Chapter

Introduction to
Entrepreneurship
Bruce R. Barringer
R. Duane Ireland
 Chapter Objectives
1 of 2
1. Explain entrepreneurship and discuss its
importance.
2. Describe corporate entrepreneurship and its use in
established firms.
3. Discuss three main reasons people decide to
become entrepreneurs.
4. Identify four main characteristics of successful
entrepreneurs.
5. Explain five common myths regarding
entrepreneurship.

1-
 Chapter Objectives
2 of 2

6. Explain how entrepreneurial firms differ from

salary-substitute and lifestyle firms.
7. Discuss the changing demographics of
entrepreneurs in the United States.
8. Discuss the impact of entrepreneurial firms on
economies and societies.
9. Identify ways in which large firms benefit from the
presence of smaller entrepreneurial firms.
10. Explain the entrepreneurial process.

13
 Entrepreneurial Revolution

• Thousands of Pakistanis are ‘self-made

entrepreneur’.

• The poor become rich due to entrepreneurial

process.

• Building entrepreneurial community is the

priority of the new E-Generation.

• Secret weapon of the Pakistani

economy !
1-4
 Mega Entrepreneurs/Founders

• Salim Ghauri – Netsol

• Monis Rehman – Rozee.pk
• Richard Branson – Virgin Group of Comp.
• Mudassir Sheikha - Careem
• Anita Roddick – The Body Shop
• Phil Knight – Nike
• Akio Morita - Sony

1-5
 Mega Entrepreneurs/Founders
• Jeff Bezos – Amazon.Com
• Sergey Brin & Larry Page- Google
• Bill Gates & Paul Allen - Microsoft
• Larry Ellison - Oracle
• Steve Jobs & Steve Wozniak - Apple Computer
• Michael Dell - Dell Computer
• Mark Zuckerberg - Facebook
• Elon Musk - Tesla

1-6
 What is Entrepreneurship?

The word “entrepreneur” derives from

the French words entre, meaning
between,” and prendre, meaning “to
take.” The word was originally used
to describe people who “take on the
risk” between buyers and sellers or
who “undertake” a task such as
starting a new venture.
1-7
 Entrepreneurship refers to a process of
starting a new enterprise and operating it, so
as to create a product , having value for
Entrepreneurship people by giving necessary time and effort ,
and bearing all the financial risks, difficulties
and challenges , with an intention to make
profit.
Entrepreneur

An entrepreneur is a person with a

unique idea, who takes initiative of
developing a new venture, arranges
all the recourses and is ready to
bear all the risks and takes all the
necessary decisions to provide
products and services that has value
to the customer.
Enterprise

An enterprise is a term in the

commercial world used to describe
a project or venture undertaken for
gain. ... Usually, by extension, it
refers to the business entity
carrying out the enterprise and is
thus synonymous with
"undertaking", "company" or
"firm"
 What is Entrepreneurship?

Academic Definition (Stevenson & Jarillo)

• Entrepreneurship is the process by which individuals pursue
opportunities without regard to resources they currently control.

Venture Capitalist (Fred Wilson)

• Entrepreneurship is the art of turning an idea into a business.

Explanation of What Entrepreneurs Do

• Entrepreneurs assemble and then integrate all the resources
needed –the money, the people, the business model, the
strategy—needed to transform an invention or an idea into a
viable business.

1-12
Importance of entrepreneurship

• Basis of economic development of nation.

