Chapter 3
Feasibility Analysis
Key Words
Feasibility analysis—the process of determining if a business idea is viable
Primary research—original research that is collected by the person or persons
completing the analysis
Chapter Overview
This chapter focuses on assessing the feasibility of a business idea. A feasibility analysis
is more stringent than the “First Screen” (introduced in Chapter 2) and is designed to take
the best idea or ideas that emerge and more fully assess their viability.
Chapter Summary
1.
Feasibility analysis is the process of determining if a business idea is viable.
2.
obtaining feedback from prospective customers, and administering surveys.
Primary research is original research that is collected by the person or persons
3.
pertinent information gleaned through library and Internet research.
Secondary research probes data that is already collected. The data generally
4.
and product/service demand.
Product/service feasibility is an assessment of the overall appeal of the product
5.
A concept test involves showing a preliminary description of a product or service
6.
A 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 service) with a short survey attached.
7.
industry and market for the product or service being proposed. Its three
components are industry attractiveness, target market attractiveness, and market
timeliness.
Industry/target market feasibility is an assessment of the overall appeal of the
8.
business has sufficient management expertise, organizational competence, and
resources to successfully launch its business. Its two components are
management prowess and (non-financial) resource sufficiency.
Organizational feasibility analysis is conducted to determine whether a proposed
9.
for the employees to network with one another, and it is easy for the firms to
gain access to specialized suppliers, scientific knowledge, and technological
expertise native to the area.
Clusters of firms arise because they increase the productivity of the firms
participating in them. Because the firms are located near one another, it is easy
10.
Financial feasibility analysis is conducted to determine if a new venture is
feasible from a financial perspective. Its three components are: total start-up cash
needed, financial performance of similar businesses, and overall financial
attractiveness of the proposed venture.
Chapter Outline
I. Introduction
II. Template for Completing a Feasibility Analysis
III. Product/Service Feasibility
IV. Industry/Target Market Feasibility Analysis
a. Industry Attractiveness
b. Target Market Attractiveness
c. Market Timeliness
V. Organizational Feasibility Analysis
a. Management Prowess
b. Resource Sufficiency
VI. Financial Feasibility
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Chapter Notes
I. Introduction
• Feasibility analysis is the process of determining if a business idea is
viable
II. Template for Completing a Feasibility Analysis
• Template is shown in Table 3.1. A fuller version is provided in Appendix
1 at the end of the chapter
III. Product/Service Feasibility
• Product/service feasibility is an assessment of the overall appeal of the
product or service being proposed
a. Product/Service Desirability
• The first component of product/service feasibility is to affirm that
the proposed product or service is desirable and serves a need in
the marketplace
i. Concept Test
• A concept test involves showing a preliminary
description of a product or service idea, called a
concept statement, to industry experts and
prospective customers to solicit their feedback
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how the product or service will be sold, and (6) a
brief description of company’s management team
b. Product/Service Demand
• The second component of the product/service feasibility analysis is
to determine if there is demand for the product or service
i. Buying Intentions Survey
• A buying intentions survey gauges customer interest in a
product or service
IV. Industry/Target Market Feasibility Analysis
• Industry/target market feasibility is an assessment of the overall appeal of
the industry and the target market for the product or service being
proposed
a. Industry Attractiveness
i. In general, the most attractive industries for start-ups are
large and growing, are young rather than old, are early
rather than late in their life cycle, and are fragmented rather
than concentrated
b. Target Market Attractiveness
i. By focusing on a target market, a firm can usually avoid
head-to-head competition with industry leaders, instead of
serving a specialized market very well
c. Market Timeliness
i. Determine if the window of opportunity for the product or
service is open or closed
V. Organizational Feasibility Analysis
• Organizational feasibility analysis determines whether a proposed
business has sufficient management expertise, organizational competence,
and resources to successfully launch its business
a. Management Prowess
i. A start-up should assess the prowess, or ability, of its initial
management team
ii. Individuals starting the firm should conduct honest and
candid self-assessments
b. Resource Sufficiency
i. The focus in organizational analysis is on non-financial
resources because financial feasibility is considered
separately
ii. Identify the 8 to 12 most important and potentially
problematic non-financial resources and assess whether
they are available
VI. Financial Feasibility
• For feasibility analysis, a preliminary financial analysis, is normally
sufficient.
a. Total Start-up Cash Needed
i. Try to determine total cash needed to prepare the business
to make its first sale
b. Financial Performance of Similar Businesses
i. Estimate a proposed start-up’s potential financial
performance by comparing it to similar, already established
businesses
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c. Overall Financial Attractiveness of the Proposed Venture
i. The extent to which a proposed business appears positive
relative to each factor is based on an estimate or forecast,
not actual performance
Review Questions
1.
What is a feasibility analysis? How does a feasibility analysis differ from a
business plan?
Answer: A feasibility analysis is the process of determining if a business idea is
2.
What are the four individual components of a full feasibility analysis?
