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
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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
2.5 Conclusion to Chapter 2 .................................................................................................. 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
3.4 Conclusion to Chapter 3 .................................................................................................. 70
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
4.3 Conclusion to Chapter 4 .................................................................................................. 85
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
5.2.3 Feasibility study framework creation process step 2 ............................................... 93
5.2.4 Feasibility study framework creation process step 3 ............................................... 95
5.2.5 Feasibility study framework creation process step 4 ............................................... 97
5.2.6 Feasibility study framework creation process step 5 ............................................... 99
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 19 - Chapter 4 layout adapted from Figure 5 ....................................................................... 71
Figure 20 - Chapter 5 layout adapted from Figure 5 ....................................................................... 86
Figure 21 - Step 1 of the framework creation process .................................................................... 92
Figure 22 - Step 2 of the framework creation process .................................................................... 94
Figure 23 - Step 3 of the framework creation process .................................................................... 96
Figure 24 - Step 4 of the framework creation process .................................................................... 98
Figure 25 - Step 5 of the framework creation process .................................................................. 100
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Figure 26 - Phase 1 of the framework methodology ..................................................................... 102
Figure 27 - Phase 2 of the framework methodology ..................................................................... 103
Figure 28 - Phase 3 of the framework methodology ..................................................................... 104
Figure 29 - Phase 4 of the framework methodology ..................................................................... 105
Figure 30 - Phase 5 of the framework methodology ..................................................................... 106
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
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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).
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Introduction
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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)
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Introduction
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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.
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Introduction
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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?
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Introduction
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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.
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Introduction
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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)
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Introduction
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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
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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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Figure 4 - Research domains
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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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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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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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1.7 Conclusion to Chapter 1
Inconclusion,thischapterexplainedtheproblemaswellashowthisresearchstudyaimedtosolve
theproblem,bydividingtheresearchquestionintosub-researchquestionsandansweringthesub-
researchquestionsthatwillhelpanswerthemainresearchquestion.Also,includedinthischapter
isthescopeandlimitationsoftheresearchstudy.Thenextchapterprovidesaliteraturereviewfor
thestudy.
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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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“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.
Functionalrequirement
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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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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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
Typerequirement Requirement
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.
Functionalrequirement
Theframeworkshoulddetermine ifane-businessstart-upwillhavethe
potentialtobefeasible.
FunctionalrequirementTheframeworkshouldsupportthecontinueduseoftheframework.
Functionalrequirement
The frameworkmustprovideenough information tohelpane-business
start-updeterminewhatitwilltaketopotentiallybefeasible.
Functionalrequirement
The framework should follow and effective and efficient process and
design.
Functionalrequirement
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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Section 1.4.2 describes the research method with the focus on certain domains. This section
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;
• accountingmanagement;
• 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;
• accountingmanagement;
• 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
Typerequirement Requirement
Userrequirement TheFrameworkshouldconsidertheenvironmentofe-businessstart-ups.
Userrequirement Theframeworkshouldbeuserfriendlyandstraightforward.
Functional
requirement
Theframeworkshouldbeuseableforstart-upsthatarepasttheideaphase.
Functional
requirement
Theframeworkshouldfollowandeffectiveandefficientprocessanddesign.
2.4 Feasibility study
Section 1.4.2 describes the research method with the focus on certain domains. This section
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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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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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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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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Enduringcharacteristics Secondaryissues
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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Enduringcharacteristics Secondaryissues
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
Typerequirement Requirement
Functionalrequirement
The frameworkmustprovideenough information tohelpane-business
start-updeterminewhatitwilltaketopotentiallybefeasible.
Designrestrictions
Theframeworkdoesnotfocusonmanagement-orteam-feasibilityofan
e-businessstart-up,onlyonthemarket-andfinancial-feasibility.
Attentionpoint
Feasibilitystudyframeworkarenoteasilyavailableandthereisnoclear
expertinthefieldoffeasibilitystudies.Thisframeworkwassetupwithout
clearguidelinesofhowtocreateafeasibilitystudy.
2.5 Conclusion to Chapter 2
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.