• Helps in establishing new enterprises.
• Contribution in development and expansion of existing enterprises.
• Helps in developing new products and techniques.
• Opportunity to exploit full human potential.
• Creation of employment opportunities.
• Promotes capital formation.
• Balanced economic development.
• Helps in execution of government policies and plans.
• Helps in social change.
• Encourage research and investigation.
Corporate Entrepreneurship

Corporate Entrepreneurship (Intrapreneurship) is a

process used to develop new businesses, products,
services or processes inside of an existing
organization to create value and generate new
revenue growth through entrepreneurial thought and
action.
 Corporate Entrepreneurship
1 of 2
• Corporate Entrepreneurship
– Is the conceptualization of entrepreneurship at the
firm level.
– All firms fall along a conceptual continuum that ranges
from highly conservative to highly entrepreneurial.
– The position of a firm on this continuum is referred to as
its entrepreneurial intensity.
– The changes in the innovative behavior of conservative
firms (which emphasize stability, standardized products
and cost-minimization strategies) are contrasted with that
of entrepreneurial firms (which emphasize flexibility,
rapid product change and state-of-the-art product
features). 1-15
 Corporate Entrepreneurship
2 of 2
Entrepreneurial Firms Conservative Firms

• Proactive • Take a more “wait and see”

• Innovative posture

• Risk taking • Less innovative

• Risk adverse

1-16
Social Entrepreneurship
1 of 4

• Social entrepreneurship is, at its most basic level, doing

business for a social cause. It might also be referred to as
altruistic entrepreneurship.
• Social entrepreneurs combine commerce and social issues in a
way that improves the lives of people connected to the cause.
They don’t measure their success in terms of profit alone –
success to social entrepreneurs means that they have improved
the world, however they define that.
Social Entrepreneurship
2 of 4
• Beyond that, however, there are differing opinions about what
constitutes social entrepreneurship. Some believe the definition
applies only to businesses that make money and work toward
improving a designated problem by selling something to
consumers. Others say business owners who work to solve a
social problem using grant or government money are also social
entrepreneurs.
• In the “earned income” model – where the social entrepreneur
makes money by selling something – the company’s customers
know that their purchase will help support a stated cause,
whether it’s providing soap to children in need so hand washing
can protect them from diseases or selling whistles to help
promote peace in the Congo.
Social
Entrepreneurship
3 of 4
• People are often attracted
to businesses that use a
social entrepreneurship
model because they’re
helping to solve a social
problem when they spend
money on something they
need or want.
 Social Entrepreneurship Examples
4 of 4
1. She Kab is an early success story of the WECREATE incubator. It is a
technology platform that connects female commuters in order to
enable them to share rides. By providing safe, reliable, and affordable
transport solutions, She Kab aims to foster empowerment. It generates
employment opportunities for drivers, makes travel safer for women
passengers, and lowers the gender disparity in the workforce. Popinjay
is an ethical fashion label that trains and employs female artisans in
Punjab.
2. Alvi Corporation provides technical expertise to enable women to
succeed in business. The social enterprise is run by women, for women
and provides a range of advisory services including business planning,
market research and feasibility studies.
3. Jassar Farms (Improving Livestock Productivity in Pakistan) have helped
to disseminate high quality bull semen to small livestock farmers, a
sector predominantly looked after by women. Using the bull semen to
breed cows that produce higher volumes of milk allows smallholder
farming families, and particularly women who manage their livestock,
to double their cows’ milk yields, leading to an income increase of
around 33,300 Pakistani rupees ($400 USD) per year per cow.
Why Become an Entrepreneur?

The three primary reasons that people become

entrepreneurs and start their own firms

Desire to be their own boss

Desire to pursue their

own ideas

Financial rewards

1-21
Characteristics of Successful Entrepreneurs
1 of 3

Four Primary Characteristics

1-22
 Characteristics of Successful Entrepreneurs

• Passion for the Business

– The number one characteristic shared by successful entrepreneurs is a
passion for the business.
– This passion typically stems from the entrepreneur’s belief that the business
will positively influence people’s lives.
“The most important thing about starting a business is to be passionate
about what you do. I think it is very difficult to enter a business you
don’t understand and have passion for” - Oleg Tschltzoff, Fotolia, NY.

