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Introduction to Feasibility Analysis. Chapter 3 Modified from Barringer and Ireland (2006). What Is Feasibility Analysis?. Feasibility Analysis Preliminary evaluation of idea to determining if it’s worth pursuing Provides more secure notion that a business idea is viable

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introduction to feasibility analysis

Introduction to Feasibility Analysis

Chapter 3

Modified from Barringer and Ireland (2006)

what is feasibility analysis
What Is Feasibility Analysis?
  • Feasibility Analysis
    • Preliminary evaluation of idea to determining if it’s worth pursuing
    • Provides more secure notion that a business idea is viable
      • Did analysis, feasible business: Intuit (Quicken, Quickbooks, etc.)
        • Personal experience, observed others, surveyed customers
      • Did analysis, not feasible: Retailing Insights (grocery cart)
        • Determined not a sufficient scale for advertising, needed large proportion of grocery stores
        • Dropped idea, focused on core competency, developed Trakus
      • No analysis, failed firm: Iridium (satellite phones)
        • Too complex technology, too long to develop, new technology took over, line of sight to satellite, large phone, low battery power
preparing a concept statement
Preparing a Concept Statement
  • Concept Statement
    • One page description of a business
    • Given to people who provide feedback on the potential of the idea
    • Purpose of feedback:
      • Give sense of the viability of the business idea
      • Suggestions for how the idea can be strengthened or altered before proceeding
    • Prepare before feasibility analysis
preparing a concept statement4
Preparing a Concept Statement
  • Components of Concept Statement (similar to elevator pitch components)
    • Description of the product or service
    • Description of target market
    • Benefits of the product or service (value proposition)
    • Description of product/service differentiators
    • Description of how product/service sold/ distributed
    • Description of the founder(s) of the firm
when to conduct a feasibility analysis
When To Conduct a Feasibility Analysis
  • Timing of Feasibility Analysis
    • After concept statement evaluation
    • After opportunity recognition, before business plan
    • Before a lot of resources are invested
  • Four Components of Full Feasibility Analysis
    • Product/Service Feasibility
    • Industry/Market Feasibility
    • Organizational Feasibility
    • Financial Feasibility (covered in Dr. Janney’s class)
feasibility analysis
Feasibility Analysis