Answer: Product/service feasibility, industry/target market feasibility,
3.
What is the difference between primary research and secondary research? Are
both types of research necessary to complete a full feasibility analysis?
Answer: Primary research is collected by the individual conducting the analysis,
4.
product/service desirability and product/service demand.
Describe the purpose of product/service feasibility analysis? Briefly describe its
two components.
Answer: Product/service feasibility analysis is an assessment of the overall
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5.
Describe the purpose of a concept test and how it should be executed. Also,
describe the purpose of a buying intentions survey and how it should be
distributed and assessed.
Answer: A concept test involves showing a preliminary description of a product
6.
Explain the purpose of industry/target market feasibility analysis. Briefly
describe its three components?
Answer: Industry/target market feasibility is an assessment of the overall appeal
7.
What is a target market? Why do most start-ups start in target markets rather
than broader markets that have more customers?
Answer: A target market represents the limited portion of the industry that a
8.
Describe the purpose of organizational feasibility analysis. Briefly describe its
two components.
Answer: Organizational feasibility analysis is conducted to determine whether a
9.
What is an industry “cluster”? Why might a semiconductor start-up, for example,
decide to launch in a geographic area where there are other semiconductor firms,
rather than another area?
Answer: Clusters of firms arise because of the increase of productivity of the
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10.
Describe the purpose of a financial feasibility analysis. Briefly describe its three
components.
Answer: Financial feasibility is conducted to determine if a new venture is
Application Questions
1.
partner. She needs to determine if her anticipated sales can support the growth of
viable.
Ann Bennett, a friend of yours, recently inherited $150,000 from an elderly aunt,
and is about to sign a three-year lease on a small storefront in an upscale mall.
Ann has always wanted to open a cosmetics store for women and feels now is
her chance—she has the money she needs and the space in the mall is available.
You ask Ann if she has conducted a feasibility analysis and a business plan for
her business, and she said that she bought a business plan software package
online and plans to look at it soon, but needs to get the lease signed first and isn’t
familiar with what a feasibility analysis is. When you give Ann a quizzical look,
she pauses and says, “Am I doing something wrong?” What would you tell her?
Answer: Before moving forward with her lease, Ann needs to conduct a First
Screen and feasibility analysis to assess whether it is worthwhile to move
2.
Three recent start-ups, Greasecar Vegetable Fuel Systems, ZUCA, and Ingemi
Corp. (the maker of the IHearSafe earbuds) were mentioned in Chapter 2. Pick
one of these companies and write a concept statement for it.
Answer: Student answers will vary but should include a preliminary description
needed, financial performance of similar businesses, and overall financial
attractiveness of the proposed venture.
3.
Yogitoes, another company introduced in Chapter 2, makes nonslip rugs for
Yoga enthusiasts. Describe how you would have conducted an industry/target
market feasibility analysis for this star-up.
Answer: Student answers will vary but should include some analysis of the
4.
Kyle Smith has developed a new software product that helps the owners of
independent bookstores better track their inventory and sales. Kyle is now
wondering whether this is a good time to launch the product. What factors
should Kyle consider in making this determination?
Answer: Kyle should consider whether the window of opportunity is open or
5.
Using one or more of the resources included in the Internet Resources Table in
Appendix 2 following Chapter 2, investigate the health and growth potential of
the spa industry in the United States.
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Additional Activities
1. Concept Statement and Buying Intentions Survey
Purpose: students will learn to consolidate their new business concept into a one-page
document and will learn how to approach other people to obtain feedback on their
concepts.
2. Industry Attractiveness—the Best and the Worst
Purpose: to identify industries that are highly attractive or unattractive. Use this activity
after you have finished lecturing on Industry Attractiveness.
• Ask students to call out loud the best and worst examples of industries. For
instance, what are really bad industries to enter or what are examples of really
attractive industries to enter. Write the two lists on chalk- or whiteboard.
The Best and the Worst Discussion Questions:
• Prioritize the list of the top “Do Enter Industries” based on our discussion of the
“Best” list. In other words, this would be the first industry I would want to enter,
3. Organizational Feasibility Analysis
Purpose: to encourage students to expand their awareness of the various factors
included in an organizational feasibility test, and to encourage more ideas, adaptations,
and innovations.
Use this discussion activity after you have completed your lecture on organizational
feasibility analysis.
questions.
1. WHO
Who can help or make contributions to make our business successful?
Who must I “sell” on this idea in order for it to become a reality?
2. WHAT
What do I need by way of additional resources that I haven’t considered yet?
What techniques or methods can I use to get these resources?
3. WHERE
Where should I start to obtain what I need?
4. WHEN
When should I introduce the plan to each category of stakeholder?
5. WHY
Why should a stakeholder buy our idea?
6. HOW
How can we improve on our concept?
When all students have completed this discussion, ask these questions to debrief the
activity:
1. How can these questions help you in problem solving and innovation?
2. Which set of questions do you find yourself using most often?
3. Which question is the most thought-provoking?