Technology

+ Innovation &
Entrepreneurship

Victoria Kim, Ph.D.

Feasibility
Chapter 3
Analysis
+ Chapter Objectives

3.1 Explain what a feasibility analysis is and why it’s important.

3.2 Describe a product/service feasibility analysis, explain its purpose, and
discuss the two primary issues that a proposed business should consider
in this area.
3.3 Describe an industry/market feasibility analysis, explain its purpose, and
discuss the two primary issues to consider when completing this
analysis.
3.4 Explain what an organizational feasibility analysis is and its purpose and
discuss the two primary issues to consider when completing this
analysis.
3.5 Describe what a financial feasibility analysis is, explain its importance, and
discuss the most critical issues to consider when completing this
analysis.
3.6 Describe a feasibility analysis template and explain when it is important
for entrepreneurs to use this template.
+ What Is 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.
When to Conduct a Feasibility
Analysis

◼Timing of Feasibility Analysis

o The proper time to conduct a feasibility analysis is
early in thinking through the prospects for a new
business.
o The thought is to screen ideas before a lot of
resources are spent on them.

◼Components of a Properly Conducted Feasibility

Analysis
o 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

Product/Service Industry/Target Market

Feasibility Feasibility

Organizational Financial
Feasibility Feasibility
+ Outline for a Comprehensive
Feasibility Analysis
Part 1: Product/Service Feasibility
A. Product/service desirability
B. Product/service demand
Part 2: Industry/Target Market Feasibility
A. Industry attractiveness
B. Target market attractiveness
Part 3: Organizational Feasibility
A. Management prowess
B. Resource sufficiency
Part 4: Financial Feasibility
A. Total start-up cash needed
B. Financial performance of similar businesses
C. Overall financial attractiveness of the proposed venture
Overall Assessment
+ Product/Service Feasibility Analysis

Purpose

❑ Is an assessment of the overall appeal of the product

or service 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

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 (p.111)

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 of the product or service idea.
Suggestions for how the idea can be strengthened or
“tweaked” before proceeding further.
+ Product/Service Desirability (3 of 3)

Example: New Venture Fitness Drinks’ Concept

Statement
+ Product/Service Demand

There are three steps to assessing product/service

demand.
◼ Step 1: Talking Face-to-Face with Potential Customers.

◼ Step 2: Using Online Tools, Such as Google AdWords and

Landing Pages, To Assess Demand.

◼ Step 3: Library, Internet and Gumshoe Research

+ Product/Service Demand

Step 1: Talking Face-to-Face with Potential Customers

◼ The only way to know if your product or service is

what people want is by talking to them.
◼ The idea is to gauge customer reaction to the general
concept of what you want to sell, and tweak, revise,
and improve on the idea based on the feedback.
◼ In some cases, talking with potential customers will
cause an entrepreneur to abandon an idea.
o Entrepreneurs are often surprised to find that a
product idea they think solves a problem gets
lukewarm reception when they talk to actual
customers.
+ Product/Service Demand

Ineffective Feasibility Analysis Interview Questions

◼ Do you like music / good food / good friends?

◼ Do you want to lose weight, want more money, or

more free time? (Who doesn't? :-))

◼ Leading questions: “How bad do you think our

health care system is?”

◼ Loaded questions: “Where do you enjoy drinking

beer?” (don't assume!)
+ Product/Service Demand

Effective Feasibility Analysis Interview Questions

◼ What does your typical day look like?

◼ What's the hardest part about ______________?

◼ How are you currently solving _______________?

◼ What are some unmet needs you have?

+ 3-17

The Mom Test

◼ Anexample from the e-book: bad and good

examples.

◼ Cheatsheet page 115

+ Product/Service Demand

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.
+ Product/Service Demand

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.
+ Product/Service Demand

Step 2: Utilizing Online Tools to Assess Demand

◼ The second way to assess demand is to utilize online

tools to gauge reaction from potential customers.
◼ Online tools include the following:
o Administrating surveys
o Querying Q&A sites
o Utilizing Google Trends
o Purchasing Google AdWords to direct users to
landing pages that describe the idea to see how
many people request additional information.
+ Product/Service Demand

◼A variety of additional online tools are available to

help assess the demand for a new product or service.
◼ Examples include:
o Sites that provide feedback on business ideas (Foundersuite,
Quirky).
o Market Research (CrowdPicker, Google Trends).
o Online Surveys to validate what you’ve learned from face-to-face
interviews (Survey Monkey, Google Consumer Surveys).
o Q&A Sites (Quora, Bright Journey)
❖ You might pose a question on a Q&A site such as “Does
Chicago need better food delivery services?” The responses
may provide insight about demand for food delivery services
in Chicago.
+ Product/Service Demand

◼ Google Trends

o Allows you to enter a search term (such as skiing or running) to

see if the term is trending upwards or downwards in Google
search queries.
o An upward trajectory may indicate strong consumer interest,
while a downward trajectory may indicate that consumer interest
is waning.
+ Product/Service Demand

◼ Google Trends

o Allows you to enter a search term (such as skiing or running) to

see if the term is trending upwards or downwards in Google
search queries.
o An upward trajectory may indicate strong consumer interest,
while a downward trajectory may indicate that consumer interest
is waning.
+ Product/Service Demand

◼ Naver Data Lab

o https://datalab.naver.com/keyword/trendResult.naver?hashKey
=N_8d1a14746282101141823c78f2681d9d
+ Product/Service Demand

◼Google AdWords Coupled With Landing Pages

o Some entrepreneurs buy text ads on search engines

that show up when a user is searching for a product
that is close to their idea.
o If the searcher clicks on the text ad, they are taken
to a landing page that describes the idea.
o There may be a link on the landing page that says
“For future updates please enter your e-mail
address.” Demand for the idea can be assessed by
how many people click on the text ad and enter
their e-mail address.
+ Online Tools for Completing Feasibility
Analysis (p.113)

◼ 3D printing Services:
Shapeways – provides a platform for converting ideas into physical
objects to use as product prototypes or sell through the Shapeways
community.