Figure 3.1

Role of feasibility analysis in developing successful business ideas

overview of full feasibility analysis 4 forms of feasibility analysis
Overview of Full Feasibility Analysis (4 forms of feasibility analysis)
  • Product/Service Feasibility
    • Composed of two primary tests
      • Concept testing
      • Usability testing
  • Industry/Market Feasibility
    • Three primary issues a proposed business should consider:
      • Industry attractiveness
      • Market timeliness
      • Identification of a niche market.
  • Organizational Feasibility
    • There are two primary issues to consider in this area:
      • Management prowess
      • Resource sufficiency
  • Financial Feasibility
    • The most important issues to consider at this stage are:
      • Capital requirements
      • Financial rate of return
      • Overall attractiveness of the investment
overview of full feasibility analysis
Overview of Full Feasibility Analysis
  • Product/Service Feasibility
    • Composed of two primary tests
      • Concept testing
      • Usability testing
  • Industry/Market Feasibility
    • Three primary issues a proposed business should consider:
      • Industry attractiveness
      • Market timeliness
      • Identification of a niche market.
  • Organizational Feasibility
    • There are two primary issues to consider in this area:
      • Management prowess
      • Resource sufficiency
  • Financial Feasibility
    • The most important issues to consider at this stage are:
      • Capital requirements
      • Financial rate of return
      • Overall attractiveness of the investment
product service feasibility
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:
    • Concept testing
    • Usability testing
product service feasibility 1 st component
Product/Service Feasibility: 1st Component
  • 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
      • Concept test: tests feasibility of specific product/service idea
      • Concept statement: is a preliminary evaluation of entire business idea
product service feasibility 3 reasons to conduct
Product/Service Feasibility: 3 reasons to conduct
  • Validate underlying premises of product/ service idea
    • Use phone interviews, focus groups, watch consumers perform tasks, customer advisory boards
    • Ex: PepsiCo developed model of 5 types of teens and tries to predict how trends move through teen populations
  • Help developing idea
    • Iteratively show idea to potential customers and make changes along the way
    • Ex: IDEO product development firm
  • Estimate potential market share
    • Survey questions
    • Market research surveys
      • Caution: Numbers always optimistic
product service feasibility 2 nd component
Product/Service Feasibility: 2nd Component
  • Usability Testing
    • Purpose: determine ease-of-use and user’s perceptions of using product
      • While tempting to rush a product/service to market usability tests are good investments of resources
      • Eliminate potentially frustrating aspects of product/services
      • Involves creating a physical prototype and giving it to users, measuring usage results, and making modifications as necessary
    • Iterative in nature
    • Also called: user tests, beta tests, or field trials
      • http://scholar.google.com
product service feasibility 3 forms of usability testing
Product/Service Feasibility: 3 forms of usability testing
  • Basic Prototype: fairly simple prototype that is given to friends/colleagues for feedback
    • American Inventor
    • Gym class exercise mat
  • Elaborate Usability Test: large-scale tests for well-funded or existing ventures
    • Lab testing, elaborate customer measurement devices (e.g., Google), etc.
  • Hybrid Test: Follow-me-home testing (e.g., day-in-the-life research)
product service feasibility 5 benefits
Product/Service Feasibility: 5 Benefits
  • Getting product right the first time
  • Create a beta (or early adopter community)
  • Avoid obvious flaws in product/service design
    • MobileStar wireless “hotspots”
  • Use time and resources more efficiently
  • Potentially identify complementary product/ service offerings
    • iPod accessories
overview of full feasibility analysis15
Overview of Full Feasibility Analysis
  • Product/Service Feasibility
    • Composed of two primary tests
      • Concept testing
      • Usability testing
  • Industry/Market Feasibility
    • Three primary issues a proposed business should consider:
      • Industry attractiveness
      • Market timeliness
      • Identification of a niche market.
  • Organizational Feasibility
    • There are two primary issues to consider in this area:
      • Management prowess
      • Resource sufficiency
  • Financial Feasibility
    • The most important issues to consider at this stage are:
      • Capital requirements
      • Financial rate of return
      • Overall attractiveness of the investment
industry market feasibility analysis
Industry/Market Feasibility Analysis
  • Industry/Market Feasibility Analysis
    • Purpose: assess overall appeal of the market
    • 3 primary issues to consider:
      • Industry attractiveness,
      • Market timeliness, and
      • Identification of a niche market
industry market feasibility analysis industry attractiveness
Industry/Market Feasibility Analysis: Industry Attractiveness
  • Issue 1: Industry Attractiveness
    • Primary determinant of feasibility is attractiveness of industry chosen
    • Characteristics of attractive industries:
      • Large and growing (growth is very important)
      • Industries are important to customers (e.g., must haves vs. likes)
      • Early in the industry lifecycle to avoid price competition
      • Industries are not crowded with competitors
    • How to assess industry attractiveness?
      • Forces in the broad environment (e.g., technological, sociocultural/demographic, political/legal, economic, global trends)
      • Porter’s Five Forces analysis (we’ll cover next week)
      • Other primary and secondary research
industry market feasibility analysis market timeliness
Industry/Market Feasibility Analysis: Market Timeliness
  • Issue 2: Market Timeliness
    • Will the market be receptive to the product/service?
    • If it’s a modification on existing offerings (e.g., cell phones with cameras) ask:
      • Is the window of opportunity open?
      • Are customers buying?
      • Are competitors making money?
    • If it’s a breakthrough product/service (e.g., Yahoo with internet search engines, eBay with online auctions, etc.) ask:
      • Can we capture a first-mover advantage?
        • Example: Microsoft in computer operating systems
      • Will we suffer from a second-mover advantage?
        • Example: IBM vs. Dell in personal computer retailing
industry market feasibility analysis niche markets
Industry/Market Feasibility Analysis:Niche Markets
  • Issue 3: Identification of a Niche Market
    • Niche markets are places in larger market segments that represent narrower groups of customers
    • 2 reasons for new firms to sell to niche markets:
      • Allows a firm to establish itself in industry and avoid competing against major competitors (e.g., specialty retailers vs. Wal-Mart)
      • Allows a firm to focus on serving specialized markets very well
      • Avoids trying to be everything to everybody in a broad market
    • Successful example: buyandhold.com and small scale investments
    • Problematic example: Iridium and satellite phones (tried to serve everyone)
overview of full feasibility analysis20
Overview of Full Feasibility Analysis
  • Product/Service Feasibility
    • Composed of two primary tests
      • Concept testing
      • Usability testing
  • Industry/Market Feasibility
    • Three primary issues a proposed business should consider:
      • Industry attractiveness
      • Market timeliness
      • Identification of a niche market.
  • Organizational Feasibility
    • There are two primary issues to consider in this area:
      • Management prowess
      • Resource sufficiency
  • Financial Feasibility
    • The most important issues to consider at this stage are:
      • Capital requirements
      • Financial rate of return
      • Overall attractiveness of the investment
organizational feasibility analysis
Organizational Feasibility Analysis
  • Organizational Feasibility
    • Purpose: determine if business has sufficient skills/resources to bring product/service to market successfully
    • Non-financial factors important to consider here
    • 2 primary issues to consider:
      • Management prowess
      • Resource sufficiency
organizational feasibility analysis management prowess
Organizational Feasibility Analysis:Management Prowess
  • Issue 1: Management Prowess
    • Firm must evaluate the ability of the management team
    • Determine if has the passion and expertise to launch the venture
    • 2 most important factors in this area:
      • Passion the solo entrepreneur/founding team has for the idea
      • Extent the entrepreneur/founding team understands the markets in which the firm will participate
    • Ventures with established networks have an advantage
    • Successful Example: eBay
    • Failed Example: Garden.com (e.g., no gardening/ gardening retail expertise
organizational feasibility analysis resource sufficiency
Organizational Feasibility Analysis:Resource Sufficiency
  • Issue 2: Resource Sufficiency
    • Assessment of resources needed to launch proposed venture
    • Focus is on nonfinancial resources:
      • Availability of affordable office or lab space,
      • Likelihood of government support,
      • Labor pool quality,
      • Proximity to key suppliers, customers, and similar firms (clusters)
      • Likelihood of strategic partnerships,
      • Likelihood of attaining IP
    • To test resource sufficiency: list critical nonfinancial resources needed to move idea forward successfully
      • If resources not available, it may be impractical to proceed with the business idea
overview of full feasibility analysis24
Overview of Full Feasibility Analysis
  • Product/Service Feasibility
    • Composed of two primary tests
      • Concept testing
      • Usability testing
  • Industry/Market Feasibility
    • Three primary issues a proposed business should consider:
      • Industry attractiveness
      • Market timeliness
      • Identification of a niche market.
  • Organizational Feasibility
    • There are two primary issues to consider in this area:
      • Management prowess
      • Resource sufficiency
  • Financial Feasibility
    • The most important issues to consider at this stage are:
      • Capital requirements
      • Financial rate of return
      • Overall attractiveness of the investment