1. CHAPTER 4 DISCUSSION QUESTIONS
• What is a feasibility analysis?
• What is an industry & market feasibility analysis?
• Explain the 5 forces model.
• What is a product or service feasibility analysis?
• What is the difference between primary & secondary
research?
• What is a financial feasibility analysis?
2. FEASABILITY ANALYSIS
”THE PROCESS OF DETERMINING WHETHER AN ENTREPRENEUR’S IDEA IS A
VIABLE FOUNDATION FOR CREATING A SUCCESSFUL BUSINESS.”
-ANSWERS THE QUESTION: “SHOULD WE PROCEED WITH THIS BUSINESS
IDEA?”
-THE EASY PART OF LAUNCING A BUSINESS IS COMING UP WITH AN IDEA FOR
A NEW BUSINESS CONCEPT OR APPROACH.
-THE HARD PART OF LAUNCHING A BUSINESS IS TRANSFORMING THE IDEA
INTO A VIABLE BUSINESS.
-A FEASABILITY ANALYSIS IS CONDUCTED PRIOR TO COMMITTING THE
NECESSARY RESOURCES REQUIRED TO BUILDING A BUSINESS PLAN.
-CONSISTS OF 3 INTERRELATED COMPONENTS:
1) INDUSTRY & MARKET FEASIBILITY ANALYSIS
2) PRODUCT OR SERVICE FEASIBILITY ANALYSIS
3) FINANCIAL FEASIBILITY ANALYSIS
3. I. INDUSTRY & MARKET FEASIBILITY ANALYSIS
-TWO MAIN PURPOSES:
5) ASSESSING INDUSTRY ATTRACTIVENESS
-TO DETERMINE HOW ATTRACTIVE AN INDUSTRY IS
OVERALL AS A “HOME” FOR A NEW BUSINESS.
2) IDENTIFYING POTENTIAL NICHES
-TO IDENTIFY POSSIBLE NICHES A SMALL BUSINESS CAN
OCCUPY PROFITABLY.
NICHE:
-A DISTINCT SEGMENT OF A MARKET.
4. INDUSTRY & MARKET FEASIBILITY ANALYSIS
STEP 1: ASSESSING INDUSTRY ATTRACTIVENESS
5. FIVE FORCES MODEL
”A MODEL THAT RECOGNIZES THE POWER OF 5 FORCES ON AN
INDUSTRY.”
-A USEFUL TOOL FOR ANALYZING AN INDUSTRY’S
ATTRACTIVENESS.
6.
7. 1) RIVALRY AMONG COMPANIES COMPETING IN THE INDUSTRY
-THE STRONGEST OF THE 5 FORCES.
-LIKE HORSES RUNNING IN A RACE, BUSINESSES IN AN
INDUSTRY ARE JOCKEYING FOR POSITION IN AN ATTEMPT TO
GAIN A COMPETITIVE ADVANTAGE.
-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
9) NUMBER OF COMPETITORS IS LARGE OR SMALL.
10)COMPETITORS ARE NOT SIMILAR IN SIZE OR CAPABILITY.
11)THE INDUSTRY IS GROWING AT A FAST PACE.
12)THE OPPORTUNITY TO SELL A DIFFERENTIATED
PRODUCT/SERVICE IS PRESENT.
8. 2) BARGAINING POWER OF SUPPLIERS TO THE INDUSTRY
-THE GREATER THE LEVERAGE THAT SUPPLIERS OF KEY RAW
MATERIALS OR COMPONENTS HAVE, THE LESS ATTRACTIVE
THE INDUSTRY IS.
-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
7)MANY SUPPLIERS SELL A COMMODITY PRODUCT TO THE
COMPANIES IN IT.
8)SUBSTITUTE PRODUCTS ARE AVAILABLE FOR THE ITEMS
SUPPLIERS PROVIDE.
9)COMPANIES IN THE INDUSTRY FIND IT EASY TO SWITCH FROM
ONE SUPPLIER TO ANOTHER OR TO SUBSTITUTE PRODUCTS.
10)THE ITEMS SUPPLIERS PROVIDE THE INDUSTRY ACCOUNT
FOR A RELATIVELY SMALL PORTION OF THE COST OF THE
INDUSTRY’S FINISHED PRODUCTS.
9. 3) BARGAINING POWER OF BUYERS
-IN A CAPITALIST SOCIETY CONSUMERS HOLD A LOT OF POWER,
HOWEVER, WE RARELY EXERT OUR POWER.
-IN A FREE MARKET SOCIETY, THE CUSTOMERS MOST POWERFUL
BARGAINING TOOL IS SWITCHING TO A COMPETITOR.
-SWITCHING COSTS:
-AMOUNT OF $ IT COSTS A CONSUMER TO SWITCH TO A
COMPETITOR’S PRODUCT OR A SUBSTITUTE PRODUCT.
-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
12)INDUSTRY CUSTOMERS’ “SWITCHING COSTS” TO COMPETITORS
PRODUCTS OR TO SUBSTITUTES ARE RELATIVELY HIGH.
13)THE NUMBER OF BUYERS IN THE INDUSTRY IS LARGE.