Figure 17 - Chapter 3 layout adapted from Figure 5
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
The insights provided in this section were synthesised from the elaborative research done for
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.
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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
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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
The insights provided in this section were synthesised from the elaborative research done for
sections2.1.5,2.2.3-2.2.5,2.4.6and2.4.7.Thissectionprovidestheauthorsconceptualizationof
financialfeasibilityforane-businessstart-up.
Thissectionexplainsthefinancialaspectsofafeasibilitystudy.Itrangesfromthedifferenttypesof
coststothefinalreturnoninvestmentorROIofthebusiness.Thebottomlineofanybusinessis
significantlyaffectedbytheunderlyingcoststructureofthebusiness.Thecostanalysisisclosely
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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.
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CostType Explanation Example
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
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CostType Explanation Example
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
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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).
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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+
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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
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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).
3.4 Conclusion to Chapter 3
ThischapterintegratedtheresearchdomainsthroughtheauthorsconceptualizationofChapter2,
toprovideliteratureontheoverlappingpartofallthreeresearchdomains.Theliterature inthis
chapterwasusedtocreatetherestoftheframeworkrequirementsnecessaryasbuildingblocksto
createtheframework.
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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.
Figure 19 - Chapter 4 layout adapted from Figure 5
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.
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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
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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.
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RequirementID Typeofrequirement
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
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RequirementID Typeofrequirement
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
RequirementID Typeofrequirement
Desirablefunctionalrequirements
F1
Requirement
The framework should determine if an e-business
start-upwillhavethepotentialtobefeasible.
MotivationThisisthemaingoaloftheframeworkandshouldbea
requirementtoensurethattheframeworkdetermines
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RequirementID Typeofrequirement
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.
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RequirementID Typeofrequirement
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
RequirementID Typeofrequirement
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
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RequirementID Typeofrequirement
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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RequirementID Typeofrequirement
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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RequirementID Typeofrequirement
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
RequirementID Typeofrequirement
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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RequirementID Typeofrequirement
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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RequirementID Typeofrequirement
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
RequirementID Typeofrequirement
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
RequirementID Typeofrequirement
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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RequirementID Typeofrequirement
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.
4.3 Conclusion to Chapter 4
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.
Figure 20 - Chapter 5 layout adapted from Figure 5
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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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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5.2.3 Feasibility study framework creation process step 2
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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Figure 22 - Step 2 of the framework creation process
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5.2.4 Feasibility study framework creation process step 3
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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Figure 23 - Step 3 of the framework creation process
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5.2.5 Feasibility study framework creation process step 4
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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Figure 24 - Step 4 of the framework creation process
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5.2.6 Feasibility study framework creation process step 5
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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Figure 25 - Step 5 of the framework creation process
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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.
Figure 27 - Phase 2 of the framework methodology
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.
Figure 28 - Phase 3 of the framework methodology
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.
Figure 29 - Phase 4 of the framework methodology
Bythecalculationsmadeduringphase1tophase3,therevenuecannowbedeterminedfromthe
marketpotentialasR3millionperyear.ThecostofgoodsinSxuirrel’scaseisthetransactioncost.
ThetransactioncostcanbedeterminedasR4pertransactionandcloseto3000transactionsper
monthtogetarevenueof3millionperyear.ThismeansthatthecostofgoodswillbeR140000per
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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.
Figure 30 - Phase 5 of the framework methodology
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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.
5.4 Conclusion to Chapter 5
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.
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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.
Figure 31 - Chapter 6 layout adapted from Figure 5
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;
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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
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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
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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
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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,
therearecertainstepsoftheframeworkcreationprocessthatareaffectedbytheserequirements.
Table18 illustrates theverificationof the satisfactionof thedesign restrictions in the feasibility
studyframeworkfore-businessstart-ups,byshowingexactlywheretherequirementsaresatisfied.
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.
