Entrepreneurship: Successfully Launching New Ventures, 1e

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Entrepreneurship Successfully Launching New
Ventures, 1/e Bruce R. Barringer R. Duane Ireland
Chapter 3
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Chapter Objectives(1 of 3)

• Explain what a feasibility analysis is and why
  its important.
• Discuss the proper time to complete a feasibility
  analysis when developing a business venture.
• Explain a concept statement and its contents.
• Describe the purpose of a product/service
  feasibility analysis and the two primary issues
  that a proposed business should consider in this
  area.
• Identify three primary purposes for concept
  testing.

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Chapter Objectives(2 of 2)

• Define the term usability testing and explain why
  its important.
• Describe the purpose of industry/market
  feasibility analysis and the three primary issues
  to consider in this area.
• Explain the difference between primary research
  and secondary research.
• Describe the purpose of organizational
  feasibility analysis and list the two primary
  issues to consider in this area.
• Explain the importance of financial feasibility
  analysis and list the most important issues to
  consider in this area.

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What Is Feasibility Analysis?

• Feasibility Analysis
• Feasibility analysis is the process of
  determining whether a business idea is viable.
• It is the preliminary evaluation of a business
  idea, conducted for the purpose of determining
  whether the idea is worth pursuing.
• Feasibility analysis takes the guesswork (to a
  certain degree) out of a business launch, and
  provides an entrepreneur a more secure notion
  that a business idea is feasible or viable.

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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 shown in
  Figure 3.1 on the next slide.

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Feasibility Analysis
Figure 3.1 Role of feasibility analysis in
developing successful business ideas
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Preparing a Concept Statement(1 of 3)

• Concept Statement
• Before a company undertakes a feasibility
  analysis, a concept statement should be
  developed.
• A concept statement is a one page description of
  a business, that is distributed by a startup
  entrepreneur to people who are asked to provide
  feedback on the potential of the business idea.
• The feedback will hopefully provide the
  entrepreneur (1) a sense of the viability of the
  business idea (2) suggestions for how the idea
  can be strengthened or tweaked before
  proceeding further.

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Preparing a Concept Statement(2 of 3)

• Information to Include
• A description of the product or service being
  offered
• The intended target market
• The benefits of the product or service
• A description of how the product will be
  positioned relative to similar ones in the market
• A description of how the product or service will
  be sold and distributed
• Information about the founder or founders of the
  firm

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Preparing a Concept Statement(3 of 3)
Figure 3.2 New Venture Fitness Drinks Concept
Statement
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Four Forms of Feasibility Analysis
Product/Service Feasibility Analysis
Industry/Market Feasibility Analysis
Organizational Feasibility Analysis
Financial Feasibility Analysis
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Product/Service Feasibility(1 of 8)

• Product/Service Feasibility Analysis
• Is an assessment of the overall appeal of the
  product or service being proposed.
• The idea is that before a prospective firm rushes
  a product or service into development, it should
  be confident that the product or service is what
  its prospective customers want.
• The two components of a product/service
  feasibility analysis are
• Concept testing
• Usability testing

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Product/Service Feasibility(2 of 8)

• Concept Testing
• A concept test involves showing a representation
  of the product or service to prospective users to
  gauge customer interest, desirability, and
  purchase intent.
• A concept test is different from a concept
  statement (discussed earlier). A concept test is
  limited to testing the feasibility of a specific
  product or service idea. A concept statement is
  a preliminary evaluation of an entire business
  idea.

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Product/Service Feasibility(3 of 8)
Three purposes of conducting a concept test
Purpose
How it is accomplished
Validate the underlying premises of a product or
service idea
This can be accomplished via phone interviews,
personal interviews, and focus groups and simply
by watching people perform relevant tasks.
A firm may show a product idea to a prospective
customer, get feedback, and tweak the idea.
Then, in an iterative manner, theyll show the
idea to more potential customers, get feedback
and tweak the idea some more, and so on.
Help develop an idea
Some type of buying intention question appears in
almost every concept test, usually in the form of
a survey questionnaire.
Estimate the potential market share the product
or service might command
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Product/Service Feasibility(4 of 8)

• Usability Testing
• Is the method by which users of a product are
  asked to perform certain tasks in order to
  measure the products ease-of-use and the users
  perception of the experience.
• Usability tests are sometimes called user tests,
  beta tests, or field trials, depending on the
  circumstances involved.
• While it is temping to rush a new product or
  service to market, conducting a usability test is
  a good investment of an entrepreneurs or firms
  resources.
• Many products that consumers find frustrating to
  work with have been brought to market too
  quickly.

