Chapter 3 (Summary). Feasibility Analysis

Chapter 3 (Summary). Feasibility Analysis

·         Feasibility analysis

Feasibility analysis is the process of determining if a business idea is viable. Many entrepreneurs make the mistake of identifying a business idea and then jumping directly to developing a business model. A mental transition must be made when completing a feasibility analysis from thinking of a business idea as just an idea to thinking of it as a business. Completing a feasibility analysis requres both primary and secondary research. Primary research is research that is collected by the person or persons completing the analysis. Secondary research probes data that is already collected. The data generally includes industry studies.

·         Product/Service Feasibility Analysis

1.       Product/service feasibility analysis is an assessment of the overall appeal of the product or service being proposed. Although there are many important things to consider when launching a new venture, nothing else matters if the product or service itself doesn’t sell. The proper mindset at the feasibility analysis stage is to get a general sense of the answer to these and similar questions, rather than to try to reach final conclusions.

Concept test involves showing a preliminary description of a product or service idea, called a concept statement, to industry experts and prospective customers to solicit their feedback. Rather than developing a formal concept statement, some entrepreneurs conduct their initial product/service feasibility analysis by simply talking through their ideas with prospective customers or conducting focus groups to solicit feedback.

2.       Product/Service Demand

The second component of product/service feasibility analysis is to determine if there is demand for the product or service. These are 3 commonly utilized methods:

a)       Talking Face-toFace with Potential Customers

The only way to know if your product or service is what people want is by talking to them. Entrepreneurs are often surprised to find out that a product idea that they think solves a compelling problem gets a lukewarm reception when they talk to actual customers. In some instances, you have to pause and think carefully about who the potential customer is.

b)      Utilizing Online Tools

Another common approach to assessing product demand is to use online tools, such as Google AdWords and landing pages. A landing page is a single web page  that typically provides direct sales copy. The beauty of using Google Adwords is that the people who click on the ad were either searching for the term wouldn’t see the ad.

c)       Library, Internet, and Gumshoe Research

The third way to assess demand for a product or service idea is by conducting library, Internet, and gumshoe research. The importance of library, Internet, and gumshoe research doesn’t wane once a firm is launched.

·         Industry/Target Market Feasibility Analaysis

Industry/target market feasibility is an assessment of the overall appeal of the industry and the target market for the product or service being proposed. An industry is a group of firms producing a similar product or service. A firm’s target market is the limited portion of the industry that it goes after or to which it wants to appeal.

1.       Industry Attractiveness

Industries vary in terms of their overall attractiveness.

2.       Target Market Attractiveness

Most start-ups simply don’t have the resources needed to participate in a broad market. The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed business but yet is small enough to avoid attracting larger competitors at least until the entrepreneurial venture can get off to a successful start.

·         Organizational Feasibility Analysis

There are two primary issues to consider in this area: management prowess and resource sufficiency.

1.       Management Prowess

A proposed business should evaluate the prowess, or ability, of its initial management team, wheter it is a sole entrepreneur or a larger group. A new-venture team is the group of founders, key employees, and advisers that either manage or help manage a new business in its start-up years.

2.       Resource Sufficiency

The second are of organizational feasibility analysis is to determine wheter the proposed venture has or is capable of obtaining sufficent resources to move forward. Another key resource sufficiency issue is the ability to obtain intellectual property protection on key aspects of the business.

·         Financial Feasibility Analysis

Financial feasibility analysis is the final component of a comprehensive feasibility analysis. The most important issues to consider at this stage are total start-up cash needed, financial performance of similar businesses, and the overall financial attractiveness of the proposed venture.

1.       Total Start-Up Cash Needed

This first issue refers to the total cash needed to prepare the business to make its first sale. An actual budget should be prepared that lists all the anticipated captial purchases and operating expenses needed to get the business up and running.

2.       Financial Performance of Similar Businesses

The second component of financial fesibility analysis is estimating a proposed start-up’s potential financial performance by comparing it to similar. Obviously, this effort will result in approximate rather than exact numbers.

3.       Overall Financial Attractiveness of the Proposed Venture

A number of other factors are associated with evaluating the financial attractiveness of a proposed venture. These evaluations are based primarily on a new venture’s projected sales and rate of return.

·         A Feasibility Analysis Template

Feasibility analysis template is a template entrepreneurial firms use to complete a feasibility analysis. It’s called First Screen because a  feasibility analysis is an entrepreneur’s intial pass at determining the feasibility of a business idea.

Theodorus Tanusaputra

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