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RequirementsStep1–
DeterminingROI
Step2–MarketPotential
Step3–E-customer
components
Step4–Outside
components
Step5–Completeframework
Theframeworkasawhole
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
RequirementsStep1–
DeterminingROI
Step2–MarketPotential
Step3–E-customer
components
Step4–Outside
components
Step5–Completeframework
Theframeworkasawhole
A1 - Some of the factors included in theframeworkmayvaryfordifferenttypesofe-businessstart-ups.
Theframeworkwasdesignedtobeflexiblefortheuser.Eachusercanapplytheirowndiscretionandusetoframeworktobestsuittheirstart-upscharacteristics.
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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,
therearecertainstepsoftheframeworkcreationprocessthatareaffectedbytheserequirements.
Table20 illustrates theverificationof the satisfactionof thedesign restrictions in the feasibility
studyframeworkfore-businessstart-ups,byshowingexactlywheretherequirementsaresatisfied.
Table 20 - The verification of the satisfaction of the boundary conditions in the framework
RequirementsStep1–
DeterminingROI
Step2–MarketPotential
Step3–E-customer
components
Step4–Outside
components
Step5–Completeframework
Theframeworkasawhole
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
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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
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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.
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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.
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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
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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).
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• 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.
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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.
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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
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change that was made to the framework, is the level of importance of the components. The
importanceofthecomponentscanbemeasuredbythesizeofeachcomponentontheframework.
6.5 Conclusion to Chapter 6
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).
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7 CONCLUSIONANDRECOMMENDATIONS
Thischapterconcludesthestudybypresentinganoverviewofthestudy,discussingthemethod
usedforcompletingthestudy,drawingconclusionsregardingtheresearchobjectivesandproviding
somerecommendationsforpossiblefutureresearch.Figure33summarisethechapterlayoutand
mentionsthesub-research,asseeninSection1.3thatisaddressedinthischapter.
Figure 33 - Chapter 7 layout adapted from Figure 5
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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Sub-ResearchQuestionsVerificationthrough
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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Sub-ResearchQuestionsVerificationthrough
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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Appendix A
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AppendixA-InterviewpresentationsNovember2017
Stellenbosch University https://scholar.sun.ac.za
Appendix A
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Stellenbosch University https://scholar.sun.ac.za
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:
Stellenbosch University https://scholar.sun.ac.za
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.
Stellenbosch University https://scholar.sun.ac.za
Appendix B
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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
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Studentnumber: 17140870
Registered: 2016(Firstyear)
Stellenbosch University https://scholar.sun.ac.za
Appendix B
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Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: JDNel
Rationaleforinterview:
JDNel is a liaison officer at the StellenboschUniversity Launchlab incubator. Heworkswith e-
businessstart-upsdailyandhasbeenastart-upcoachforawhile.JD’sexperienceincoachingstart-
ups,givehimaverygoodopinionaboutwhattheyneedwhenstillintheideaphase.
DateofInterview: 7November2017
TimeofInterview: 03:00PM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
Responses:
1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
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.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Stellenbosch University https://scholar.sun.ac.za
Appendix B
144 | P a g e
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.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
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.
Stellenbosch University https://scholar.sun.ac.za
Appendix B
145 | P a g e
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
Yes,insomanyinstancesitisnotthewhat,theframeworkitselfcanbereallyamazingandintheoryandonpaperitcanaddressit,butitcomesdowntohowdoweuseit.Whousesit,comesdowntomaybeagaincommunicationrelationship.Howitisutilisedinarelationshipbetweenacoachandthestart-upfoundersofabusinessforexample.Itisnotonlythewhat,butthewhatandthehowtogetherthatcanpotentiallygivethistooltheairtimeandvaluethatitneeds.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
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.
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
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
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Stellenbosch University https://scholar.sun.ac.za
Appendix B
146 | P a g e
Studentnumber: 17140870
Registered: 2016(Firstyear)
Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: BrandonPaschal
Rationaleforinterview:
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.
DateofInterview: 8November2017
TimeofInterview: 10:00AM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
Working with as a liaison manager. I feel invested in, but I don’t have money in one yet, butemotionally.EspeciallythisonecalledSxuirrel.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Stellenbosch University https://scholar.sun.ac.za
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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.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
start-up?