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Product/Service Feasibility(5 of 8)
Forms of usability testing (this is not an
exhaustive list)
Form of usability test
Explanation
Some entrepreneurs, with limited budgets, develop
a fairly basic prototype and ask friends and
colleagues to use the product, then complete an
evaluation form or give feedback.
Basic prototype
Better funded companies have more elaborate
usability tests. For example, in Intuits
usability-testing lab participants are asked to
work with software programs that are being
developed, while loggers record usability
problems.
Elaborate usability test
There are a number of hybrid tests, that
provide a entrepreneur a sense of a potential
usability problem with a product or service. An
example is Intuits follow-me-home testing
methodology.
Hybrid tests
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Product/Service Feasibility(6 of 8)
Table 3.2 Benefits of Conducting a
Product/Service Feasibility Analysis (continued
on next slide)
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Product/Service Feasibility(7 of 8)
Table 3.2 (continued) Benefits of Conducting a
Product/Service Feasibility Analysis
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Product/Service Feasibility(8 of 8)
Figure 3.3 Role of feasibility analysis in the
development of successful business ideas at
Activision (an electronic games company)
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Industry/Market Feasibility Analysis(1 of 6)

• Industry/Market Feasibility Analysis
• Is an assessment of the overall appeal of the
  market for the product or service being proposed.
• For industry/market feasibility analysis, there
  are three primary issues that a proposed business
  should consider
• Industry attractiveness, market timeliness, and
  the identification of a niche market.
• Industry Attractiveness
• A primary determinant of a new ventures
  feasibility is the attractiveness of the industry
  it chooses.

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Industry/Market Feasibility Analysis(2 of 6)
Characteristics of attractive industries for new
ventures

• Are large and growing (with growth being more
  important than size)
• Are important to the customer
• Are fairly young rather than older and more
  mature
• Have high rather than low operating margins
• Are not crowded

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Industry/Market Feasibility Analysis(3 of 6)

• Industry Attractiveness
• Although the criteria shown on the proceeding
  slide is an ideal list, the extent to which a new
  businesss proposed industrys growth
  possibilities satisfy these criteria should be
  taken seriously.
• In addition to evaluating an industrys growth
  potential, a new venture will want to know more
  about the industry it plans to enter.
• This can be accomplished through both primary and
  secondary research, as explained in the next
  slide.

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Industry/Market Feasibility Analysis(4 of 6)
Role of Primary and Secondary Research in
Investigating Industry Attractiveness
Type of Research
How it is conducted
This is research that is original and is
collected by the entrepreneur. In assessing the
attractiveness of a new market, this typically
involves an entrepreneur talking to potential
customers and key industry participants.
Primary research
This is research that probes data that are
already collected. Examples of where this data
might come from are industry-related
publications, government statistics, competitors
Web sites, and industry reports from research
firms like Forrester Research.
Secondary research
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Industry/Market Feasibility Analysis(5 of 6)
Market Timeliness Considerations
Nature of product or service introduction
Major Considerations

• Is the window of opportunity open or closed?
• Is now a good time for a new market entrant
  (i.e.,
• are customers buying, are industry incumbents
• making money?)

Improvement on something already available in the
marketplace

• Should we try to capture a first-mover advantage?

Breakthrough new product or service, which should
establish a new market segment
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Industry/Market Feasibility Analysis(6 of 6)

• Identification of a Niche Market
• A niche market is a place within a larger market
  segment that represents a narrower group of
  customers with similar interests.
• For a new firm, selling to a niche market makes
  sense for at least two reasons.
• It allows a firm to establish itself within an
  industry without competing against major
  competitors head on.
• A niche strategy allows a firm to focus on
  serving a specialized market very well instead of
  trying to be everything to everybody in a broad
  market, which is nearly impossible for a new
  entrant.

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Organizational Feasibility Analysis(1 of 4)

• Organizational Feasibility
• Is concerned with determining whether the
  business itself has sufficient skills and
  resources to bring a particular product or
  service idea to market successfully.
• There are two primary issues to consider in this
  area
• Management prowess
• Resource sufficiency

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Organizational Feasibility Analysis(2 of 4)

• 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.
• Sole entrepreneurs or founding teams with
  established social and professional networks also
  have an advantage.

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Organizational Feasibility Analysis(3 of 4)

• Resource Sufficiency
• This topic pertains to an assessment of whether
  an entrepreneur has sufficient resources to
  launch the proposed venture.
• The focus here should be on nonfinancial
  resources in that financial feasibility is
  considered separately.
• 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.

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Organizational Feasibility Analysis(4 of 4)
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

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Financial Feasibility Analysis(1 of 5)

• Financial Feasibility
• For feasibility analysis, a quick financial
  assessment is usually sufficient.
• The most important issues to consider at this
  stage are
• Capital requirements
• Financial rate of return
• Overall attractiveness of the investment

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Financial Feasibility Analysis(2 of 5)

• Capital Requirements
• In the feasibility analysis stage, it is
  important that an entrepreneur have a sense of
  what the businesss initial capital requirements
  will be.
• The figure that is determined provides important
  information about the rate of return that can be
  anticipated from the business and about the type
  of financing or funding that will be needed.

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Financial Feasibility Analysis(3 of 5)

• Financial Rate of Return
• Although the estimate may be rough, an
  entrepreneur should have a sense of the rate of
  return that the proposed business will produce.
• This figure can be determined in part by looking
  at the rate of return of similar businesses, and
  then adjusting upward or downward depending on
  the unique characteristics of the proposed
  business.

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Financial Feasibility Analysis(4 of 5)

• Overall Attractiveness of the 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.
• Table 3.5 on the next slide lists the factors
  that pertain to the overall attractiveness of the
  financial feasibility of the business idea.

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Financial Feasibility Analysis(5 of 5)
Table 3.5 Financial Factors Associated With
Promising Business Opportunities These are
factors an entrepreneur would try to anticipate
would or wouldnt take place in a proposed
venture