2. Module 3: Conducting a
Feasibility Analysis
and Designing a Business Model
• Idea Assessment
• Feasibility Analysis
• Porter’s Five Forces Model
• Product or Service Feasibility Analysis
• Financial Feasibility Analysis
• Developing andTesting a Business Model
The Foundations of Entrepreneurship 2
3. Lecture 4: Product or Service
Feasibility Analysis
ILO 3: By the end of the learning experience,
students must be able to:
✓Enumerate various methods of conducting
primary and secondary market research
Product or Service FeasibilityAnalysis
3
4. Product or Service Feasibility
Analysis
• A product or service feasibility analysis determines
the degree to which a product or service idea
appeals to potential customers and identifies the
resources necessary to produce the product or
provide the service.
“Are customers willing to purchase our goods and
services?”
Product or Service FeasibilityAnalysis 4
5. Product or Service Feasibility
Analysis
• Conducting primary research involves collecting
data first hand and analyzing it such as:
1. customer surveys
2. focus groups
3. construction of prototypes, in-home trials,
and
4. “windshield” research (driving around and
observing the competition).
Product or Service FeasibilityAnalysis 5
6. Product or Service Feasibility
Analysis
1. Customer surveys and questionnaires
- Keep them short
- Word your questions carefully so that you do not
bias the results, and use a simple ranking system
(e.g., a 1-to-5 scale, with 1 representing “definitely
would not buy” and 5 representing “definitely
would buy”).
- Survey people who represent the target market of
the business.
Product or Service FeasibilityAnalysis 6
7. Product or Service Feasibility
Analysis
2. Focus Groups
-enlisting a small number of potential customers
(usually 8 to 12) to give you feedback on specific
issues about your product or service (or the business
idea itself).
- consider creating virtual focus groups on the Web,
virtually no cost and Feedback from online
customers is fast, convenient, and real-time.
Product or Service FeasibilityAnalysis 7
8. Product or Service Feasibility
Analysis
3. Prototypes
- an original, functional model of a new product that
entrepreneurs can put into the hands of potential
customers so that they can see it, test it, and use it.
- usually point out potential problems in a product’s
design, giving inventors the opportunity to fix
them even before they put the prototype into
customers’ hands.
Product or Service FeasibilityAnalysis 8
9. Product or Service Feasibility
Analysis
4. In-home trials
- involves sending researchers into customers’
homes to observe them as they use the company’s
product or service.
5. “Windshield” research
- involves driving around and observing customers
interacting with similar kinds of businesses and
learning what customers like and don’t like about
those businesses.
Product or Service FeasibilityAnalysis 9
10. Product or Service Feasibility
Analysis
• Secondary research involves gathering data that has
already been compiled and is available, often at a
reasonable cost or sometimes even free such as:
1. Trade associations and business directories
- e.g. The Encyclopedia of Associations, to find
suppliers, use The Thomas Register of American
Manufacturers (Thomas Publishing Company) or
Standard and Poor’s Register of Corporations,
Executives, and Industries (Standard and Poor
Corporation) and the American Wholesalers and
Distributors Directory
Product or Service FeasibilityAnalysis 10
11. Product or Service Feasibility
Analysis
2. Industry Databases
- These databases offer a rich variety of information
on specific industries, including statistical analyses,
geographic reports, trend analyses, and profiles.
- e.g. BizMiner, Encyclopedia of American
Industries, Encyclopedia of Emerging Industries,
Encyclopedia of Global Industries, Encyclopedia of
Products & Industries—Manufacturing, IBISWorld,
Manufacturing & Distribution USA
Product or Service FeasibilityAnalysis 11
12. Product or Service Feasibility
Analysis
2. Demographic data
- demographic characteristics of customers in general,
use, the State and Metropolitan Data Book (Government
Printing Office) and the Sourcebook of Zip Code
Demographics (CACI, Inc.),which provides detailed
breakdowns of the population in every zip code in the
country.