Soyourcomparisonbetweentechandane-businessishelpful.Sotechisabrandnewtechnologythatyouarecreatingdemandforande-businessisthereisdemandexistingfortheproduct,youarejustmakingthedeliveryofthatproductmoreefficient.Soifyoucansellthevalueforane-businesswithoutbuildingtheactualsoftware for itanddoingabitofconciergeserviceandwizardofOzservicetosellit,thenitjustifiedtheneedortheinvestmenttobuildane-businessplatform.CanIgiveoutanexample?SoHartslyisthisladythatwantedtobeagourmetchefandshewantedtodeliverwarmnicewholesomefoodfromkitchentotheirdinnertable.Shebuiltalandingpageandaforemansentanemailtoherandshewasabletosellintwomonths500mealsusingemailandWhatsApp.So,shewantedtoprovetherewasdemandforthatproductandservice,butwhatshewasnotabletodowasmitigatetheficklenessofthechefs.Therewasanoutlyingvariablethatseundercoveredthatifitwasjustthatifitwasjustwillpeoplebuyitcool.Sheundercoveredasupplyvariablethatwasnotanticipated.
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
Thisframeworkdoesnotspeaktosupply,nordoesitspeaktosubstitutesorcompetitoranalysis.Itisnotjustisthereanotherdeliveryofgourmetmeals,itisnotjustisthereanothergourmetmealsdeliveryformthekitchentomytable,you'relookingatallthealternatives.Itisnotjusthealthyfoodvshealthyfood,itisconveniencefoodvsconveniencefood.Maybethisframeworkisnotidealformarketplaces.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
objective?
Itdoesnotaddressthesupplyissue
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
Simplifyitandbringinsomesortofwaytotestit.Ithinkthereistoomuchgoingonatoneglance.IfIlookattheframeworkitislikeshoot,mustIdoallthatbeforeIcangetstarted?Whatisstep1?Demandanalysis,cool,butifIlookatallofthisatonceitisoverwhelming.Breakitdownstepbystep.
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Master’s thesis interview – Phillip Marais
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Studentnumber: 17140870
Registered: 2016(Firstyear)
Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: PhillipMarais
Rationaleforinterview:
PhillipMaraisistheCEOoftheStellenboschUniversityLaunchlabincubator.Hepreviouslyworked
intheventurecapitalindustry.Heprovidesanopinionoutofaninvestorsperspective,whilealso
understandinghowstart-upswork.
DateofInterview: 7November2017
TimeofInterview: 01:00PM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
Responses:
1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
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I fall inwith theworkingwith category.Obviously as theCEOof the LaunchLabandoneof theportfoliomanagerlookingaftercurrentlysixtyoddstart-ups.Mentoringandconnecting,basicallyfacilitatingopportunitiesandvaluableconnectionsforstart-ups.
Iwasalsointheventurecapitalindustryforacoupleofyears.SoIhavealsosatonthatsideofthefence.IunderstandtheVCseedfundingmarket.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Wedon’tdoanintensiveduediligencebeforeweacceptastart-up,wegomoreonagutfee,unlessthereisaverylimitedamountofspaceandwehavetokicksomebodyouttoletthenewonein.ForaVCthiskindofprocesswillbenormal.Ilikethewayyoudoneit.Speaktothemarketandbasedonthatbuildyourfinancialmodel,ishowIwouldsummariseit.IwouldjustsaythatthecompetitoranalysisIwouldbringinearlierratherthanlater,whenyouaredoingyourmarketsegmentation,becauseithelpsyoutoseehowyouaredifferentandthenhelpsyoutochooseyourtargetmarket.OtherwiseIagreewithit.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
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.
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
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.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
objective?
Thecompetitoranalysis.Welllookit’sthere,soitdoesnotneglectit,Iwouldjustmayberaiseitsimportance.Whatwasnotobvioustomewaswhatisthequestioningbehindthisframework.Astowhataretheactions,whatwillhappen.Ican’tseeifitisrightorwrong,butitisnotapparentwhenIlookattheframework.