“The key is to have passion and never give up. This is imperative because
it creates a drive to solve business problems” - Peter Flint,
Trulia.Com

“Do what you’ve passionate about. In the startup world, if you’re bored,
you might as well be dead” - Chris Shaw, ProtechMy Photos
1-23
Characteristics of Successful Entrepreneurs

• Product/Customer Focus
– A second defining characteristic of successful entrepreneurs is
a product/customer focus.
– An entrepreneur’s keen focus on products and customers
typically stems from the fact that most entrepreneurs are, at
heart, craftspeople.

“The computer is the most remarkable tool we’ve ever built ….. but
the most important thing is to get them in the hands as many
people as possible.” - Steven Jobs

 good products with the capability to satisfy customers.

1-24
Characteristics of Successful Entrepreneurs

• Tenacity/Determined Despite Failure

– Because entrepreneurs are typically trying something new,

the failure rate is naturally high.

– The litmus test for entrepreneurs is their ability to

persevere through setbacks and failures.

1-25
Characteristics of Successful Entrepreneurs

• Execution Intelligence
– The ability to fashion a solid business idea into a viable
business is a key characteristic of successful entrepreneurs.
– In many cases, Execution Intelligence is the factor that det. whether a
start-up is successful or fails.
– The ability to exec a business idea means developing a business model,
putting tog’ a new venture team, raising money, establishing partnerships,
managing finances, leading & motivating employees etc….

“To open a business is very easy, to keep it open is very difficult.”

- Chinese saying

“Ideas are easy. It’s execution that ‘s hard.” - Jeff Bezos, Amazon.com
1-26
 Common Myths About Entrepreneurs
1 of 5

• Myth 1: Entrepreneurs Are Born Not Made

– This myth is based on the mistaken belief that some people
are genetically predisposed to be entrepreneurs.

– The consensus of many studies is that no one is “born” to be

an entrepreneur; everyone has the potential to become one.

– Whether someone does or doesn’t become an entrepreneur,

is a function of the environment, life experiences, and
personal choices.

1-27
 Common Myths About Entrepreneurs
2 of 5
Although no one is “born” to be an entrepreneur, there are common traits
and characteristics of successful entrepreneurs
• Achievement motivated • Optimistic disposition
• Alert to opportunities • Persuasive
• Creative • Promoter
• Decisive • Resource assembler/leverager
• Energetic • Self-confident
• Has a strong work ethic • Self-starter
• Is a moderate risk taker • Tenacious
• Is a networker • Tolerant of ambiguity
• Lengthy attention span • Visionary

1-28
 Common Myths About Entrepreneurs
3 of 5
• Myth 2: Entrepreneurs Are Gamblers
– Most entrepreneurs are moderate risk takers.
– The idea that entrepreneurs are gamblers originates from
two sources:
• Entrepreneurs typically have jobs that are less structured, and so
they face a more uncertain set of possibilities than people in
traditional jobs.
• Many entrepreneurs have a strong need to achieve and set
challenging goals, a behavior that is often equated with risk taking.

1-29
 Common Myths About Entrepreneurs
4 of 5
• Myth 3: Entrepreneurs Are Motivated Primarily by
Money.
– While it is naïve to think that entrepreneurs don’t seek
financial rewards, money is rarely the reason entrepreneurs
start new firms.
– In fact, some entrepreneurs warn that the pursuit of money
can be distracting.

1-30
 Common Myths About Entrepreneurs
5 of 5
• Myth 4: Entrepreneurs Should Be Young and
Energetic.
– The most active age for business ownership is 35 to 45
years old.
– While it is important to be energetic, investors often cite
the strength of the entrepreneur as their most important
criteria in making investment decisions.
• What makes an entrepreneur “strong” in the eyes of an investor is
experience, maturity, a solid reputation, and a track record of
success.
• These criteria favor older rather than younger entrepreneurs.