3. Census data
- The Bureau of the Census publishes a wide variety of
reports that summarize the wealth of data found in its
census database, which is available at most libraries and
at the Census Bureau’sWeb site at www.census.gov
Product or Service FeasibilityAnalysis 12
13. Product or Service Feasibility
Analysis
4. Forecast
- e.g. many government agencies, including the U.S.
Department of Commerce (www.commerce.gov).
offer forecasts on everything from interest rates to
the number of housing starts.
5. Market research
- The FINDex Worldwide Directory of Market
Research Reports, Studies, and Surveys (Cambridge
Information Group) lists more than 10,600 studies
available for purchase.
Product or Service FeasibilityAnalysis 13
14. Product or Service Feasibility
Analysis
6. Articles
- Magazine and journal articles pertinent to your
business are a great source of information. Use the
Reader’s Guide to Periodical Literature, the Business
Periodicals Index (similar to the Reader’s Guide but
focusing on business periodicals), and Ulrich’s Guide to
International Periodicals to locate the ones you need.
7. Local Data
- Your state Department of Commerce and your local
Chamber of Commerce will very likely have useful data
on the local market of interest to you. Call to find out
what is available.
Product or Service FeasibilityAnalysis 14
15. Product or Service Feasibility
Analysis
8. The internet
- Entrepreneurs can benefit from the vast amount of
market research information available on the
Internet. This is an efficient resource with up-to-
date information, and much of it is free.
Product or Service FeasibilityAnalysis 15
16. Lecture 5: Financial Feasibility
Analysis
ILO 5: By the end of the learning experience,
students must be able to:
✓Determine four major elements of a financial
feasibility analysis
Financial FeasibilityAnalysis 16
17. Financial Feasibility Analysis
• At this stage of the process, a broad financial
analysis that examines the basic economic
feasibility is sufficient.
• This component of the feasibility analysis answers
the question, “Can this business generate
adequate profits?
• The four major elements to be included in a
financial feasibility analysis include the initial
capital requirement, estimated earnings, time out of
cash, and resulting return on investment.
Financial FeasibilityAnalysis 17
18. Financial Feasibility Analysis
1. Capital requirements
- Start-up companies often need capital to purchase
equipment, buildings, technology, and other
tangible assets as well as to hire and train
employees, promote their products and services,
and establish a presence in the market.
How do entrepreneurs get started with so little
funding?
- Most entrepreneurs employ a variety of techniques
called bootstrapping.
Financial FeasibilityAnalysis 18
19. Financial Feasibility Analysis
Bootstrapping is the process of finding
creative ways to exploit opportunities to launch and
grow businesses with the limited resources available
for most start-up ventures.
- It includes a variety of strategies and techniques
that cover all of the functions of running a
business: marketing, staffing, inventory and
production management, cash flow management,
and administrative processes needed to keep a
business operating
Financial FeasibilityAnalysis 19
20. Financial Feasibility Analysis
2. Estimated earnings
-Preparing sales and earnings estimates for specific
types of businesses which entrepreneurs can
estimate the financial results they and their investors
can expect to see from the business venture if the
start-up is executed according to plan.
Financial FeasibilityAnalysis 20
21. Financial Feasibility Analysis
3. Time out of cash
- During the planning stage, the entrepreneur
should estimate the total cash it will take to sustain
the business until the business achieves break-
even cash flow.
- This estimate should be based on a less-than-
optimistic scenario because there are almost
always unexpected costs and delays in the start-up
and growth of a new business
Financial FeasibilityAnalysis 21
22. Financial Feasibility Analysis
3. Time out of cash
- For an operating business, to calculate the number
of months until the business runs out of cash, simply
divide the amount of available cash remaining in the
business by the negative cash flowing from the
business each month. The result is the number of
months the business can survive at its current rate of
negative cash flow.
Financial FeasibilityAnalysis 22
23. Financial Feasibility Analysis
4. Return on Investment
- The final aspect of the financial feasibility analysis
combines the estimated earnings and the capital
requirements to determine the rate of return the
venture is expected to produce.
