Transcript Introduction to Feasibility Analysis Chapter 3 Modified from Barringer and Ireland (2006)

Introduction to Feasibility
Analysis
Chapter 3
Modified from Barringer and Ireland (2006)
What Is Feasibility Analysis?
Feasibility Analysis
– Preliminary evaluation of idea to determining if it’s worth
pursuing
– Provides more secure notion that a business idea is viable
Did analysis, feasible business: Intuit (Quicken, Quickbooks, etc.)
– Personal experience, observed others, surveyed customers
Did analysis, not feasible: Retailing Insights (grocery cart)
– Determined not a sufficient scale for advertising, needed large
proportion of grocery stores
– Dropped idea, focused on core competency, developed Trakus
No analysis, failed firm: Iridium (satellite phones)
– Too complex technology, too long to develop, new technology took
over, line of sight to satellite, large phone, low battery power
Preparing a Concept Statement
Concept Statement
– One page description of a business
– Given to people who provide feedback on the
potential of the idea
– Purpose of feedback:
Give sense of the viability of the business idea
Suggestions for how the idea can be strengthened or
altered before proceeding
– Prepare before feasibility analysis
Preparing a Concept Statement
Components of Concept Statement (similar to elevator
pitch components)
– Description of the product or service
– Description of target market
– Benefits of the product or service (value proposition)
– Description of product/service differentiators
– Description of how product/service sold/ distributed
– Description of the founder(s) of the firm
When To Conduct a Feasibility Analysis
Timing of Feasibility Analysis
– After concept statement evaluation
– After opportunity recognition, before business plan
– Before a lot of resources are invested
Four Components of Full Feasibility Analysis
– Product/Service Feasibility
– Industry/Market Feasibility
– Organizational Feasibility
– Financial Feasibility (covered in Dr. Janney’s class)
Feasibility Analysis
Figure 3.1
Role of feasibility analysis in developing successful business ideas
Overview of Full Feasibility Analysis
(4 forms of feasibility analysis)
Product/Service Feasibility
– Composed of two primary tests
Concept testing
Usability testing
Industry/Market Feasibility
– Three primary issues a proposed business should consider:
Industry attractiveness
Market timeliness
Identification of a niche market.
Organizational Feasibility
– There are two primary issues to consider in this area:
Management prowess
Resource sufficiency
Financial Feasibility
– The most important issues to consider at this stage are:
Capital requirements
Financial rate of return
Overall attractiveness of the investment
Overview of Full Feasibility Analysis
Product/Service Feasibility
– Composed of two primary tests
Concept testing
Usability testing
Industry/Market Feasibility
– Three primary issues a proposed business should consider:
Industry attractiveness
Market timeliness
Identification of a niche market.
Organizational Feasibility
– There are two primary issues to consider in this area:
Management prowess
Resource sufficiency
Financial Feasibility
– The most important issues to consider at this stage are:
Capital requirements
Financial rate of return
Overall attractiveness of the investment
Product/Service Feasibility
Product/Service Feasibility Analysis
– Assessment of overall appeal of proposed product/service
– Main idea: before rushing to development, be sure
product/service is what prospective customers want
Two components of product/service feasibility
analysis:
1. Concept testing
2. Usability testing
Product/Service Feasibility: 1st Component
Concept Testing
– Purpose: Gauge customer interest, desirability, purchase
intentions
– Involves showing a representation of product/service to
prospective users
Occurs before the prototype stage
Websites and graphic designs are taking this to a new level
– Concept test ≠ concept statement
Concept test: tests feasibility of specific product/service idea
Concept statement: is a preliminary evaluation of entire business idea
Product/Service Feasibility: 3 reasons to conduct
1. Validate underlying premises of product/ service idea
• Use phone interviews, focus groups, watch consumers perform tasks,
customer advisory boards
• Ex: PepsiCo developed model of 5 types of teens and tries to predict
how trends move through teen populations
2. Help developing idea
• Iteratively show idea to potential customers and make changes along
the way
• Ex: IDEO product development firm
3. Estimate potential market share
• Survey questions
• Market research surveys
• Caution: Numbers always optimistic
Product/Service Feasibility: 2nd Component
Usability Testing
– Purpose: determine ease-of-use and user’s perceptions of
using product
While tempting to rush a product/service to market usability tests
are good investments of resources
Eliminate potentially frustrating aspects of product/services
Involves creating a physical prototype and giving it to users,
measuring usage results, and making modifications as necessary
– Iterative in nature
– Also called: user tests, beta tests, or field trials
http://scholar.google.com
Product/Service Feasibility:
3 forms of usability testing
1. Basic Prototype: fairly simple prototype that is
given to friends/colleagues for feedback
• American Inventor
• Gym class exercise mat
2. Elaborate Usability Test: large-scale tests for well-
funded or existing ventures
• Lab testing, elaborate customer measurement devices
(e.g., Google), etc.