1-31
Types of Start-Up Firms

1-32
Economic Impact of Entrepreneurial Firms

• Innovation
– Is the process of creating something new, which is central
to the entrepreneurial process.
– Small firms are twice as innovative per employee as large
firms.
• Job Creation
– In the past two decades, economic activity has moved in
the direction of smaller entrepreneurial firms, which may
be due to their unique ability to innovate and focus on
specialized tasks.

1-33
 Entrepreneurial Firms’ Impact on Society
and Larger Firms
• Impact on Society
– The innovations of entrepreneurial firms have a dramatic
impact on society.
– Think of all the new products and services that make our
lives easier, enhance our productivity at work, improve our
health, and entertain us in new ways.
• Impact on Larger Firms
– Many entrepreneurial firms have built their entire business
models around producing products and services that help
larger firms become more efficient and effective.

1-34
 The Entrepreneurial Process

The Entrepreneurial Process Consists of Four Steps

Step 1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.
Step 3: Moving from an idea to an entrepreneurial firm.
Step 4: Managing and growing the entrepreneurial firm.
Step 5: Exiting the venture.

1-35
Steps in the Entrepreneurial Process
1 of 2
Step 1 Step 2
Developing Successful Business Ideas

1-36
Steps in the Entrepreneurial Process
2 of 2

Step 3 Step 4

1-37
 Chapter 2

Recognizing
Opportunities and
Generating Ideas
Bruce R. Barringer
R. Duane Ireland
Chapter Objectives
1 of 3

1. Explain why it’s important to start a new firm when its

“window of opportunity” is open.
2. Explain the difference between an opportunity and an
idea.
3. Describe the three general approaches entrepreneurs
use to identify opportunities.
4. Identify the four environmental trends that are most
instrumental in creating business opportunities.
5. List the personal characteristics that make some people
better at recognizing business opportunities than others.
Chapter Objectives
2 of 2

6. Identify the five steps in the creative process.

7. Describe the purpose of brainstorming and its use
as an idea generator.
8. Describe how to use library and Internet research
to generate new business ideas.
9. Explain the purpose of maintaining an idea bank.
10. Describe three steps for protecting ideas from
being lost or stolen.
What is An Opportunity?
1 of 2

An opportunity is a favorable
Opportunity Defined set of circumstances that
creates a need for a new
product, service or business.
What is an Opportunity?
2 of 2

An opportunity has four essential qualities

Three Ways to Identify an Opportunity
First Approach: Observing Trends
1 of 2

• Observing Trends
• Trends create opportunities for entrepreneurs to pursue.
• The most important trends are:
• Economic forces.
• Social forces.
• Technological advances.
• Political action and regulatory change.
• It’s important to be aware of changes in these areas.
First Approach: Observing Trends
2 of 2

Environmental Trends Suggesting Business

or Product Opportunity Gaps
Trend 1: Economic Forces

Example of Economic Trend

Creating a Favorable Opportunity
Economic trends help
• A weak economy favors
determine areas that are
startups that help consumers
ripe for new startups and
save money.
areas that startups should
• An example is GasBuddy.com,
avoid.
a company started to help
consumers save money on gas.
Trend 2: Social Forces

Examples of Social Trends

Social trends alter how
people and businesses • Retirement of baby boomers.
behave and set their • The increasing diversity of
priorities. These trends the workplace.
• Increasing interest in health,
provide opportunities for fitness, and wellness.
new businesses to • Emphasis on alternative forms
accommodate the of energy.
changes. • New forms of music and other
types of entertainment.
Trend 3: Technological Advances
1 of 2

Examples of Entire Industries

Advances in technology that Have Been Created as the
frequently create business Results of Technological
Advances
opportunities.
• Computer industry
• Internet
• Biotechnology
• Digital photography
Trend 3: Technological Advances
2 of 2

Example: H20Audio
Once a technology is An example is H20Audio, a
created, products often company started by four
emerge to advance it. former San Diego State
University students, that
makes waterproof housings
for the Apple iPod.
Trend 4: Political Action and Regulatory Changes
1 of 2