- The simple measure of rate of return on the capital
invested is calculated by dividing the estimated
earnings the business yields by the amount of
capital invested in the business which is important
part of the entrepreneur’s ultimate “go” or “no go”
decision about the business ventures
Financial FeasibilityAnalysis 23
24. Lecture 6: Business model
ILO 6: By the end of the learning experience,
students must be able to:
✓Develop and test a business model.
Porter’s Five Forces Model 24
25. Business model
• Most entrepreneurs use a visual process, such as
diagraming their business on a whiteboard (e.g.
business canvass), when developing their business
ideas.
• Visual process means they map out the key
components required to make their businesses
successful.
• When building a business model, the entrepreneur
addresses a series of key questions that will explain
how a business will become successful.
1. What value does the business offer customers?
Business model 25
26. Business model
2. Who is my target market?
3. What do they expect of me as my customers?
4. How do I get information to them, and how do
they want to get the product?
5. What are the key activities to make this all come
together, and what will they cost?
6. What resources do I need to make this happen,
including money?
7. Who are key partners I will need to attract to be
successful?
Business model 26
27. Business model
The business canvas is comprised of nine elements:
1. Key partners
- This segment of the business model includes key
suppliers, key outsourcing partners, investors,
industry partners, advisers, and all other external
businesses or entities that are critical to make the
business model work
Business model 27
28. Business model
2. Key activities
- In the business model, the goal is to build a basic
checklist of what needs to be done to open the
business and what activities are necessary to
ensure its long-term success.
- The development of the business plan will then
take this list and expand on it in much greater
detail.
Business model 28
29. Business model
3. Key resources
- this will serve as an initial checklist to ensure that
the entrepreneur has identified all key resources
necessary to support a successful launch and to
sustain the business as it grows.
Business model 29
30. Business model
4. Value proposition
- collection of products and/or services the business will
offer to meet the needs of the customers. It is all the
things that will set the business apart from its
competitors, such as pricing, quality, features, product
availability, and other features.
- A fundamental role of being an entrepreneur is to find
solutions for the problems and needs customers have
that result from the change that follows disruptive
trends such as products price and value, features,
performance, durability, or design.
Business model 30
31. Business model
5. Customer relationships
- Each of these business models has a very different
approach to define the relationship with customers.
- Each approach is effective and appropriate for its
particular target market. When developing this
segment of the business model, the entrepreneur must
answer several questions.
- How do customers want to interact with the business?
- Do they want intensive personal service, or would they
rather have limited engagement or even automated
interaction?
Business model 31
32. Business model
6. Channels
- refer to both communication channels (promotion) and
distribution channels (product placement).
a. Communication channels define how the customers seek out
information about this type of product such as web sites, social
networks, blogs, advertisements, experts, and etc.
b. Distribution channel defines the most effective way to get
products to the customers for this type of business such as in-
home sales through Web sites such as Amazon because the
target market may prefer to order online from the comfort of
their living rooms.
- The entrepreneur must determine where the customer
wants to make the purchase and then determine the most
effective way to get it to the customer at that location.
Business model 32
33. Business model
7. Customer segments
- entrepreneur’s first step is to identify to define a
target market.
- Narrowing the target market enables a small
company to focus its limited resources on serving
the needs of a specific group of customers rather
than attempting to satisfy the desires of the mass
market.
Business model 33
34. Business model
8. Cost structure
- the cost structure of the business model becomes
the framework for developing more detailed costs
that the entrepreneur will incorporate into the
financial forecasts of the business plan
- The key activities, key resources, and key partners
components of the plan (the left side of the
business model canvas) identify the basic types of
costs and give some estimate of their scope
Business model 34
35. Business model
9. Revenue streams
- The revenue streams information serves as the
framework for the more detailed revenue forecasts
developed for the business plan.
- Answers questions such as:
- How will the value proposition generate revenue?
- Will it be a one-time sale, ongoing fees, advertising, or
some other sources of cash into the business?
