What Is Feasibility Analysis?

• Feasibility analysis is the

process of determining
whether
a business idea is viable.
Feasibility Analysis • It is the preliminary evaluation
of a business idea, conducted
for the purpose of determining
whether the idea is worth
pursuing.

©2010 Pearson Education

 Feasibility Analysis

Role of feasibility analysis in developing business ideas.

©2010 Pearson Education

 Forms of Feasibility Analysis

Industry/Target Market
Product/Service Feasibility
Feasibility

Organizational Feasibility Financial Feasibility

©2010 Pearson Education

 Product/Service Feasibility Analysis
1 of 2

Purpose
Product/Service
• Is an assessment of the overall
Feasibility Analysis
appeal of the product or service
being proposed.

©2010 Pearson Education

 Product/Service Feasibility Analysis
2 of 2

Components of product/service
feasibility analysis

Product/Service Product/Service
Desirability Demand

©2010 Pearson Education

 Product/Service Desirability
1 of 3

First, ask the following questions to determine the basic

appeal of the product or service.

• Does it make sense? Is it reasonable? Is it something consumers

will get excited about?
• Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the
market?
• Are there any fatal flaws in the product or service’s basic design
or concept?

©2010 Pearson Education

 Product/Service Desirability
2 of 3

• Second, Administer a Concept Test

– A concept statement is a one page description of a
business, that is distributed to people who are asked to
provide feedback on the potential of the business idea.

©2010 Pearson Education

 Product/Service Desirability
3 of 3

New Venture
Fitness Drink’s
Concept Statement

©2010 Pearson Education

 Product/Service Demand

• Product/Service Demand
– There are two steps to assessing product/service demand.
– Step 1: Administer a Buying Intentions Survey
– Step 2: Conduct library, Internet, and Gumshoe research

©2010 Pearson Education

 Product/Service Demand

• Buying Intentions Survey

– Is an instrument that is used to gauge customer interest in a
product or service.

©2010 Pearson Education

 Product/Service Demand

©2010 Pearson Education

 Main areas of a questionnaire
• Interest in your product or service
- desirability and demand
• Demographics
- What kind of people your prospects are?
• The means of reaching your market
- Availability
• The competition
- Alternatives
©2010 Pearson Education
©2010 Pearson Education
 Common mistakes
• Failure of the respondent to understand
question
• Failure of the interviewer to record the
reply accurately
• Boredom and fatigue
• Inaccuracy of memory
• No conscious attitude

©2010 Pearson Education

 Questions Types
• Open questions
Ex.: “why do you eat that brand of cereal
more than any other?”
• Closed questions

©2010 Pearson Education

 Open ended question

©2010 Pearson Education

 Pre-coded open question
• ‘Why did you buy the particular brand of
mayonnaise?

©2010 Pearson Education

 Dichotomous Question

©2010 Pearson Education

 Avoid Double-Barrelled
Questions
• A question that actually asks two
questions in one

- “Do you plan to leave your car at home and

take the bus to work during the coming
year?”

©2010 Pearson Education

• How important do you think it is for a
developing country like Bangladesh to
revoke trade restrictions from foreign
countries, in order to ensure their financial
prosperity?

©2010 Pearson Education

 Avoid Leading Questions
• “Please tell me whether you agree with,
disagree with, or have no opinion on the
following statement: ‘Tourism is beneficial
to Northumberland County and therefore
should be promoted.”

• Please tell me whether you agree with, disagree with, or

have no opinion on the following statement: ‘Tourism to
Northumberland County should be promoted.

©2010 Pearson Education

 Don’t know or neutral

©2010 Pearson Education

 Data type
• Nominal data

©2010 Pearson Education

 Data type
• Ordinal data

©2010 Pearson Education

 Data type
• Interval scales

©2010 Pearson Education

 Ratio Scales

©2010 Pearson Education

 Attitudinal Rating Scales
• Likert scale
• Semantic differential scale
• Pictorial scale

©2010 Pearson Education

 Likert scale

©2010 Pearson Education

 Semantic differential scale

©2010 Pearson Education

 Pictorial scale

©2010 Pearson Education

 Industry/Target Market
Feasibility Analysis

©2010 Pearson Education

Industry/Target Market Feasibility Analysis

Components of industry/target market

feasibility analysis

Target Market
Industry Attractiveness
Attractiveness

©2010 Pearson Education

 Industry Attractiveness

• Industry Attractiveness
– Industries vary in terms of their overall attractiveness.

– The top 3 factors are particularly very important (Refer to

next slide).

– Industries that are young rather than old, are early rather
than late in their life cycle, and are fragmented rather than
concentrated are more receptive to new entrants than
industries with the opposite characteristics.

©2010 Pearson Education

 Industry Attractiveness

©2010 Pearson Education

 Target Market Attractiveness

• Target Market Attractiveness

– The challenge in identifying an attractive target market is
to find a market that’s large enough for the proposed
business but is yet small enough to avoid attracting larger
competitors.

©2010 Pearson Education

 Mullins’ Seven Domains Model

• Mullins' Seven Domains Model helps in

understanding the influence of 7 major factors or
domains that are responsible for the successful
turnout of a business.
• According to the model, a new business venture
can be divided into 7 domains. Four of them look
at the micro (small-scale) and macro (large-
scale) faces of the market and industry, while
three of them are concerned about the team that
works in the company.
©2010 Pearson Education
Mullins’ Seven Domains Model

Porter’s
5 Forces
Model

©2010 Pearson Education

 Market & Industry Domain

• To analyze industry/target market attractiveness, we

will examine the ‘Industry’ & ‘Market’ of the
Mullins’ Seven Domain Model

©2010 Pearson Education

 Market Domain
Macro level: Market attractiveness

• How big the market is?