3. Hybrid Test: Follow-me-home testing (e.g., day-in-
the-life research)
Product/Service Feasibility: 5 Benefits
1. Getting product right the first time
2. Create a beta (or early adopter community)
3. Avoid obvious flaws in product/service design
• MobileStar wireless “hotspots”
4. Use time and resources more efficiently
5. Potentially identify complementary product/
service offerings
• iPod accessories
Overview of Full Feasibility Analysis
Product/Service Feasibility
– Composed of two primary tests
Concept testing
Usability testing
Industry/Market Feasibility
– Three primary issues a proposed business should consider:
Industry attractiveness
Market timeliness
Identification of a niche market.
Organizational Feasibility
– There are two primary issues to consider in this area:
Management prowess
Resource sufficiency
Financial Feasibility
– The most important issues to consider at this stage are:
Capital requirements
Financial rate of return
Overall attractiveness of the investment
Industry/Market Feasibility Analysis
Industry/Market Feasibility Analysis
–
Purpose: assess overall appeal of the market
–
3 primary issues to consider:
1. Industry attractiveness,
2. Market timeliness, and
3. Identification of a niche market
Industry/Market Feasibility Analysis:
Industry Attractiveness
Issue 1: Industry Attractiveness
– Primary determinant of feasibility is attractiveness of
industry chosen
– Characteristics of attractive industries:
Large and growing (growth is very important)
Industries are important to customers (e.g., must haves vs. likes)
Early in the industry lifecycle to avoid price competition
Industries are not crowded with competitors
– How to assess industry attractiveness?
Forces in the broad environment (e.g., technological,
sociocultural/demographic, political/legal, economic, global trends)
Porter’s Five Forces analysis (we’ll cover next week)
Other primary and secondary research
Industry/Market Feasibility Analysis:
Market Timeliness
Issue 2: Market Timeliness
– Will the market be receptive to the product/service?
– If it’s a modification on existing offerings (e.g., cell phones
with cameras) ask:
Is the window of opportunity open?
Are customers buying?
Are competitors making money?
– If it’s a breakthrough product/service (e.g., Yahoo with
internet search engines, eBay with online auctions, etc.) ask:
Can we capture a first-mover advantage?
– Example: Microsoft in computer operating systems
Will we suffer from a second-mover advantage?
– Example: IBM vs. Dell in personal computer retailing
Industry/Market Feasibility Analysis:
Niche Markets
Issue 3: Identification of a Niche Market
– Niche markets are places in larger market segments that
represent narrower groups of customers
– 2 reasons for new firms to sell to niche markets:
Allows a firm to establish itself in industry and avoid competing
against major competitors (e.g., specialty retailers vs. Wal-Mart)
Allows a firm to focus on serving specialized markets very well
Avoids trying to be everything to everybody in a broad market
– Successful example: buyandhold.com and small scale
investments
– Problematic example: Iridium and satellite phones (tried to
serve everyone)
Overview of Full Feasibility Analysis
Product/Service Feasibility
– Composed of two primary tests
Concept testing
Usability testing
Industry/Market Feasibility
– Three primary issues a proposed business should consider:
Industry attractiveness
Market timeliness
Identification of a niche market.
Organizational Feasibility
– There are two primary issues to consider in this area:
Management prowess
Resource sufficiency
Financial Feasibility
– The most important issues to consider at this stage are:
Capital requirements
Financial rate of return
Overall attractiveness of the investment
Organizational Feasibility Analysis
Organizational Feasibility
– Purpose: determine if business has sufficient
skills/resources to bring product/service to market
successfully
– Non-financial factors important to consider here
– 2 primary issues to consider:
1. Management prowess
2. Resource sufficiency
Organizational Feasibility Analysis:
Management Prowess
Issue 1: Management Prowess
– Firm must evaluate the ability of the management team
– Determine if has the passion and expertise to launch the
venture
– 2 most important factors in this area:
Passion the solo entrepreneur/founding team has for the idea
Extent the entrepreneur/founding team understands the markets in
which the firm will participate
– Ventures with established networks have an advantage
– Successful Example: eBay
– Failed Example: Garden.com (e.g., no gardening/ gardening
retail expertise
Organizational Feasibility Analysis:
Resource Sufficiency
Issue 2: Resource Sufficiency
– Assessment of resources needed to launch proposed
venture
– Focus is on nonfinancial resources:
Availability of affordable office or lab space,
Likelihood of government support,
Labor pool quality,
Proximity to key suppliers, customers, and similar firms (clusters)
Likelihood of strategic partnerships,
Likelihood of attaining IP
– To test resource sufficiency: list critical nonfinancial
resources needed to move idea forward successfully
If resources not available, it may be impractical to proceed with the
business idea
Overview of Full Feasibility Analysis
Product/Service Feasibility
– Composed of two primary tests
Concept testing
Usability testing
Industry/Market Feasibility
– Three primary issues a proposed business should consider:
Industry attractiveness
Market timeliness
Identification of a niche market.
Organizational Feasibility
– There are two primary issues to consider in this area:
Management prowess
Resource sufficiency
Financial Feasibility
– The most important issues to consider at this stage are:
Capital requirements
Financial rate of return
Overall attractiveness of the investment