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
Ihaveprettymuchgiventhoseinthepreviousquestion.Thesethingsarenotthatimportant,youmightnotneedtheminitiallybutaninvestormightneedthem(NPV,IRRetc.).TheonlyoneIwouldarguewithisthecompetitoranalysis.Don’tspendtoomuchtimelookingattheindustry,ratherjustgospeaktopeople.That’snotthatimportant.
Master’s thesis interview – Leonard Brewer
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Studentnumber: 17140870
Registered: 2016(Firstyear)
Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: LeonardBrewer
Rationaleforinterview:
Leonardisane-businessstart-upfounderthathasbeenworkingonastart-upforfiveyears.Hehas
beenthroughalotofupsanddownswithhisstart-upandwillbeabletoprovideagoodperspective
onwhattodoandwhatnottodooutofastart-upfoundersperspective.Hisviewonwhatane-
businessstart-upneedstobefeasiblecanbeveryimportanttovalidatetheframework.
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DateofInterview: 8November2017
TimeofInterview: 09:00AM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
Responses:
1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
IamtheCEOandco-founderofthebusiness.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Definitely.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
start-up?
SoImentionedtheuniquenessofsomethingandthecompetitoranalysis.Anotherthingisthatyouhavetohavesomethingthat isnottoocomplicated.Youmust focusondoingsomethingwell.Amistakethatwemadeinthebeginningisthatourfirstproductthatwemade,hadallthebellsandwhistlesandoursecondproductwefocussedmuchmorenarrowlyonsomethingthatwecandothenwellanddifferentiateon.Soratherthancreatingsomethingwithmanymorefeaturesthanothershad,Itriedtodistinguishbynumberoffeatures,weconcentratedinthecoreandmadesurethatwehadsomethinguniquetherethatforuswasimportant.
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
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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.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
objective?
Thecompetitoranalysis.Isupposeyouhavetokindofasseshowlikelyoreasyitistogetfunding.Youknow,because it isnotallaboutprofitand that iswhere the riskanalysis comes in. So, forinstance,inourcaseandprobablyinyourcase,whereyouhavesomethingwhereyouhavetospendalotofmoneyonmarketingtogettouserstogetgoingandyouwillonlystartgettingtherevenueafterwardsthatisasituation.Alotofinvestorswillsaymaybenot.Youmustlookatyourabilitytogetrevenueearlyon.Sohowareyougoingtogetrevenuewithouthavingtosinkmillionsintoamarketingcampaign?Ithinkthatispartofthefeasibility.
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
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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thinkyouneedtolookatitthatitisnotonlythedemandforyourproductandyouknowthemarketfactors,buthaveyougotsomethingunique.Ifyoudonothavesomethingunique,itisapotentialreasonforfailure.
Master’s thesis interview – Thinus Pretorius
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Studentnumber: 17140870
Registered: 2016(Firstyear)
Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: ThinusPretorius
Rationaleforinterview:
ThinusPretoriusisane-businessstart-upfounderwithanengineeringbackground.Hisengineering
background together with his experience as an e-business start-up founder will provide an
importantpointofviewwhenvalidatingtheframework.
DateofInterview: 8November2017
TimeofInterview: 11:00AM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
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Responses:
1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
Iamafounderofacompanyandhavemajorityshareinitaswell.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Yes,definitelyanditwillimprovetheaccuracyofthefeasibility.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
start-up?
Dealingwithabunchofunknowns,sothebestwillbetokillyourassumptions.So,foruswestatedallourunknownsandthentovalidatethoseassumptionsasquicklyaspossiblewasthemaingame,beforeweeventhoughtaboutputtingdownmoney.
Obviouslyyouneedtoidentifyifthereisamarketandifthereisaproblemthatneedstobesolved.Ifyourtechcompanydoesnotsolvetheproblem,nobodywantswhatyouareselling.Soyouneedtoidentifyaproblemyoure-techcompanyisgoingtosolve.
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
Yes,Ithinkso.Ifyoulookatthedemandanalysis,themarketsegmentsandthenthemarketfactorsareprobablyyourdemographics.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
objective?