Business model 35
36. Business model
Phase 1
Develop the
Business
model Canvas
Phase 2
Test the Value
Proposition
with
Customers
Phase 3
Test the
Product with
Prototype or
Minimal
Viable
Product
Phase 4
Pivot Business
Model Until
Ready to
Expand
Business model 36
Figure 1. The business Model
37. Business model
Developing a business model is a four-phase
process:
1. The first phase is to create an initial business
model canvas
2. The second phase in designing the business
model is to test the problem that the team thinks
the business solves through its core value
proposition.
- entrepreneurial team must “get out of the
office” and test the model with real customers
Business model 37
38. Business model
By engaging with real customers, the
entrepreneurial team asks the following questions:
- Do we really understand the customer problem the
business model is trying to address?
- Do these customers care enough about this problem to
spend their hard-earned money on our product?
- Do these customers care enough about our product to
help us by telling others through word-of-mouth?
Business model 38
39. Business model
3. The third phase is to test the solution to the problem
in the market.
- One technique to test the solution offered by the
business model involves business prototyping, in which
entrepreneurs test their business models on a small
scale before committing significant resources to launch
a business that might not work.
- A process that can guide testing early versions of a
product or service is known as lean start-up, which is
defined as a process of rapidly developing simple
prototypes to test key assumptions by engaging real
customer.
Business model 39
40. Business model
- To launch a business using the lean start-up
process, entrepreneurs begin with what is called a
minimal viable product, which is the simplest
version of a product or service with which an
entrepreneur can create a sustainable business.
- E.g. Dropbox - a free service that lets users easily
share photos, documents, and videos among any
devices using their software.
Business model 40
41. Business model
4. The fourth phase of designing a business model
is to make changes and adjustments in the
business, called pivots.
Pivots are the process of making changes and
adjustments to a business model on the basis of the
feedback a company receives from customers.
Business model 41
42. Business model
Three major types of pivots:
1. Product pivot
- The features that make up a product may not
match what the customer really wants or needs.
-e.g. when Paul Orfalea founded his first Kinko’s
store (now FedEx Office), he sold a variety of school and
office supplies to his fellow University of Southern
California students. He also had a copy machine in the
back of the store. Students did not buy many supplies,
but they were constantly using the copy machine. He
narrowed his offering to become primarily a copy shop
and grew the business to a multinational company with
more than 1,200 locations.
Business model 42
43. Business model
2. Customer Pivot
- Although a product might solve a real market problem
or need, sometimes the initial business model targets
the wrong customer segment or even the wrong
market.
- e.g. PayPal targeted the handheld device market that
included the Palm Pilot for its electronic payment
system but by listening to customer feedback that
there was a much larger market for its product. PayPal
engaged in commerce on their Web sites pivoted its
business model and as a result rapidly grew to become
a $1.6 billion company facilitating Internet commerce.
Business model 43
44. Business model
3. Revenue model pivot
- One of the most basic revenue decisions is whether to
use a high margin/low volume model or low
margin/high volume model.
- e.g. Best Buy began as a single location stereo equipment
store called the Sound of Music back in the 1960′𝑠. After a
tornado destroyed the building but left the inventory
undamaged, the Sound of Music owners rented a large tent
and ran a drastic sale. The demand was so overwhelming
that when they reopened, they changed their revenue
model to low margin/high volume and within a short time
renamed the business Best Buy. The low prices created so
much demand that the stores would sell their entire
inventory about once a month, rather than once a year.
Business model 44
45. Business model
3. Revenue model pivot
- One of the most basic revenue decisions is whether to
use a high margin/low volume model or low
margin/high volume model.
- e.g. Best Buy began as a single location stereo equipment
store called the Sound of Music back in the 1960′𝑠. After a
tornado destroyed the building but left the inventory
undamaged, the Sound of Music owners rented a large tent
and ran a drastic sale. The demand was so overwhelming
that when they reopened, they changed their revenue
model to low margin/high volume and within a short time
renamed the business Best Buy. The low prices created so
much demand that the stores would sell their entire
inventory about once a month, rather than once a year.
