FEASIBILITY PLANNING

Dr S. UDAYASHANKAR
Professor
MSNM BESANT INSTITUTE OF PG STUDIES
MANGALORE
 CHAPTER CONTENTS
Planning paradigm for new ventures

Stages of growth model

Fundamentals of a good feasibility plan

Components of feasibility plan

MODEL FOR NEW VENTURES
No universally accepted “Model” of entrepreneurship.

Similarities among the models suggest a paradigm, or

a general pattern of how to progress from an abstract

idea to achieving sustained sales.

Paradigm encompasses a feasibility plan.

Different models suggest different sequences for

creating new ventures.
THE FOUR STAGE GROWTH MODEL
 The four stage growth model is the general paradigm
for new venture development. It consists of distinct
activities essential for a new venture to progress from
an idea to a substantial enterprise.
 The four stages are:
1. PRE-START-UP STAGE
2. START-UP STAGE
3. EARLY GROWTH STAGE
4. LATER GROWTH STAGE
PRE-START-UP STAGE
 The period during which entrepreneurs plan the
venture and do the preliminary work of obtaining
resources and getting organized prior to start-up.

 Entrepreneurs will try to answer questions about

production, operations, markets, competitors, costs,
financing, and potential profits.
PRE-START-UP ACTIVITIES
I. DEFINING BUSINESS CONCEPT
 What is the purpose of the venture?
 What does the entrepreneur want to accomplish
with the business?
II. PRODUCT-MARKET STUDY
 Product research: Is the product or service feasible?
Realistic?
 Market research: Who will buy? Where are they?
What niche? What competitors exist?
 PRE-START-UP ACTIVITIES
III. FINANCIAL PLANNING
 Financial projections: What cash is needed? How
will income be generated? What expenses are
expected? What is invested? Borrowed? What is
needed to meet operating requirements?
IV. PRE-START-UP IMPLEMENTATION
 The entrepreneur must find resources, purchase
beginning inventory, hire those needed at start-up,
and obtain necessary licenses, permits, leases,
facilities, and equipment.
START-UP STAGE
 It is the initial period of business when the
entrepreneur must position the venture in a market
and make necessary adjustments to assure survival.
 The start-up stage has no definite time frame, and
there are no models to describe what a business does
during this stage.
 The two objectives of the entrepreneurs are:
1. to meet operating objectives such as satisfying
revenue and cost targets, and
2. to position the venture for long term growth.
EARLY GROWTH STAGE
 A period of rapid development and growth when the
venture may undergo major changes in markets,
finances, and resource utilization.
 A period of intense monitoring, and growth can occur
at different rates along a long continuum, ranging
from slow growth through higher sales to explosive
growth through quantum changes in consumer
demand.
LATER GROWTH STAGE
 The evolution of a venture into a large company with
active competitors in an established industry when
professional management may be more important
than entrepreneurial verve.
 Companies reaching this stage often “go public” with
stock offerings. Family fortunes turn into corporate
equity positions, private investors convert their
holdings into publicly traded securities, and
management teams replace the entrepreneurial cadre.
UNDERSTANDING THE FOUR
STAGE GROWTH PARADIGM
 During the pre-start-up stage, the focus is on product,
service, and market planning.
 The start-up stage requires entrepreneurs to focus on
implementation and early positioning.
 During the early growth stage, they are concerned
with rapid changes in sales and resources.
 During the later growth stage, they must make a
successful transition from personally managed
enterprises to professionally managed companies.
FUNDAMENTALS OF A
FEASIBILITY PLAN
 A feasibility plan covers the full range of business
planning activities, but it does not require the depth of
research or details expected for an established
enterprise.
 A feasibility plan is an outline of potential issues to
address and a set of guidelines to help an entrepreneur
make better decisions.
FUNDAMENTALS OF A FEASIBILITY PLAN
Feasibility plan should be an honest plan with well-
supported information. It should clearly identify
products, services, markets, and the founders. It
should be easy to read, complete, and accurate.
Abstract language has to be avoided.
It is wise to include a strong “nondisclosure statement”
that states information in the plan is proprietary and
cannot be copied, disclosed, shared, or otherwise
compromised. This is to protect entrepreneurs from
having their ideas stolen.
Make the plan readable by keeping it short.
COMPONENTS OF A FEASIBILITY PLAN
1. Executive Summary
2. Business concept
3. Product or Service
4. Market research and analysis
5. Market Plan
6. Manufacturing or operations
7. Entrepreneurial team
8. Financial documentation
 KEY ELEMENTS OF EXECUTIVE SUMMARY
1. Venture defined: Describe the purpose and nature of the
business
2. Product or Service: Describe the product or service to
be sold.
3. Market characteristics: Describe market size, location,
and customers.
4. Entrepreneurial team: Describe the founders, key
people, and their roles.
5. Financial summary: Describe estimates of revenue and
expenses, founder’s equity, debt and capital needed.
 BUSINESS DESCRIPTION
 Describe evolutionary steps that led to the business
formation.
 Explain the nature of market demand. Is the firm
responding to an established demand, or is it trying to
establish a new product or service in untested markets?
 Explain the nature of the business by clearly stating how
the firm will operate and what the founders intend to
accomplish.
 Explain the firm’s technological profile including
description of equipments, wholesale networks, foreign
licensing agreements etc.
 PRODUCTS OR SERVICES
 Describe the distinctive characteristics of the product, how
it works or is used, materials, costs, methods of
manufacturing, proprietary protection (patents, trade marks,
or copyrights), and potential competing (substitute)
products. Most new products also will require validated
testing, and many will require approval by regulatory
agencies. For example, dental instruments and products have
to be approved by the Food and Drug Administration (FDA).
Restaurants and medical testing laboratories have to meet
government health and safety requirements. Educational
institutions are required to meet educational credential
standards and comply with central and state regulations.
 MARKET RESEARCH AND ANALYSIS
The most important and most difficult part of the plan.
Provide a credible summary of potential customers,
markets, competitors, and assumptions about pricing,
production, and distribution. All of them must relate to the
future period of operations, not merely describe what exists
at the pre-start-up stage.
1. IDENTIFY POTENTIAL CUSTOMERS:
 Demographic profile of customers - Characteristics of
customers, age, sex, education, income, occupation, etc.
 Buying habits and relevant information for new venture.
MARKET RESEARCH AND ANALYSIS
2. EVALUATE MARKETS:
 Future markets and trends or changes.
 Window of business opportunity
 Niche position information
3. ANALYZE COMPETITORS:
 Existing competitors with similar products/services
 Future competitors and ease of entry
 Industry structure
MARKET RESEARCH AND ANALYSIS
4. DESCRIBE ASSUMPTIONS:
 Market niche for positioning firm
 Pricing approach used in plan
 Distribution or method of making a market
5. SALES FORECAST:
 Indicate the quantity of sales and expected gross
sales revenue during the plan period.
ELEMENTS OF THE MARKETING PLAN
The following are the main marketing activities:
 PRODUCT OR SERVICES: Quality and reliability, use,
and how the product or service will be positioned in
growth markets.
 PRICING SYSTEM: Pricing methods, discounts,
quantity and bulk prices, methods to set prices.
 PROMOTIONAL STRATEGIES: Strategy of combining
appropriate uses of public relations, advertising,
displays, events, demonstrations, personal sales, etc.
 ELEMENTS OF THE MARKETING PLAN