◼ Feedback on Business Ideas:

Growth Hackers – forum suitable for getting feedback on business
ideas regarding how to go about acquiring your first customers
Reddit – Great place to hold an online discussion about virtually any
topic. It’s easy to start a thread in Reddit, and get feedback on ideas.

◼ Landing Pages:
LaunchRock – allows you to create “coming soon” landing page in
seconds and collect email addresses of potential early users of your
product.
+ Product/Service Demand

Step 3: Library, Internet and Gumshoe Research

◼Library Research
❖ Library research provides access to archival data, which
can provide useful information.
❖ For example, if one were thinking about starting a
company to sell educational toys, archival research may
answer question such as:
o What is the trajectory of the toy industry?
o What do industry experts say are the most important factors that
parents consider when buying toys?
o Is there a trade association for the makers of educational toys that
can provide additional information?
+ Product/Service Demand

◼Internet Research

❖ The Internet Resource Table in Appendix 3.3 provides

specific recommendations of online resources to utilize.
o For example, IBISWorld, which is available for free
through most university libraries, provides current
industry reports on hundreds of industries.
❖ More general Internet research is also helpful.
o Simply typing a query into Google such as “market
demand for educational toys” will often produce helpful
articles and industry reports.
+ Product/Service Demand

◼Gumshoe Research

o Simple gumshoe research is also important for gaining a

sense of the likely demand for a product or service idea.
o A gumshoe is a detective or an investigator that
scrounges around for information or clues wherever they
can be found.
o Don’t be bashful. Ask people what they think about your
product or service idea.
o If your idea is to sell educational toys, spend a week
volunteering at a day care center and watch how children
interact with toys. Take the owner of a toy store to lunch
and discuss your ideas.
+ Industry/Target Market Feasibility
Analysis

Purpose:

▪It is an assessment of the overall appeal of the industry

and the target market for the proposed business.
▪An industry is a group of firms producing a similar
product or service. Any examples?
▪A firm’s target market is the limited portion of the
industry it plans to go after. Any examples?
Components of industry/target market feasibility
analysis
o Industry Attractiveness
o Target Market Attractiveness
+ Industry Attractiveness
1 of 2

◼ 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

Characteristics of Attractive Industries

• Are young rather than old Examples of Declining/Declined
Industries:
• Are early rather than late in their life cycle
• Newspaper Publishing
• Are fragmented rather than concentrated • DVD games and Video Rental
• Photofinishing
• Are growing rather than shrinking
• Are selling products and services that
customers “must have” rather than “want to
have”
• Are not crowded
• Have high rather than low operating margins
• Are not highly dependent on the historically
low price of key raw materials
+ Industry Attractiveness
2 of 2

Characteristics of Attractive Industries

• Are young rather than old Examples of
Declining/Declined Industries:
• Are early rather than late in their life cycle
• Newspaper Publishing
• Are fragmented rather than concentrated • DVD games and Video Rental
• Photofinishing
• Are growing rather than shrinking
• Are selling products and services that customers “must have” rather
than “want to have”
• Are not crowded
• Have high rather than low operating margins
• Are not highly dependent on the historically low price of key raw
materials
+ 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 assessing the attractiveness of an
entire industry.
▪ Often, considerable ingenuity must be employed to
find information to assess the attractiveness of a
specific target market.
+ Target Market Attractiveness
+ Organizational Feasibility Analysis

Purpose
▪ 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 (financial resources are

considered later)

Components of organizational feasibility analysis

o Management Prowess (skill or expertise in a particular activity
or field)

o Resource Sufficiency
+ Management Prowess
(skill or expertise in a particular activity or field)

▪ A proposed business 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:
o The passion that the sole entrepreneur or the
founding team has for the business idea.
o The extent to which the sole entrepreneur or the
founding team understands the markets in which
the firm will participate.
+ 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.
o If critical resources are not available in certain areas, it
may be impractical to proceed with the business idea.
+ Resource Sufficiency

Examples of nonfinancial resources that may be

critical to the successful launch of a new business

• Affordable office space

• Lab space, manufacturing space, or space to launch a service
business
• Availability of contract manufacturers or service providers
• Key management employees (now and in the future)
• Key support personnel (now and in the future)
• Ability to obtain intellectual property protection (e.g., patents)
• Ability to form favorable business partnerships
+ Financial Feasibility Analysis

Purpose

It is the final component of a comprehensive feasibility

analysis.

A preliminary financial assessment is sufficient.

+ Financial Feasibility Analysis

Components of financial
feasibility analysis

Total Start-Up Cash Financial Performance

Needed of Similar Businesses

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

◼ The first issue refers to 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

◼ 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.
o 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.
o 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
spends.
+ Overall Financial Attractiveness of the
Proposed Venture

Overall Financial Attractiveness of the Proposed

Investment
o A number of other financial factors are associated
with promising business start-ups.
o 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.
o The information 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

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
+ A Feasibility Analysis Template

◼ First
Screen, shown in Appendix 3.2 is a template for
completing a feasibility analysis.
◼ It’s
called “First Screen” because it’s a tool that can be
used in the initial pass at determining the feasibility of a
business idea.
◼ Ifa business idea cuts muster at this stage, the next step
is to complete a business plan.
+
+
THANK YOU!
Any questions?

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