lOMoARcPSD|22853254

Chapter 3: Feasibility analysis

Feasibility analysis
 Is the process of determining if a business idea is viable
 Figure 3.1 page 99: Testing Proposed business venture in: (if yes in all areas then
proceed with idea)
o Product/service feasibility,
o Industry/Target market feasibility,
o Organisational feasibility,
o Financial feasibility
 It is an investigative process and should critique the merits of a proposed business.
 Failure to investigate can leads to:
o blinding an entrepreneur from risks associated with the business.
o “everything about my opportunity is wonderful”
 Primary research: collected by the person conducting the analysis (taking to
prospective costumers, feedback from industry experts)
 Secondary research: probes data that is already collected (industry studies, info from
internet or library)

Product/Service Feasibility Analysis

 Assessment of the overall appeal of the product or service
 1. Product/Service Desirability:
o Questions to ask: Is it reasonable?
o Does it serve a need in the marketplace?
o Is it something real customers would buy?
o Is it solving a problem or gains support from any environmental trend?
o Is it a good time to introduce it to the market?
o Fatal flaws in the first design?
 Don’t take final conclusions from these questions rather ask potential costumers (Tool:
“Get out of the building”)
 Concept test:
o Preliminary description of a product or service idea (=concept statement,1 A4)
 Contains: description of product or service
 The intended target market (list of customers)
 The benefits of the product or service (how it ads value or solves a
problem)
 How product will be positioned in relation to competitors
 About management team
o Show the concept statement to industry experts and to potential customer to
solicit their feedback
o Example of concept statement from “New venture fitness drinks” (picture)

o Common reason for failure: Not large enough market for product
 Online tools for completing feasibility analysis
o 3D printing services
o A/B Split testing
o Feedback on business ideas (examples: Quirky, Founder suite)

Downloaded by Imtiaz Sultan (helloawan103@gmail.com)

 lOMoARcPSD|22853254

o Landing pages (launch rock)

o Surveys
o Market research
o Q&A sites
 2. Product/Service demand:
o Method 1: Talking face to face method with potential customers
 Potential customers and relevant players
 Find people by contacting trade associations and attend industry trade
shows
o Method 2: Utilizing online tools, such as google AdWords and landing pages to
assess demand.
 Buy keywords on google search to place your ad (Ad is linked to your
landing page)
 On your landing page you provide a field to enter your email if
interested in product. The scale of demand depends on how many
people are interested and enter their email.
o Method 3: Library, Internet and Gumshoe research
 Researching secondary data from prospective customers and industry-
related data
 IBIS Worlds provides industry reports
 Example: selling Toys: beneficial to browse through toy stores,
volunteer at a care center, talk to the care center owner

Industry/Target Market Feasibility Analysis

 Assessment of the appeal of the target market and the industry
 A firm’s industry: group of firms producing similar products or services
 A firm’s target market is just the part of the industry which it wants to appeal to
 Most companies select a certain target market out of an industry
 1. Component: Industry Attractiveness: (Characteristics)
o Characteristics: Young rather than old
o Early life cycle
o Are fragmented rather than concentrated
o Growing
o Selling “must have” rather than “want to have”
o Not Crowded
o High rather than low operating margins
o Independent from low prices of for example raw material
o Environmental, social, economic trends favor the industry
 Get an understand if an industry is a good or a poor one for start-ups: IBIS World,
Mintel, Bizminer
 2. Component: Target Market Attractiveness
o Start ups usually choose to sell to a narrower group of customers within a
market segment (=Target Market)
o Start-ups usually introduce either a new product into a new market or a new
market for an existing product, but not both. (too expensive)

Downloaded by Imtiaz Sultan (helloawan103@gmail.com)

 lOMoARcPSD|22853254

o Finding a good market: a market large enough for the new venture but small
enough not to attract larger competitors, study other markets related to your
market (are they growing or shrinking)

Organizational Feasibility Analysis

 Does the proposed business have enough management experience,
organisational competence and resources to successfully launch? Main issues:
 Management Prowess:
o The ability of it’s initial management team
o The main factors of the self-assessment of the management team or
solo entrepreneur are their passion and the extent to which they
understand the market in which the firm will participate
o Extensive professional and social networks are beneficial
o Crucial to know what type of new-venture team they can assemble
o A new-venture team: a group of founders, key employees and advisers
that can support a venture in it’s start-up years.
o Highly capable individuals, that would be part of the new-venture
team, identified by the founders, give credibility to the organizational
feasibility.
o Frequently it comes out after of assessing the organisational feasibility
that partners are beneficial.
 Resource sufficiency:
o Assessment if the company can obtain enough resources (in this case
nonfinancial resources)
o Identify the most important nonfinancial resources and see if they are
available (for example: are there enough fitting employees available in
the community that the company wants to launch)
o To test resource sufficiency: List 6 to 12 most critical nonfinancial
resources
o Types of nonfinancial resources:
 Affordable office space
 Lab space, manufacturing space, or space to launch new
businesses
 Contract manufacturers or service providers
 Key management employees
 Key support personnel
 Key equipment
 Ability to obtain intellectual property protection on key
aspects of the business
 Support of local governments and state governments
 Ability to form favorable business partnerships

Financial Feasibility Analysis

 A preliminary financial assessment is usually sufficient
 Most important issues at the beginning of a business:
o Start-up cash
o Financial performance of similar businesses
o Overall financial attractiveness of the proposed venture

Downloaded by Imtiaz Sultan (helloawan103@gmail.com)

 lOMoARcPSD|22853254

Total Start-Up Cash Needed

 Total cash needed to prepare a business to make it’s first sale

 Reasonable plan how to cover the start-up costs and how to repay the borrowed
money should be made
 Over estimate costs because things will go wrong

Financial Performance of Similar Businesses

 This assessment is done by comparing the proposed Start-Up to other similar

businesses. Ways of doing that:
 Financial reports of thousands of companies is available online. Find a small
comparable firm. Useful pages: IBISWorld, BizStats, BizMiner
 Ask the business owner of a similar company to share sales and income data
 Observation and legwork to obtain data from similar businesses

Overall Financial Attractiveness of the Proposed Venture

 These evaluations are based primarily on a new venture’s projected sales and rate of
return
 More precise estimation of cash flow, income statements and balance sheets (=pro
forma financial statements) usually applicable in the business planning stage.
 To Assess the start-Up’s projected rate of return should be weighted against the
following factors:
o The amount of capital invested
o The risks assumed in launching the business
o The existing alternatives for the money being invested
o The existing alternatives for the entrepreneur’s time and efforts

A Feasibility Analysis Template

 The feasibility stage should be seen as something fluid and while doing the first screen
of the feasibility with the template, suggestions might come up to make the business
more feasible.

Downloaded by Imtiaz Sultan (helloawan103@gmail.com)