Transcript Conducting a Feasibility Study and Crafting a Business

Conducting a Feasibility Study
and Crafting a Business Plan
Feasibility Analysis
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The process of determining whether
an entrepreneur’s idea is a viable
foundation for creating a successful
business
Elements of a Feasibility Analysis
Financial Feasibility
Industry and
Market Feasibility
Product or
Service Feasibility
Industry and Market
Feasibility Analysis
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To determine how attractive an industry is
overall as a ‘home for a new business
To identify possible niches a small
business can occupy profitably
Five Forces Model
Potential
Entrants
Threat of new entrants
Suppliers
Bargaining
Power of
suppliers
Rivalry among
existing firms
Substitutes
Bargaining
Power of
buyers
Buyers
Rivalry
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Number of competitors is large or few
(less than 5)
Competitors are not similar in size or
capability
The industry is growing at a fast pace
The opportunity to sell a differentiated
product or service is present
Suppliers
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Many suppliers sell a commodity product to the
companies in it
Substitute products are available for the items
suppliers provide
Companies in the industry find it eas to switch
from one supplier to another
The items suppliers provide account for a
relatively small portion of the cost of finished
products
Buyers
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Switching costs to competitors is high
Number of buyers is large
Customers demand differentiated products
Customers find it difficult to gather info
on suppliers costs etc
The items account for a relatively small
portion of the customers’ finished products
New Entrants
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Advantages of economic scale are not
present
Capital requirements to enter are low
Cost advantages are not related to
company size
Buyers are brand-loyal
Governments do not restrict entry
Substitute Products
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Quality substitute products are not readily
available
Prices of substitute products are not lower
Buyers’ cost of switching to substitute
products is high
Product or Service
Feasibility Analysis
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Are customers wiling to purchase our
goods and services?
Can we provide the product or service to
our customers at a profit?
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Research
Primary research
Customer surveys and
questionnaires
Focus groups
Secondary research
Trade associations and business
directories
Direct mail lists
Demographic data
Census data
Forecasts
Market research
Articles
Local data
WWW
Trials
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Prototypes: an original, functional model
of a new product that entrepreneurs can
put into the hands of potential customers
so they can see it, test it and use it
In-home trials: a research technique that
involves sending researchers into
customers’ homes to observe them as
they use the company’s product or service
Financial Feasibility Analysis
Capital
Requirements
 Estimated
Earnings
 Return on
Investment
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A Business Plan
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A written summary of an entrepreneur’s
proposed business venture, its operational
and financial details, its marketing
opportunities and strategy, and its
managers’ skills and abilities
3 Functions
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Guides an entrepreneur
Attracts lenders and investors
Reality Test
Competitive Test
Value Test
Represents/reflects its creator
Elements of a Business Plan
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Title Page and Contents
Executive Summary
Vision and Mission Statement
Company History
Business and Industry Profile
Business Strategy
Description of the Firm’s Product or Service
Marketing Strategy
Competitor Analysis
Description of Management Team
Plan of Operation
Pro Forma Financial Statements
The Loan or Investment Proposal
What Lenders and Investors Look
for in a Business Plan
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Capital
Capacity
Collateral
Character
Conditions
Executive Summary
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The company’s business model and basis
for competitive edge
The company’s target markets and the
benefits its product or service will provide
The qualification of the founders and/or
key employees
The key financial highlights
Business and Industry Profile
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Overview of industry or market segment
Existing or anticipated profitability of the
industry
Company’s general business goals
Company’s immediate objectives
Business Strategy
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How to gain competitive edge
How to achieve the goals and objectives
Methods to satisfy KSFs of the industry
Description of Product or Service
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Overview of how customers will use it
Any patents, trademarks or copyright
Honest comparison with competition
Feature (descriptive fact about a product
or service) vs Benefit (what a customer
gains from the product or service)
Description of production process,
strategic raw materials, sources, costs.
Marketing Strategy
Defining the target market
Who?
Where?
How many?
Why?
 Proving that a profitable market exists
Showing customer interest
Documenting market claims
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Marketing Strategy
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Advertising
Market Size and trend
Location
Pricing
Distribution
Competitor Analysis
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Each significant competitor
Advantage over each
Description of Management Team
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Qualifications of those with at least 20%
ownership
Resumes
How to avoid primary reasons for business
failures
Plan of Operation
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Organizational chart
Form of ownership
Pro Forma Financial Statements
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Monthly for 3 years by quarter
3 sets: pessimistic, most likely, optimistic
Statement of assumptions
Loan or Investment Proposal
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Purpose of financing
Amount requested
Plans for repayment/exit strategy
Timetable for implementation
Evaluation of risks