Conducting a Feasibility Analysis and

Crafting a Business Plan

 Points to be Pondered…
• What is a Feasibility Study?
• What is a Business Plan?
• How do they differ?
• What Resources are available to help develop each?
• Are all Studies created Equal?
 What is a Feasibility Study?
• A feasibility study is an analysis of the viability of an idea
through a disciplined and documented process of thinking
through the idea from its logical beginning to its logical end.

• A feasibility study provides an Investigating function that helps

answer “Should we proceed with the proposed project idea?
Is it a viable business venture?”

• A mental transition from its just an idea to thinking it as

business.
Levels of Feasibility Assessment
• A feasibility study of an idea is conducted at
three levels
• Operational Feasibility
• “Will it work?”
• Technical Feasibility
• “Can it be built?”
• Economic Feasibility
• “Will it make economic sense if it works and is built?”
• “ Will it generate PROFITS?”
 Why do a Feasibility
Study?
• Provide a thorough examination of all issues and assessment of probability of
business success
• Give focus to the project and outline alternatives
• Narrow business alternatives
• Surface new opportunities through the investigative process
• Identify reasons NOT to proceed
• Enhance the probability of success by addressing and mitigating factors early
on that could affect the project
• Provide quality information for decision making
• Help to increase investment in the company
• Provide documentation that the business venture was thoroughly
investigated
• Help in securing funding from lending institutions and other monetary
sources
 Data Sources for a Feasibility
Assessment
• Data required for a feasibility study can come from
primary or secondary sources
• Primary data can include formal interviews and surveys
• Collection of primary data can be expensive and time consuming
• Secondary data can include industry and trade publications,
statistics of industry associations, and government agency
reports
 BEFORE YOU BEGIN WE SHOULD THINK
ABOUT THE FOLLOWING QUESTIONS

 What defined market am I trying to reach?

 What specific companies/organizations are servicing this
market?
 Are they successful?
 Something similar?
 What is their market share?
 Is the market saturated or wide open?
QUESTIONS CONTINUED..
 What is the size of the market?
 Is it growing?
 Is it stable, volatile, trendy?
 How can you reach this market?
 How are competitors currently reaching the market?
 What do customers expect from this type of product or
service?
QUESTIONS CONTINUED..
 What are the business models of competitors?
 What core competencies must the product or service
have?
 What are “customers” willing to pay for this service or
product?
 What is your competitive advantage?
Role of Feasibility Analysis in Developing Successful
Business Ideas
Elements of a Feasibility Analysis

Organizational Feasibility

Product or Service
Industry and
Feasibility
Market Feasibility

Financial
Feasibility
Elements of a Feasibility Analysis

Organizational Feasibility

Industry and Product or Service

Market Feasibility Feasibility

Financial
Feasibility
 Industry and Market Feasibility
Analysis
Two areas of focus:
1. Determining how attractive an industry is
overall as a “home” for a new business.
2. Identifying possible niches a small business
can occupy profitably.
Difference between a firm’s industry and its
target market

• An industry is a group of firms producing a similar product or service,

such as computers, children’s toys, airplanes, or social networks.

• A firm’s target market is the limited portion of the industry that it

goes after or to which it wants to appeal.
 Porter’s Five Forces Model

• Five forces interact with one another to

determine the setting in which companies
compete and, hence, the attractiveness of the
industry:
1. Rivalry among companies in the industry
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
 Rivalry Among Companies

• Strongest of the five forces

• Industry is more attractive when:
• Number of competitors is large, or, at the other
extreme, quite small
• Competitors are not similar in size or capacity
• Industry is growing fast
• Opportunity to sell a differentiated product or
service exists
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
Bargaining Power of Suppliers

• The greater the leverage of suppliers, the less

attractive the industry.
• Industry is more attractive when:
• Many suppliers sell a commodity product
• Substitutes are available
• Switching costs are low
• Items account for a small portion of the cost of
finished products
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
 Bargaining Power of Buyers

• Buyers’ influence is high when number of

customers is small and cost of switching to a
competitor’s product is low.
• Industry is more attractive when:
• Customers’ switching costs are high
• Number of buyers is large
• Customers want differentiated products
• Customers find it difficult to collect information for
comparing suppliers
• Items account for a small portion of customers’
finished products
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
 Threat of New Entrants

• The larger the pool of potential new entrants, the

less attractive an industry is.
• Industry is more attractive to new entrants when:
• Advantages of economies of scale are absent.
• Capital requirements to enter are low
• Cost advantages are not related to company size
• Buyers are not loyal to existing brands
• Government does not restrict the entrance of new
companies
 Five Forces Model
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors
Bargaining Power
of Suppliers of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms

Threat of Substitute
Products or Services

Substitutes
 Threat of Substitutes

• Substitute products or services can turn an

industry on its head.
• Industry is more attractive to new entrants when:
• Quality substitutes are not readily available
• Prices of substitute products are not significantly
lower than those of the industry’s products
• Buyers’ switching costs are high
Five Forces Matrix
Elements of a Feasibility Analysis

Organizational Feasibility

Industry and Product or Service

Market Feasibility Feasibility

Financial
Feasibility
 Product or Service Feasibility
Analysis

• Determines the degree to which a product or service

idea appeals to potential customers and identifies the
resources necessary to produce it.
• Two questions:
• Are customers willing to purchase our good or service?
• Can we provide the product or service to customers at a
profit?
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
• 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
2. Usability testing
• Purpose: determine ease-of-use and user’s perceptions of using product
• Iterative process that involves creating a physical prototype (basic, elaborate, or hybrid prototypes)
and giving it to users, measuring usage results, and making modifications as necessary
• Also called: user tests, beta tests, or field trials
Elements of a Feasibility Analysis

Organizational Feasibility

Industry and Product or Service

Market Feasibility Feasibility

Financial
Feasibility
Organizational Feasibility Analysis

• Organizational Feasibility Analysis

• Purpose: determine if business has sufficient skills/resources to bring
product/service to market successfully
• Non-financial factors are what is assessed here
• 2 primary issues to consider:
1. Management prowess: must evaluate the ability of the management team to
determine if the firm has or is able to recruit human resources with the required areas
of expertise
2. Resource sufficiency: must assess adequacy of other resources necessary for
successfully venture launch, development, and competition
• Focus is on nonfinancial resources like:
• Availability of affordable office or lab space,
• Labor pool quality,
• Proximity to key suppliers, customers, and similar firms (clusters)
• Likelihood of strategic partnerships,
• Likelihood of attaining IP
Elements of a Feasibility Analysis

Organizational Feasibility

Industry and Product or Service

Market Feasibility Feasibility

Financial
Feasibility
 Financial Feasibility Analysis

• Capital requirements – must have an estimate of how

much start-up capital is required to launch the
business.
• Estimated earnings – forecasted income statements.
• Return on investment – combining the previous two
estimates to determine how much investors can expect
their investments to return.
Users of Business Plans
How Much Business Planning is Needed?
• Factors affecting the extent of a business plan:
• Cost in time and money to prepare the plan
• Management style and ability
• Preferences of the management team
• Complexity of the business
• Competitive environment
• Level of uncertainty
Types of Business Plans
• The Dehydrated Plan
• A short form of a business plan that presents only
the most important issues and projections.
• The Comprehensive Plan
• A full business plan that provides
an in-depth analysis of the critical
factors that will determine a firm’s
success or failure, along with all
the underlying assumptions.
Preparing a Business Plan
• Issues critical in preparing a business plan:
• The content and basic format of the plan
• Factual support for the concept in the form of strong supporting evidence
• The effectiveness of the written presentation
• Clear writing that effectively communicates
 Major Sections of Business Plans
Section Headings
• Cover Page
• Table of Contents
• Executive Summary
• Industry, Target Customer, and Competitor Analysis
• Company Description
• Product/Service Plan
• Marketing Plan
• Operations and Development Plan
• Management Team
• Critical Risks
• Offering
• Exit Strategy
• Financial Plan
• Appendix of Supporting Documents
 Abbreviated Business Plan Outline