General Example
Political action and Laws to protect the environment
regulatory changes also have created opportunities for
provide the basis for entrepreneurs to start firms that
opportunities. help other firms comply with
environmental laws and
regulations.
 Examples

Changing Environmental Trend Resulting New Business, Product, Companies That Resulted
and Service Opportunities

Economic Trends

Search for alternatives to traditional Ethanol, Biodiesel, Solar power, MG, Windspire Energy, Solix
fossil fuels like gasoline Wind-generated power Biofuels, eSolar

Sales of upscale items at a discount Deal of the day sites, discount E.L.O, GoLootlo, Groupon,
stores, niche sites that sell LivingSocial, Gilt Groupe, e.l.o
specialized items at a discount

Social Trends

Increased Interest in different, Healthy-fare restaurants, organic Organic Sections, Brawn Breads,
tastier, and healthier food foods, healthy-focused grocery Salads, Whole Foods
stores
Examples
Changing Environmental Resulting New Business, Companies That Resulted
Trend Product, and Service
Opportunities
Technological Advances
Development of wireless Smartphones, smartphone TomTom, Apple, Oppo
networks apps, Wi-fi networks, GPS
devices
Miniaturization of Laptop computers, MP3 ASUS Eee PC, Apple Watch
electronics players, patient monitoring
devices
Political and Regulatory
Changes
Increased EPA and OSHA Consulting companies, Compliance Consulting
standards software to monitor Services, Inc.
compliance
Threat of Terrorism Security consulting, Bj Smith Consulitng,
explosives detection Xplosafe
devices, secure computer
networks
Second Approach: Solving a Problem
1 of 2

• Solving a Problem
• Sometimes identifying opportunities simply involves
noticing a problem and finding a way to solve it.
• These problems can be pinpointed through observing
trends and through more simple means, such as intuition,
serendipity, or change.
 Second Approach: Solving a Problem
2 of 2

• A problem is finding
alternatives to fossil fuels.
• A large number of
entrepreneurial firms, like
this wind farm, are being
launched to solve this problem.
Third Approach: Finding Gaps in the Marketplace
1 of 2

• Gaps in the Marketplace

• A third approach to identifying opportunities is to find a gap
in the marketplace
• A gap in the marketplace is often created when a product or
service is needed by a specific group of people but doesn’t
represent a large enough market to be of interest to
mainstream retailers or manufacturers.
Third Approach: Finding Gaps in the Marketplace
2 of 2

Specific Example
Product gaps in the There was no family
marketplace represent restaurant with affordable
potentially viable rates and good environment.
business opportunities. Gourmet entered and
succeeded.
Essajee – People wanted
imported goods.
Personal Characteristics of the Entrepreneur

Characteristics that tend to make some people better

at recognizing opportunities than others

Prior Experience Cognitive Factors

Social Networks Creativity

Prior Experience

• Prior Industry Experience

• Several studies have shown that prior experience in an
industry helps an entrepreneur recognize business
opportunities.
• By working in an industry, an individual may spot a market niche that
is underserved.
• It is also possible that by working in an industry, an individual builds
a network of social contacts who provide insights that lead to
recognizing new opportunities.
Cognitive Factors

• Cognitive Factors
• Studies have shown that opportunity recognition may be
an innate skill or cognitive process.
• Some people believe that entrepreneurs have a “sixth
sense” that allows them to see opportunities that others
miss.
• This “sixth sense” is called entrepreneurial alertness,
which is formally defined as the ability to notice things
without engaging in deliberate search.
Social Networks
1 of 3

• Social Networks
• The extent and depth of an individual’s social network
affects opportunity recognition.
• People who build a substantial network of social and
professional contacts will be exposed to more
opportunities and ideas than people with sparse networks.
• In one survey of 65 start-ups, half the founders reported
that they got their business idea through social contacts.
• Strong Tie Vs. Weak Tie Relationships
• All of us have relationships with other people that are
called “ties.” (See next slide.)
Social Networks
2 of 3

