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Managerial Skills andEntrepreneurship

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Feasibility

Analysis

Business

Model

Business

Plan

Opportunity

Analysis

Becoming an

EntreprenuerBusiness

Start Up

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Created by Dr James V Green

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THE NEW VENTURE

CREATION PROCESS• The environment is the most comprehensive

component in the venture creation process.

• It includes all the factors that affect the decision tostart a business, for example, government

regulation, competitiveness, and life cycle stage.• Within specific industries and in specific geographic

regions, environmental variables and the degree oftheir impact will differ.

• The new venture process begins with an idea for aproduct, service, or business.

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Feasibility Analysis

• The entrepreneur develops an idea into a business opportunityor business concept that is then tested in the market through aprocess of feasibility analysis.

• Feasibility analysis is used to inform the entrepreneur aboutthe conditions required to move forward and develop thebusiness. This may involve market research.

•

Once the entrepreneur has determined that the concept isfeasible, a business plan is developed to detail how thecompany will be structured and to describe its operation

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Viability

• Testing the business concept in the real world is whatactually determines if the business has viability. Thus,the business must actually be launched and operated inthe environment to determine viability.

• In a business, the term viability is the point when thecompany is able to generate sufficient cash flows to allowthe business to survive on its own without cash infusionsfrom outside sources such as the entrepreneur's ownresources, investors, or a bank loan.

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The Five Stages of a Business’s

Life Cycle• Pre Start-up

• Start-up

• Growth

• Maturity

• Rebirth or Decline

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Figure 3.1 The Life Cycle of the

Company

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LAUNCHING A NEW BUSINESS

Three key issues in the pre-start-up phase:

1) Testing concept feasibility

2) Developing a business plan

3) Acquiring resources ($$$ and personnel)

Three key issues in the start-up phase:

1) Finding customers2) Building a structure

3) Generating positive cash flows

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Opportunity Creation

Developing a product, service, process, or niche that has not existed

before. Opportunity recognition requires high levels of creativity.

x

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Opportunity Creation

• Typically, opportunity creation involves an invention processthat is characterized by four activities:

• connection,

•discovery,

• invention, and

• application

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Opportunity Creation•

Connection occurs when two ideas are brought together thatnormally are not juxtaposed, such as nature and machines, which

produced the field of nanotechnology or microscopic machines that

copy nature in the way that they operate.

• Discovery happens once a connection has been made. It is actuallythe result of the connection in the form of an idea.

• Inventions are the product of turning an idea into a product or

service.

• Application comes about when the inventor is able to apply the

invention to a number of different uses or applications in a variety of

industries and situations.

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Opportunity Recognition

The process of using creative

skills to identify a new innovation

--- (a product, service, process, or marketing

method) ---which is often based on

something already existing in the

marketplace.

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How to recognize a business

opportunity• List all the ideas in no particular order.

• Eliminate those ideas that can’t generate a profit

and don’t fit the business model very well.

• Review the remaining ideas and choose the onethat inspires the most passion and enthusiasm

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The Initial Business Concept:

There are four essential elements required to test whetheror not a potential business idea is feasible:

• What is the product and/or service that is the basis for thebusiness?

• Who is the customer likely to be?

• What is the benefit of your product/service to thecustomer?

• How will the benefit be delivered?

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Goals of Market Research

To find out:

• Who is most likely to purchase the product orservice at market introduction?

• What do these customers typically buy, how dothey buy it, and how do they hear about it?

• What is their buying pattern? How often do theybuy?

• What are the customers’ needs and how can thenew venture meet those needs?

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Introduction to Feasibility Analysis

Modified from Barringer and Ireland (2006)

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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

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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

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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

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Feasibility Analysis

Figure 3.1

Role of feasibility analysis in developing successful business ideas

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•

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(4 forms of feasibility analysis)

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• Product/Service Feasibility•

Composed of two primary tests• Concept testing




•

Market timeliness• Identification of a niche market.




•

Financial Feasibility• The most important issues to consider at this stage are:




Overview of Full Feasibility Analysis

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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

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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 populations2. Help developing idea

• Iteratively show idea to potential customers and make changes alongthe way

• Ex: IDEO product development firm

3. Estimate potential market share

• Survey questions

• Market research surveys

• Caution: Numbers always optimistic

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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 aregood 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

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Product/Service Feasibility:

3 forms of usability testing

1. Basic Prototype: fairly simple prototype that isgiven 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)

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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

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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

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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

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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 phoneswith 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

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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)

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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

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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 theventure

• 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 inwhich the firm will participate

•Ventures with established networks have an advantage

• Successful Example: eBay

• Failed Example: Garden.com (e.g., no gardening/ gardeningretail expertise

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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 nonfinancialresources needed to move idea forward successfully

• If resources not available, it may be impractical to proceed with the business idea

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T bl 3 1 F ibili A l i

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Table 3.1 Feasibility Analysis:

Key Questions

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