Section Heading Information Provided

Cover Page Company name, logo, tagline, contact information, copy number, date prepared, and disclaimer (if needed)
Table of Contents Listing of the key sections of the business plan
Executive Summary One- to three-page overview of the significant points, intended to motivate the reader to continue reading
Industry, Target, Key characteristics of the industry, including the different segments, and the niche where you plan to
Customer and compete
Competitor Analysis
Company Description Company objectives, the nature of the business, its primary product or service, its current status (startup, buyout, or
expansion) and history (if applicable), and the legal form of organization
Product/Service Plan Justification for why people will buy the product or service, based on its unique features
Marketing Plan Marketing strategy, including the methods of identifying and attracting customers, selling approach, type of
sales force, distribution channels, types of sales promotions and advertising, and credit and pricing policies
Operations and Operating or manufacturing methods, operating facilities (location, space, and equipment), quality-control
Development Plan methods, procedures to control inventory and operations, sources of supply, and purchasing procedures
Management Team Description of the management team, outside investors and/or directors, and plans for recruiting and training
employees
Critical Risks Any known inherent risks in the venture
Offering How much capital the entrepreneur needs and how the money will be used (section used to attract investors)
Exit Strategy Ways an investor—and the entrepreneur—may be able to harvest their business investment
Financial Plan Contemplated sources of financing; any historical financial statements, if available; pro forma financial
statements for three to five years, including income statements, balance sheets, cash flow statements, and cash
budgets
Appendix of Various supplementary materials and attachments to expand the reader’s understanding of the plan
Supporting Documents
The Content of a Business Plan
• Cover Page
• Company name, address, phone number, fax number, and website
• Tagline and company logo
• Name and contact information of contact person
• Date on which the business plan was prepared
• Confidentiality disclaimer
• Number of the copy
• Table of Contents
• Provides a sequential listing of the sections of the plan, with page numbers
Table of Contents for Business Plan
 Section 1: Executive Summary
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• Executive Summary
• The executive summary is a short overview of the entire business plan.
• It provides a busy reader with everything that needs to be known about the
new venture’s distinctive nature.
• An executive summary shouldn’t exceed two single-spaced pages.
• Even though the executive summary appears at the beginning of the business
plan, it should be written last.
• The plan itself will evolve as it’s written, so not everything is known at the outset.
Section 1: Executive Summary
2 of 2

Key Insights
• In many instances an investor will
ask for a copy of a firm’s executive
Executive Summary summary and will ask for a copy of
the entire plan only if the executive
summary is sufficiently convincing.
• The executive summary, then, is
arguably the most important
section of a business plan.
 Section 2: Industry Analysis
1 of 2

• Industry Analysis
• This section should begin by describing the industry the business will enter in
terms of its size, growth rate, and sales projections.
• Items to include in this section:
• Industry size, growth rate, and sales projections.
• Industry structure.
• Nature of participants.
• Key success factors.
• Industry trends.
• Long-term prospects.
Section 2: Industry Analysis
2 of 2

Key Insights
• Before a business selects a target
market it should have a good grasp
Industry Analysis of its industry—including where its
promising areas are and where its
points of vulnerability are.
• The industry that a company
participates in largely defines the
playing field that a firm will
participate in.
 Section 3: Company Description
1 of 2

• Company Description
• This section begins with a general description of the company.
• Items to include in this section:
• Company description.
• Company history.
• Mission statement.
• Products and services.
• Current status.
• Legal status and ownership.
• Key partnerships (if any).
Section 3: Company Description
2 of 2

Key Insights
• While at first glance this section
may seem less important than the
Company Description others, it is extremely important.
• It demonstrates to your reader that
you know how to translate an idea
into a business.
 Section 4: Market Analysis
1 of 2

• Market Analysis
• The market analysis breaks the industry into segments in on the specific
segment (or target market) to which the firm will try to appeal.
• Items to include in this section:
• Market segmentation and target market selection.
• Buyer behavior.
• Competitor analysis.
Section 4: Market Analysis
2 of 2

Key Insights
• Most start-ups do not service their
entire industry. Instead, they focus
Market Analysis on servicing a specific (target)
market within the industry.
• It’s important to include a section in
the market analysis that deals with
the behavior of the consumers in the
market. The more a start-up knows
about the consumers in its target
market, the more it can tailor its
products or services appropriately.
 Section 5: The Economics of the Business
1 of 2

• The Economics of the Business

• This section addresses the basic logic of how profits are earned in the business
and how many units of a business’s profits must be sold for the business to
“break even” and then start earning a profit.
• Items to include in this section:
• Revenue drivers and profit margins.
• Fixed and variable costs.
• Operating leverage and its implications.
• Start-up costs.
• Break-even chart and calculations.
Section 5: The Economics of the Business
2 of 2

Key Insights
• Two companies in the same industry
may make profits in different ways.
The Economics of the One may be a high-margin, low-
Business volume business, while the other
may be a low-margin, high-volume
business. It’s important to check to
make sure the approach you select
is sound.
• Computing a break-even analysis
is an extremely useful exercise for
any proposed or existing business.
 Section 6: Marketing Plan
1 of 2

• Marketing Plan
• The marketing plan focuses on how the business will market and sell its
product or service.
• Items to include in this section:
• Overall marketing strategy.
• Product, price, promotions, and distribution.
• Sales process (or cycle).
• Sales tactics.
Section 6: Marketing Plan
2 of 2