Numbersarealwaysking.Thereneedstobesomecaseofallocationofimportance.Whatismoreimportantandwhatislessimportant.Obviouslyifyougetinvestment,thefirstthingtheywanttoseeisrevenueandontheframework,itthelastthing.Soyouneedtoaddnumberstoeachoftheseandmaybeaddtheaccuracyofeach.Soifyousay,youthinkyouhavetenthousandpotentialclients,youneedtosaythatthereisathirtypercentchancethatwehavetenthousandclients.Somaybeaddingaprobabilitytoeachsegmentsothatyoudoexpectationtoeachsegmentaswell.
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
Probabilityisveryimportant.Theframeworklooksverythorough,IthinkitisagoodanalysisWhatIwoulddois,Iwouldaddcompetitoranalysistotheinnercircle,becauseyourcompetitoranalysiswill validatea lotof yourassumptions,becausea lotof ecommerce companiesdon’t invent the
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wheel,theyaddvaluetowhatisalreadyinuse.Iwoulddefinitelyaddcompetitoranalysistothetopcomponents.
Master’s thesis interview – Graham Lombard
Enrolled: MEng(EngineeringManagement)(FullTime)
Nameandsurname: HendrikJohannesBam
Studentnumber: 17140870
Registered: 2016(Firstyear)
Supervisor(s): MrDKennon
Topic: AFeasibilityStudyFrameworkforE-BusinessStart-ups
Interviewee: GrahamLombard
Rationaleforinterview:
GrahamLombard isane-businessstart-up founderwithanengineeringbackground.He isnota
founderanymoreforvariousreasons.WithGrahambeingaformerfounder,hisperspectivecan
providedifferentfeedbackthanstart-upfoundersthatarestillinvolvedwiththeirownstart-ups.
DateofInterview: 211November2017
TimeofInterview: 11:00AM(CentralEuropeanSummerTime)
Totalvalidationanddiscussiontime: 30mins
Present: HenriBam
Background:
Theresearchobjectiveofthestudyistocreateafeasibilityframeworkfore-businessstart-upsthat
canhelpdeterminethepossiblefeasibilityofane-businessstart-upwhenstillintheideaphase.To
achievetheresearchobjectivemainresearchquestionmustbeanswered:
Howcane-businessstart-upsbeguidedtohaveaclearviewonthepotentialfeasibilityofthee-
businessstart-up?
Responses:
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1. Whatisyourrolewithe-businessstart-ups?(founder,workingwith,investedinetc.)
Iamafounderorformerfounder.
2. Willitimproveyourrolewithane-businessstart-upifyouknowthepotentialfeasibilityof
thestart-upbeforeitstarted?
Yesdefinitely,thatwouldhavechangedeverythinginfoundingthebusiness.
3. What,doyouthink,arekeyfactorsfordeterminingthepotentialfeasibilityofane-business
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.
4. Wouldthesefactorsbeadequatelyaddressedbytheframework?
Yes,definitely.Ithinktheframeworkaddressesorsatisfiesallfactorsingeneralforstartingane-businessstart-uporanystart-up.
5. Whatdoyouthinkthe frameworkdoesnotaddresswhichwouldresult in it failing in its
objective?
Inmycase Ibelieve the riskanalysis isvery important. Inmyspecificcase Ididnotgiveenoughattentiontoriskandthereisverymuchriskthatyoudon’tthinkofbeforehandthatcomestoyourattentionduringorwhenyoustartyourbusiness.
6. Valuablerecommendationsandcommentsusedforframeworkimprovement?
Ibelievethisframeworkisverysuitableforeverystart-upingeneral,ifyoulookatthebigpicture.Iamsittingherewithyourframeworkinfrontofme.Ibelievethateverythingoutsidethecircleissuitableorisapplicabletoabusiness,butIbelieveeverybusinesshasitsneedsoritsowndemandsthatareneededinthebusiness.InmycaseIbelieveariskanalysisisveryimportant,otherpeoplebelievethate-customerbehaviourstudyis importanttodeterminetheircustomers’needsandofcoursecompetitoranalysisisalsoveryimportantinhavingasuccessfulbusiness,Ibelieve.
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