• Nature of Strong-Tie Vs. Weak Tie Relationships

• Strong-tie relationship are characterized by frequent
interaction and form between coworkers, friends, and
spouses.
• Weak-tie relationships are characterized by infrequent
interaction and form between casual acquaintances.
• Result
• It is more likely that an entrepreneur will get new business
ideas through weak-tie rather than strong-tie relationships.
(See next slide.)
Social Networks
3 of 3

Why weak-tie relationships lead to more new business ideas

than strong-tie relationships
Strong-Tie Relationships
These relationships, which
typically form between like
minded individuals, tend to
reinforce insights and ideas
that people already have.
Weak-Tie Relationships
These relationships, which
form between casual
acquaintances, are not as
apt to be between like-
minded individuals, so one
person may say something
to another that sparks a
completely new idea.
Creativity
1 of 2

• Creativity
• Creativity is the process of generating a novel or useful
idea.
• Opportunity recognition may be, at least in part, a creative
process.
• For an individual, the creative process can be broken
down into five stages, as shown on the next slide.
Creativity
2 of 2

Five-Steps to Generating Creative Ideas

Full View of the Opportunity Recognition
Process
Depicts the connection between an awareness of emerging trends
and the personal characteristics of the entrepreneur
Techniques For Generating Ideas

Brainstorming Focus Groups

Library and
Internet Research
Brainstorming

• Brainstorming
• Is a technique used to generate a large number of ideas
and solutions to problems quickly.
• A brainstorming “session” typically involves a group of
people, and should be targeted to a specific topic.
• Rules for a brainstorming session:
• No criticism.
• Freewhelling is encouraged.
• The session should move quickly.
• Leap-frogging is encouraged.
Focus Groups

• Focus Group
• A focus group is a gathering of five to ten people, who
have been selected based on their common characteristics
relative to the issues being discussed.
• These groups are led by a trained moderator, who uses the
internal dynamics of the group environment to gain
insight into why people feel they way they do about a
particular issue.
• Although focus groups are used for a variety of purposes,
they can be used to help generate new business ideas.
Library and Internet Research
1 of 3

• Library Research
• Libraries are an often underutilized source of information
for generating new business ideas.
• The best approach is to talk to a reference librarian, who
can point out useful resources, such as industry-specific
magazines, trade journals, and industry reports.
• Simply browsing through several issues of a trade journal
or an industry report on a topic can spark new ideas.
 Libraries and Internet Research
2 of 3

Examples of Useful Search

Large public and Engines and Industry Reports
university libraries • Lexis-Nexis Academic
typically have access to • ProQuest
search engines and • IBISWorld
industry reports that would • Mintel
• Standard & Poor’s Net
cost thousands of dollars
Advantage
to access on your own.
Library and Internet Research
3 of 3

• Internet Research
• If you are starting from scratch, simply typing “new
business ideas” into a search engine will produce links to
newspapers and magazine articles about the “hottest” new
business ideas.
• If you have a specific topic in mind, setting up Google or
Yahoo! e-mail alerts will provide you to links to a constant
stream of newspaper articles, blog posts, and news
releases about the topic.
• Targeted searches are also useful.
Other Techniques

• Customer Advisory Boards

• Some companies set up customer advisory boards that
meet regularly to discuss needs, wants, and problems that
may lead to new ideas.
• Day-In-The-Life Research
• A type of anthropological research, where the employees
of a company spend a day with a customer.
Encouraging New Ideas

• Establishing a Focal Point for Ideas

• Some firms meet the challenge of encouraging, collecting,
and evaluating ideas by designating a specific person to
screen and track them—for if its everybody’s job, it may
be no one’s responsibility.
• Another approach is to establish an idea bank (or vault),
which is a physical or digital repository for storing ideas.
• Encouraging Creativity at the Firm Level
• Creativity is the raw material that goes into innovation and
should be encouraged at the organizational and individual
supervisory level.
Protecting Ideas From Being Lost or Stolen