• Number of customers
• Quantity of unit sold
• Trends

©2010 Pearson Education

 Market Domain
Micro level: Target market attractiveness

• Market segmentation
• Competitive advantage
• Entry to other segments

©2010 Pearson Education

 Industry Domain
Macro level: Industry attractiveness
• Entry barrier
• Competition
• Power of buyers and suppliers

To find out the industry attractiveness of a

product or service at the macro level, we
will use “The Five Competitive Forces
Model (Porter’s Five Forces Model)”
©2010 Pearson Education
 The Five Competitive Forces Model

©2010 Pearson Education

 Threat of Substitutes

• Threat of Substitutes
– The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.

– Higher the availability of substitutes, higher the threat.

©2010 Pearson Education

 Threat of New Entrants

• Threat of New Entrants

– If the firms in an industry are highly profitable, the industry
becomes a magnet to new entrants.
 Economies of Scale: Large economies of scale means difficulty to enter
 Product Differentiation: High differentiation means difficulty to enter
 Capital Requirements: High capital requirements means difficulty to
enter
 Cost advantages independent of size: Higher cost advantage means
difficulty to enter
 Access to distribution channels: Harder access, higher difficulty to enter
 Government and legal barriers: More barriers, higher difficulty

©2010 Pearson Education

 Rivalry Among Existing Firms

• Rivalry Among Existing Firms

– In most industries, the major determinant of industry
profitability is the level of competition among existing
firms.
 Number and balance of competitors: More the competitors, greater
the rivalry
 Degree of difference between products: Lower the difference, more
intense rivalry
 Growth rate of an industry: Slower growth intensifies rivalry
 Level of fixed costs: Higher fixed costs, greater the rivalry

©2010 Pearson Education

 Bargaining Power of Suppliers

• Bargaining Power of Suppliers

– Suppliers can suppress the profitability of the industries to
which they sell by raising prices or reducing the quality of
the components they provide.
 Supplier concentration: Lesser the no of suppliers, higher
bargaining power of suppliers.
 Switching costs: Lower switching cost for buyers, lower
bargaining power of suppliers
 Attractiveness of substitutes: Lower the substitutes, higher
bargaining power of suppliers.
 Threat of forward integration: If there is a chance that supplier will
enter the buyer’s industry, bargaining power of suppliers goes up.

©2010 Pearson Education

 Bargaining Power of Buyers

• Bargaining Power of Buyers

– Buyers can suppress the profitability of the industries from
which they purchase by demanding price concessions or
increases in quality.
 Buyer group concentration: Fewer the buyers, higher the
bargaining power of buyers.
 Buyer’s cost: Higher the cost, higher the bargaining power of
buyers.
 Degree of standardization of supplier’s products: Higher the degree
of standardization, higher the bargaining power of buyers.
 Threat of backward integration: If there is a chance that buyer will
enter the supplier’s industry, bargaining power of buyers goes up.

©2010 Pearson Education

 Industry Domain
Micro level: Sustainable advantage

• USP
• How easy it is to duplicate the advantage

©2010 Pearson Education

 Team domain: Mission,
aspirations, propensity for risk
• Team commitment
• Passion for the business

©2010 Pearson Education

Team domain: Ability to execute
on critical success factors

• Which wrong decisions or activities would

cost you the most
• Which activities will deliver highest benefit

©2010 Pearson Education

Team domain: Connectedness up,
down and across value chain
• Relationship with investors, supplier,
customers, distributers and competitors

©2010 Pearson Education

 Organizational
Feasibility Analysis

©2010 Pearson Education

 Organizational Feasibility Analysis
1 of 2

Purpose
• Is conducted to determine
Organizational Feasibility whether a proposed business has
Analysis sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
• Focuses on non-financial resources.

©2010 Pearson Education

 Organizational Feasibility Analysis
2 of 2

Components of organizational
feasibility analysis

Management Prowess Resource Sufficiency

©2010 Pearson Education

 Management Prowess

• Management Prowess
– A firm should candidly evaluate the prowess, or ability, of
its management team to satisfy itself that management has
the requisite passion and expertise to launch the venture.
– Two of the most important factors in this area are:
• The passion that the solo entrepreneur or the founding team has for
the business idea.
• The extent to which sole entrepreneur or the founding team
understands the markets in which the firm will participate.

©2010 Pearson Education

 Management Prowess

• To analyze management prowess, we can examine

the ‘Team Domain’ of the Mullins’ Seven Domain
Model

©2010 Pearson Education

 Resource Sufficiency

• Resource Sufficiency
– This topic pertains to an assessment of whether an
entrepreneur has sufficient resources to launch the
proposed venture.
– To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed to
move the business idea forward successfully.
• If critical resources are not available in certain areas, it may be
impractical to proceed with the business idea.

©2010 Pearson Education

 Resource Sufficiency
Examples of nonfinancial resources that may be critical
to the successful launch of a new business
• Availability of affordable office or lab space.
• Likelihood of local and state government support of the business.
• Quality of the labor pool available.
• Proximity to key suppliers and customers.
• Willingness of high quality employees to join the firm.
• Likelihood of establishing favorable strategic partnerships.
• Proximity to similar firms for the purpose of sharing knowledge.
• Possibility of obtaining intellectual property protection in key areas.

©2010 Pearson Education