 DISTRIBUTION CHANNELS: Use of market channels

including retail, wholesale, catalog, telemarketing,
personal sales representatives, or other approaches.
 SERVICES AND WARRANTIES: Description of
service-after-sale policies, repair services, guarantees,
and product warranties.
 MARKETING LEADERSHIP: Define leadership roles,
persons responsible for marketing and sales.
MANUFACTURING OR OPERATIONS PLAN
This is important for ventures that manufacture,
design, or sell products, as well as for service firms that
require capital equipment. The following are the main
elements of manufacturing or operations plan:
1. FACILITIES: Facilities include fixtures, furniture,
equipment, parking space, and renovations
necessary to open for business. Equipment lists are
usually prepared so that potential investors can
evaluate lease-buy decisions and identify collateral.
Start-up costs for renovations, fixtures, and
equipment installation should be itemized because
they represent “sunk costs” – costs that are essential
and unrecoverable if the venture fails to open for
business.
MANUFACTURING OR OPERATIONS PLAN
2. INVENTORY MANAGEMENT: Entrepreneurs have to
explain their inventory control systems. Inventory must
be purchased well in advance of sales. Inventory expenses
will always precede sales revenue. Poor inventory and
purchasing controls can result in “stock-outs” during
peak periods and excessive inventory stockpiled during
periods of poor sales. Poor inventory management may
lead to business failure.
3. HUMAN RESOURCE REQUIREMENTS: Human
resource requirements should be estimated with details
of the number of personnel and types of skills needed.
MANUFACTURING OR OPERATIONS PLAN

4. OPERATIONS: R & D, manufacturing process, service

structure, quality control, safety and maintenance
activities should be described.

5. LEGAL AND INSURANCE ISSUES: Entrepreneurs

should consider insurance and legal protection to their
business to avoid disasters.
 THE ENTREPRENEURIAL TEAM
• Entrepreneurs must take care to profile the
entrepreneurial team honestly and effectively.
They should emphasize team members’
strengths, past successes, and positive
characteristics. Each person’s role in the new
venture should be described briefly, including
board members or investors who may not be
involved directly in operations yet be able to
influence decisions.
 FINANCIAL DOCUMENTATION
 Financial statements for a new venture, called pro formas,
are projections based on previously defined operating and
marketing assumptions. The important financial
documents are the following:
 Profit and loss statement or income statement showing
revenue, cost of goods sold, operating expenses, and net
income.
 Cash flow budget showing actual cash flow rather than
accrual income
 Projected balance sheet summarizing assets and liabilities.
 Break-even analysis.
RESPONSIBILITY FOR FEASIBILITY PLAN
The entrepreneur knows everything about the
proposed business and, therefore, the entrepreneur
is ultimately responsible for feasibility planning. No
outsider will have the same vision and motivation.
The entrepreneur can get assistance from various
people and agencies to create the plan, but the
responsibility of its composition rests entirely on the
entrepreneur. It is a toolbox of decision-making
criteria and a synopsis of expectations, objectives,
and essential activities.
 QUESTIONS
1. Discuss the concept of a planning paradigm for new
ventures.
2. What do you mean by ‘Feasibility Plan’? Explain the
fundamentals of feasibility plan.
3. Explain the major components of an effective feasibility
plan.
4. Explain in detail with examples ‘Technical feasibility’
and ‘Economic viability’ of a business opportunity.
5. Describe the four stage growth model of
entrepreneurship.
 QUESTIONS
6. Contrast entrepreneurial roles during various
transition stages.
7. Discuss the role of an entrepreneur during various
transition stages of a venture
8. Develop a feasibility plan for a new venture
incorporating the common elements.
9. Discuss the important stages of the life cycle of an
entrepreneurial venture.
10. Discuss how an entrepreneur can manage life cycle
of a venture.
Wish you good luck!