• Step 1
• The idea should be put in a tangible form such as entered into
a physical idea logbook or saved on a computer disk, and the
date the idea was first thought of should be entered.
• Step 2
• The idea should be secured. This may seem like an obvious
step, but is often overlooked.
• Step 3
• Avoid making an inadvertent or voluntary disclosure of an
idea, in a manner that forfeits the right to claim exclusive
rights to it.
 Chapter 3

Feasibility Analysis
Bruce R. Barringer
R. Duane Ireland
 Chapter Objectives
1 of 3
1. Explain what a feasibility analysis is and why it’s
important.
2. Discuss the proper time to complete a feasibility
analysis when developing an entrepreneurial venture.
3. Describe the purpose of a product/service feasibility
analysis and the two primary issues that a proposed
business should consider in this area.
4. Explain a concept statement and its components.
5. Describe the purpose of a buying intentions survey
and how it’s administered.
 Chapter Objectives
2 of 3

6. Explain the importance of library, Internet, and

gumshoe research.
7. Describe the purpose of industry/market feasibility analysis
and the two primary issues to consider in this area.
8. Discuss the characteristics of an attractive industry.
9. Describe the purpose of organizational feasibility analysis
and list the two primary issues to consider in this area.

10. Explain the importance of financial feasibility

analysis and list the most critical issues to consider
in this area.
 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.
 When To Conduct a Feasibility Analysis

• Timing of Feasibility Analysis

– The proper time to conduct a feasibility analysis is early in

thinking through the prospects for a new business.
– The thought is to screen ideas before a lot of resources are
spent on them

• Components of a Properly Conducted Feasibility

Analysis
– A properly conducted feasibility analysis includes four
separate components, as discussed in the following slides.
 Feasibility Analysis

Role of feasibility analysis in developing business ideas.

 Forms of Feasibility Analysis

Industry/Target Market
Product/Service Feasibility
Feasibility

Organizational Feasibility Financial Feasibility

Outline for a Comprehensive Feasibility
Analysis
 Product/Service Feasibility Analysis
1 of 2
Purpose

• Is an assessment of the overall

Product/Service appeal of the product or service
Feasibility Analysis being proposed.
• Before a prospective firm rushes
a new product or service into
development, it should be sure
that the product or service is what
prospective customers want.
Product/Service Feasibility Analysis
2 of 2
Components of product/service
feasibility analysis

Product/Service Product/Service
Desirability Demand
 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?
 Product/Service Desirability
2 of 3
• Second, Administer a Concept Test

– A concept statement should be developed.

– 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.
– The feedback will hopefully provide the
entrepreneur
• A sense of the viability or the product or service
idea.
• Suggestions for how the idea can be strengthened or “tweaked”
 Product/Service Desirability
3 of 3

New Venture
Fitness Drink’s
Concept Statement
 Product/Service Demand
1 of 6
• Product/Service Demand

– Their are two steps to assessing product/service

demand.
– Step 1: Administer a Buying Intentions Survey

– Step 2: Conduct library, Internet, and Gumshoe

research
 Product/Service Demand
2 of 6

• Buying Intentions Survey

– Is an instrument that is used to gauge customer interest in a

product or service.
– It consists of a concept statement or a similar description of
a product or survey with a short survey attached to gauge
customer interest.
– Internet sites like SurveyMonkey make administering a
buying intentions survey easy and affordable.
Product/Service Demand
3 of 6
 Product/Service Demand
4 of 6

• Library, Internet, and Gumshoe Research

– The second way to assess the demand for a product or

service is by conducting library, Internet, and gumshoe
research.
– Reference librarians can often point you towards resources
to help you investigate a business idea, such as industry-
specific trade journal and industry reports.
– Internet searches can often yield important information
about the potentially viability of a product or service idea.
 Product/Service Demand
6 of 6