Business model 45
46. Summary
ILO 4: Enumerate various methods of conducting
primary and secondary market research
- Primary research tools include customer surveys, focus
groups, building prototypes, conducting in-home trials,
and “windshield” research (driving around and observing
the competition).
- Secondary research gathers existing data from trade
associations and business directories, industry databases,
demographic data, census data, forecasts compiled by
government agencies, market research reports, articles in
magazines and journals, local data, and the Internet.
Summary 46
47. Summary
ILO 5: Determine four major elements of a financial
feasibility analysis.
- Capital requirements. Start-up companies often need capital
to purchase equipment, buildings, technology, and other
tangible assets and to hire and train employees, promote their
products and services, and establish a presence in the market.
- Estimated earnings. In addition to producing an estimate of
the start-up company’s capital requirements, an entrepreneur
should forecast the earning potential of the proposed business.
Summary 47
48. Summary
ILO 5: Determine four major elements of a financial
feasibility analysis.
- Time out of cash. To estimate time out of cash, take the
negative cash flow from the business each month and divide
by how much available cash is left in the business. This gives
the number of months the business can survive at its current
rate of negative cash flow.
- Return on investment. A venture must produce an attractive
rate of return relative to the level of risk it requires. This risk–
return tradeoff means that the higher the level of risk a
prospective business involves, the higher the rate of return it
must provide to the entrepreneur and investors.
Summary 48
49. Summary
ILO 6:Develop and test a business model.
4 Phases of Business Model
1. Develop the Business model Canvas
2. Test theValue Proposition with Customers
3. Test the Product with Prototype or Minimal Viable
Product
4. Pivot Business Model Until Ready to Expand
Summary 49
50. References:
[1] Salkowitz R, (2010), Young World Rising How Youth,
Technology and Entrepreneurship are Changing the World
from the Bottom Up, Hoboken, New Jersey, John Wiley &
Sons, Inc
[2] Duening, T. N., Hisrich, R. D., Lechter, M. A. (2010),
Technology Entrepreneurship, Creating Capturing and
Protecting Value, 84 Theobald’s Road, London, Elsevier
Inc.
[3] Scarborough, N. M., Cornwall, J. R. (2016), Essentials of
Entrepreneurship and Small Business Management, Eight
Edition, Edinburgh Gate Harlow Essex England, Pearson
Education Limited
References 50
51. References:
[4] Feldman, M. P., Link, A. N., Siegel, D. S., (2002), The
Economics of Science and Technology: An Overview of
Initiatives to foster Innovation, Entrepreneurship, And
Economic Growth, United States, Springer
Science+Business Media, LLC
[5] Ulijn, J., Drillon, D., Lasch, F., Elgar, E., (2007),
Entrepreneurship, Cooperation and the Firm,
Northampton Massachusetts, USA
[6] Barringer, B. R., Ireland, R. D., (2019),
Entrepreneurship, Successfully Launching New Ventures
Global Edition, 6th Edition, KAO Park Harlow, UK, Pearson
Education Limited
References 51
52. References:
[7] Barringer, B. R., Global Edition,2nd Edition
(2015), Preparing Effective Business Plans, An
Entrepreneurial Approach, Edinburgh Gate Harlow
Essex England, Pearson Education Limited
[8] Pathak S., Xavier-Oliveira E., Laplume A. O.
(2013), Influence of intellectual property, foreign
investment, and technological adoption on
technology entrepreneurship, Michigan, USA,
Journal of Business Research, Elsevier
References 52
53. References:
[9] Okorie N. NKwa D.Y, Olusunle S.O.O., Akinyanmi
A.O., Momoh I.M., (2014), Technopreneurship: An
urgent need in the material world for sustainability
in Nigeria, Akure, Nigeria,European Scientific
Journal, European Scientific Institute
[10] Fowosire, R. A, Idris, O.Y, Opoola Elijah, (2017),
Technopreneurship: A View of Technology,
Innovations and Entrepreneurship,USA, Global
Journals Inc
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