroughalotofupsanddownswithhisstart-upandwillbeabletoprovideagoodperspective

onwhattodoandwhatnottodooutofastart-upfoundersperspective.Hisviewonwhatane-

businessstart-upneedstobefeasiblecanbeveryimportanttovalidatetheframework.


Appendix B

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Present: HenriBam

Background:





businessstart-up?

Responses:


IamtheCEOandco-founderofthebusiness.



Definitely.


start-up?

SoImentionedtheuniquenessofsomethingandthecompetitoranalysis.Anotherthingisthatyouhavetohavesomethingthat isnottoocomplicated.Youmust focusondoingsomethingwell.Amistakethatwemadeinthebeginningisthatourfirstproductthatwemade,hadallthebellsandwhistlesandoursecondproductwefocussedmuchmorenarrowlyonsomethingthatwecandothenwellanddifferentiateon.Soratherthancreatingsomethingwithmanymorefeaturesthanothershad,Itriedtodistinguishbynumberoffeatures,weconcentratedinthecoreandmadesurethatwehadsomethinguniquetherethatforuswasimportant.



Appendix B

152 | P a g e

No,becauseIdon’tthinkitispartoftheframework.Youknowthesearefactorsthatyouhavetotakeintoaccountwhenyoudesignyourproduct.Youcan’tonlythinkaboutthemarket,youhavetothink about how you can enter thismarket with very few resources. So if you choose tomakesomethingwithlotsofbellsandwhistlesandfeatures,youaregoingtorequiremoreresourcestheriskismuchbigger.Theseareallelementsthatwilldeterminehowwellyoudo.TheotherthingthatismoreaboutprocessisthewholethingaboutMVP.Idon’tknowifitispartoftheframework.So,whatyouwanttodowiththeMVPisyouwanttotestwithsomethingthatisnotnecessarilyperfect.Iamjustthinkinghowthiswillworkinafeasibilitystudy.Ifyouareonthewayofcourse,sowhatIamtakingaboutiswhatcomesaftertheframework.


objective?

Thecompetitoranalysis.Isupposeyouhavetokindofasseshowlikelyoreasyitistogetfunding.Youknow,because it isnotallaboutprofitand that iswhere the riskanalysis comes in. So, forinstance,inourcaseandprobablyinyourcase,whereyouhavesomethingwhereyouhavetospendalotofmoneyonmarketingtogettouserstogetgoingandyouwillonlystartgettingtherevenueafterwardsthatisasituation.Alotofinvestorswillsaymaybenot.Youmustlookatyourabilitytogetrevenueearlyon.Sohowareyougoingtogetrevenuewithouthavingtosinkmillionsintoamarketingcampaign?Ithinkthatispartofthefeasibility.


You got retention that is very important, conversion is very important. Just to come back tocompetitoranalysisthatisveryimportant,becauseyouareine-business.Youcangetblownoutofthewaterjustlikethat.Somebodycancomewithsomethingbiggerandbetterandwhatever.So,itisprobablyimportanttospendalittletimeonwhatisoutthere,whichisalsopartofthecompetitoranalysis.Notjustyourproductthathastobeunique,butwhatareotherpeoplebusydoing,youknowifgoogleglassescomesoutandyouareplanningsomethingsimilarsomaybenot.ThatistheonlythingIcanreallysay.Youmightwanttolookatcompetitoranalysisandindustryoverviewalittlemore.

Theseresponseswerebeyondthequestioningoftheinterview,butwerevaluableandwerenotedforfurtherinvestigation.

Ijustwanttosaythecompetitoranalysis,Idothinkitisimportant.Imeanoneofthethingsforus,thatwereallyfocussedonwhenwestarted.Westartedfiveyearsagoandwemadeaproductandthe product justwasn’t good enough andwe then pivoted to something else. Sowhatwe thenconcentratedon,giventhatthemarketchanged,youknowthattherewerealotmoreabsentthingsoutthere,tomakesurethatwehadsomethingthathaduniquesellingpoints,thatwasunique.Orthathaddifferentiatingfactors,becauseotherwiseyouarejustanotherproductwiththesamething.Whatareyougoingtocompeteon,price?Youareastart-up,itisverydifficult.So,youknowIdo


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153 | P a g e

thinkyouneedtolookatitthatitisnotonlythedemandforyourproductandyouknowthemarketfactors,buthaveyougotsomethingunique.Ifyoudonothavesomethingunique,itisapotentialreasonforfailure.

Master’s thesis interview – Thinus Pretorius







Interviewee: ThinusPretorius


ThinusPretoriusisane-businessstart-upfounderwithanengineeringbackground.Hisengineering

background together with his experience as an e-business start-up founder will provide an

importantpointofviewwhenvalidatingtheframework.