• One of the most effective things an entrepreneur can

do to conduct a thorough product/service feasibility
analysis is to hit the streets and talk to potential
customers.
• This potential entrepreneur is administering a survey
about a new product idea.
 Industry/Target Market Feasibility
Analysis
1 of 2

Purpose

• Is an assessment of the overall

Industry/Target Market
appeal of the industry and the
Feasibility Analysis target market for the
proposed business.
• An industry is a group of firms
producing a similar product or
service.
• A firm’s target market is the
limited portion of the industry it
plans to go after.
Industry/Target Market
2 of 2
Feasibility Analysis
Components of industry/target market
feasibility analysis

Target Market
Industry Attractiveness
Attractiveness
 Industry Attractiveness
1 of 2

• Industry Attractiveness

– Industries vary in terms of their overall attractiveness.

– In general, the most attractive industries have the

characteristics depicted on the next slide.
– Particularly important—the degree to which environmental
and business trends are moving in favor rather than against
the industry .
Industry Attractiveness
2 of 2
 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.
– Assessing the attractiveness of a target market is tougher
than an entire industry.
– Often, considerably ingenuity must be employed to finding
information to assess the attractiveness of a specific target
market.
 Organizational Feasibility Analysis
1 of 2

Purpose
Organizational Feasibility
Analysis • Is conducted to determine
whether a proposed business has
sufficient management
expertise, organizational
competence, and resources to
successfully launch a business.
• Focuses on non-financial
resources.
 Organizational Feasibility Analysis
2 of 2
Components of organizational
feasibility analysis

Management Prowess Resource Sufficiency

 Management Prowess
1 of 2

• 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.
 Management Prowess
2 of 2

• An indication of passion is the willingness of a new

venture team to complete a comprehensive
feasibility analysis.
 Resource Sufficiency
1 of 2

• 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.
 Resource Sufficiency
2 of 2
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.

 Financial Feasibility Analysis
1 of 2

Purpose

Financial Feasibility • Is the final component of a

Analysis comprehensive feasibility analysis.

• A preliminary financial assessment
is sufficient.
 Financial Feasibility Analysis
2 of 2
Components of financial
feasibility analysis

Total Start-Up Cash Financial Performance of

Needed Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture
 Total Start-Up Cash Needed

• Total Start-Up Cash Needed

– The first issues refers to the the total cash needed to

prepare the business to make its first sale.
– An actual budget should be prepared that lists all the
anticipated capital purchases and operating expenses
needed to generate the first $1 in revenues.
– The point of this exercise is to determine if the proposed
venture is realistic given the total start-up cash needed.
 Financial Performance of Similar
Businesses

• Financial Performance of Similar Businesses

– Estimate the proposed start-up’s financial performance by

comparing it to similar, already established businesses.
– There are several ways to doing this, all of which involve a
little ethical detective work.
• First, there are many reports available, some for free and some that
require a fee, offering detailed industry trend analysis and reports
on thousands of individual firms.
• Second, simple observational research may be needed. For
example, the owners of New Venture Fitness Drinks could estimate
their sales by tracking the number of people who patronize similar
restaurants and estimating the average amount each customer
Overall Financial Attractiveness of the
Proposed Venture
1 of 2

• Overall Financial Attractiveness of the Proposed

Investment
– A number of other financial factors are associated with
promising business startups.
– In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor is
based on an estimate rather than actual performance.
– The table on the next slide lists the factors that pertain to
the overall attractiveness of the financial feasibility of the
business idea.
 Overall Financial Attractiveness of the
Proposed Venture
2 of 2

Financial Factors Associated With Promising Business

Opportunities

• Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
• High percentage of recurring revenue—meaning that once a firm wins a
client, the client will provide recurring sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of
certainty.

• Internally generated funds to finance and sustain growth.

• Availability of an exit opportunity for investors to convert equity to cash.