Key Insights
• The best way to describe a start-up’s
marketing plan is to start by
Marketing Plan articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy.
• It’s also important to discuss the
company sales process.
 Section 7: Design and Development Plan
1 of 2

• Design and Development Plan

• If you’re developing a completely new product or service, you need to include
a section in your business plan that focuses on the status of your development
efforts.
• Items to include in this section:
• Development status and tasks.
• Challenges and risks.
• Projected development costs.
• Proprietary issues (patents, trademarks, copyrights, licenses, brand names).
 Section 7: Design and Development Plan
2 of 2

Key Insights
• Many seemingly promising start-ups
never get off the ground because
Design and Development their product development efforts
Plan stall or the actual development of
the product or service turns out to
be more difficult than thought.
• As a result, this is a very important
section for businesses developing a
completely new product or service.
 Section 8: Operations Plan
1 of 2

• Operations Plan
• Outlines how your business will be run and how your product or service will
be produced.
• A useful way to illustrate how your business will be run is to describe it in
terms of “back stage” (unseen to the customer) and “front stage” (seen by the
customer) activities.
• Items to include in this section:
• General approach to operations.
• Business location.
• Facilities and equipment.
Section 8: Operations Plan
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Key Insights
• You have to strike a careful balance
between adequately describing this
Operations Plan topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.
 Section 9: Management Team and Company
Structure
1 of 2

• Management Team and Company Structure

• The management team of a new venture typically consists of the founder or
founders and a handful of key management personnel.
• Items to include in this section:
• Management team.
• Board of directors.
• Board of advisers.
• Company structure.
Section 9: Management Team and Company
Structure
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Key Insights
• This is a critical section of a
business plan.
Management Team and • Many investors and others who
Company Structure read the business plan look first at
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.
 Section 10: Overall Schedule
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• Overall Schedule
• A schedule should be prepared that shows the major events required to launch
the business.
• The schedule should be in the format of milestones critical to the business’s
success.
• Examples of milestones:
• Incorporating the venture.
• Completion of prototypes.
• Rental of facilities.
• Obtaining critical financing.
• Starting production.
• Obtaining the first sale.
Section 10: Overall Schedule
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Key Insight
• An effectively prepared and
presented schedule can be
Overall Schedule extremely helpful in convincing
potential investors that the
management team is aware of
what needs to take place to launch
the venture and has a plan in
place to get there.
 Section 11: Financial Projections
1 of 2

• Financial Projections
• The final section of a business plan presents a firm’s pro forma (or projected)
financial projections.
• Items to include in this section:
• Sources and uses of funds statement.
• Assumptions sheet.
• Pro forma income statements.
• Pro forma balance sheets.
• Pro forma cash flows.
• Ratio analysis.
Section 11: Financial Projections
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Key Insights
• Having completed the earlier
sections of the plan, it’s easy to see
Financial Projections why the financial projections come
last.
• They take the plans you’ve
developed and express them in
financial terms.
What Not to Do
• Mistakes to avoid in preparing a business plan:
• Failing to provide solid data.
• Failing to describe the product in lay terms.
• Failing to thoroughly analyze the market.
• Including financial statements that are overly detailed or incomplete.
• Hiding weaknesses.
• Overlooking the fatal flaw.
• Using bad grammar.
• Making the overall plan too long.
 Tips on Preparing
a Business Plan

• Make sure your plan has an attractive cover. (First

impressions are crucial.)
• Rid your plan of all spelling and grammatical errors.
• Make your plan visually appealing.
• Include a table of contents to allow readers to
navigate your plan easily.
• Make it interesting.
 Tips on Preparing
a Business Plan
(Continued)

• Your plan must prove that the business will make

money (not necessarily immediately, but
eventually).
• Use spreadsheets to generate financial forecasts.
• Always include cash flow projections.
• Keep your plan “crisp” – between 25 and 50 pages
long.
• Tell the truth – always.
Feasibility Study vs.
Business Plan
• Feasibility study answers the bottom line question—Is this venture
going to make money?
• Feasibility study outlines and analyzes several alternatives or
methods of achieving business success
• Feasibility study is conducted before a business plan
• Business plan is prepared only after the venture has been deemed
to be feasible
• Business plan deals with only one alternative or scenario that is
determined to be the “best” alternative
• Business plan considers the management side—goals and
objectives of the planned business venture
What resources are available to help
develop each?
• Hired Business Consultants
• Make sure an accurate assessment is given
• Make sure someone is not paid to give the answer the group
wants to hear
• Can be costly
• Third Party Unbiased
• Universities
• Center for Agribusiness & Economic Development
• Small Business Development Center