Present: HenriBam

Background:





businessstart-up?


Appendix B

154 | P a g e

Responses:


Iamafounderofacompanyandhavemajorityshareinitaswell.



Yes,definitelyanditwillimprovetheaccuracyofthefeasibility.


start-up?

Dealingwithabunchofunknowns,sothebestwillbetokillyourassumptions.So,foruswestatedallourunknownsandthentovalidatethoseassumptionsasquicklyaspossiblewasthemaingame,beforeweeventhoughtaboutputtingdownmoney.

Obviouslyyouneedtoidentifyifthereisamarketandifthereisaproblemthatneedstobesolved.Ifyourtechcompanydoesnotsolvetheproblem,nobodywantswhatyouareselling.Soyouneedtoidentifyaproblemyoure-techcompanyisgoingtosolve.


Yes,Ithinkso.Ifyoulookatthedemandanalysis,themarketsegmentsandthenthemarketfactorsareprobablyyourdemographics.


objective?

Numbersarealwaysking.Thereneedstobesomecaseofallocationofimportance.Whatismoreimportantandwhatislessimportant.Obviouslyifyougetinvestment,thefirstthingtheywanttoseeisrevenueandontheframework,itthelastthing.Soyouneedtoaddnumberstoeachoftheseandmaybeaddtheaccuracyofeach.Soifyousay,youthinkyouhavetenthousandpotentialclients,youneedtosaythatthereisathirtypercentchancethatwehavetenthousandclients.Somaybeaddingaprobabilitytoeachsegmentsothatyoudoexpectationtoeachsegmentaswell.


Probabilityisveryimportant.Theframeworklooksverythorough,IthinkitisagoodanalysisWhatIwoulddois,Iwouldaddcompetitoranalysistotheinnercircle,becauseyourcompetitoranalysiswill validatea lotof yourassumptions,becausea lotof ecommerce companiesdon’t invent the


Appendix B

155 | P a g e

wheel,theyaddvaluetowhatisalreadyinuse.Iwoulddefinitelyaddcompetitoranalysistothetopcomponents.

Master’s thesis interview – Graham Lombard







Interviewee: GrahamLombard


GrahamLombard isane-businessstart-up founderwithanengineeringbackground.He isnota

founderanymoreforvariousreasons.WithGrahambeingaformerfounder,hisperspectivecan

providedifferentfeedbackthanstart-upfoundersthatarestillinvolvedwiththeirownstart-ups.




Present: HenriBam

Background:





businessstart-up?

Responses:


Appendix B

156 | P a g e


Iamafounderorformerfounder.



Yesdefinitely,thatwouldhavechangedeverythinginfoundingthebusiness.


start-up?

Formyspecificstart-up,Ibelievetimeisdefinitelyakeyfactor,becauseofthefactthatIdoaneighttofivejob,toliveandgeneratemoneyorcapitol.Mytimeframeisquitestrict,Ionlyhavefrom5pmuntil 8 amweekdays andweekends, of course to do the job and that is not always suitable foreverybodywantingtousethebusiness.Ialsobelievethatcostisabigfactor,duetothefactthatcapitolisnotalwaysavailableandduetothefactthatyouhavetoriskittoenterthemarketandtotest it. So it is big capital investment. I alsobelieve that themarket youare catering for is veryimportant.Inmybusiness,Iwasnotsurewhatthemarketwasdoingorwherethemarketwasgoing.Soyesthemarketisdefinitelyabigfactorfore-businesses.


Yes,definitely.Ithinktheframeworkaddressesorsatisfiesallfactorsingeneralforstartingane-businessstart-uporanystart-up.


objective?

Inmycase Ibelieve the riskanalysis isvery important. Inmyspecificcase Ididnotgiveenoughattentiontoriskandthereisverymuchriskthatyoudon’tthinkofbeforehandthatcomestoyourattentionduringorwhenyoustartyourbusiness.


Ibelievethisframeworkisverysuitableforeverystart-upingeneral,ifyoulookatthebigpicture.Iamsittingherewithyourframeworkinfrontofme.Ibelievethateverythingoutsidethecircleissuitableorisapplicabletoabusiness,butIbelieveeverybusinesshasitsneedsoritsowndemandsthatareneededinthebusiness.InmycaseIbelieveariskanalysisisveryimportant,otherpeoplebelievethate-customerbehaviourstudyis importanttodeterminetheircustomers’needsandofcoursecompetitoranalysisisalsoveryimportantinhavingasuccessfulbusiness,Ibelieve.


a feasibility study framework for e-business start-ups: a

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