14)CUSTOMERS FIND IT DIFFICULT TO GATHER INFORMATION ON
SUPPLIERS’ COST, PRICES, & PRODUCT FEATURES.
10. 4) THREAT OF NEW ENTRANTS TO THE INDUSTRY
-WHEN “BARRIERS TO ENTRY” INTO AN INDUSTRY ARE LOW, THE
GREATER THE POSSIBILITY OF NEW ENTRANTS.
-BARRIERS TO ENTRY:
-OBSTACLES THAT MAKE IT DIFFICULT FOR A NEW
BUSINESS TO ENTER AN INDUSTRY.
-CAPTIAL REQUIREMENTS, SPECIALIZED KNOWLEDGE,
TECHNOLOGY
-THE LARGER THE POOL OF POTENTIAL NEW ENTRANTS TO AN
INDUSTRY, THE GREATER IS THE THREAT TO EXISTING
COMPANIES IN IT.
-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
13)CAPITAL REQUIREMENTS TO ENTER THE INDUSTRY ARE LOW.
14)COST ADVANTAGES ARE NOT RELATED TO COMPANY SIZE.
15)BUYERS ARE NOT EXTREMELY BRAND LOYAL.
11. 5) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
-WHEN BUYERS HAVE AN OPPORTUNITY TO PURCHASE
SUBSTIUTE PRODUCTS/SERVICES, AN INDUSTRY CAN BE
TURNED ON ITS HEAD.
-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
7)QUALITY SUBSTITUTE PRODUCTS ARE NOT READILY
AVAILABLE.
8)THE PRICES OF SUBSTITUTE PRODUCTS ARE NOT
SIGNIFICANTLY LOWER.
9)BUYERS’ COST OF SWITCHING TO SUBSTITUTE PRODUCTS IS
HIGH.
13. INDUSTRY NICHES
-MANY SMALL BUSINESSES PROSPER BY STICKING TO NICHES
THAT ARE TOO SMALL TO ATTRACT THE ATTENTION OF LARGE
COMPETITORS.
-OCCUPYING AN INDUSTRY NICHE SHIELDS A BUSINESS, TO
SOME EXTENT, FROM THE POWER OF THE 5 FORCES.
-KEY QUESTIONS:
9)“CAN WE IDENTIFY A NICHE THAT IS LARGE ENOUGH TO
PRODUCE A PROFIT?
OR
2) “CAN WE POSITION OUR COMPANY UNIQUELY IN THE
MARKET TO DIFFERENTIATE IT FROM THE COMPETITION IN A
MENAINGFUL WAY?”
14. II. PRODUCT OR SERVICE FEASIBILITY ANALYSIS
-”AN ANALYSIS THAT DETERMINES THE DEGREE TO
WHICH A PRODUCT OR SERVICE IDEA APPEALS TO
POTENTIAL CUSTOMERS & IDENTIFIES THE RESOURCES
NECESSARY TO PRODUCE THE PRODUCT OR PROVIDE
THE SERVICE.”
-THE ANALYSIS ADDRESSES 2 QUESTIONS:
5) ARE CUSTOMERS WILLING TO PURCHASE OUR GOODS
& SERVICES?
6) CAN WE PROVIDE THE PRODUCT OR SERVICE TO
CUSTOMERS AT A PROFIT?
-TO ANSWER THESE QUESTIONS, ENTREPRENEURS NEED
FEEDBACK FROM POTENTIAL CUSTOMERS.
15. PRIMARY VS SECONDARY RESEARCH
PRIMARY RESEARCH:
-INFORMATION THAT AN ENTREPRENEUR COLLECTS
FIRST-HAND & ANALYZES.
SECONDARY RESEARCH:
-INFORMATION THAT HAS ALREADY BEEN COMPILED & IS
AVAILABLE FOR USE, OFTEN AT A VERY REASONABLE
COST OR SOMETIMES EVEN FREE.
19. SECONDARY RESEARCH SOURCES
•TRADE ASSOCIATIONS & BUSINESS DIRECTORIES
•DIRECT MAIL LISTS
•DEMOGRAPHIC DATA
•CENSUS DATA
•FORECASTS
•MARKET RESEARCH
•ARTICLES
•LOCAL DATA
•WORLD WIDE WEB
21. PROTOTYPE
-”AN ORIGINAL, FUNCTIONAL MODEL OF A NEW PRODUCT
THAT ENTREPRENEURS CAN PUT INTO THE HANDS OF
POTENTIAL CUSTOMERS SO THEY CAN SEE IT, TEST IT, &
USE IT.”
22. IN-HOME TRIAL
-”A RESEARCH TECHNIQUE THAT INVOLVES SENDING
RESEARCHERS INTO CUSTOMERS’ HOMES TO OBSERVE
THEM AS THEY USE THE COMPANY PRODUCT OR
SERVICE.”
23. III. FINANCIAL FEASIBILITY ANALYSIS
-”INVOLVES ASSESSING THE FINANCIAL FEASIBILITY OF A PROPOSED
BUSINESS VENTURE.”
-3 MAJOR ELEMENTS:
1) CAPITAL REQUIREMENTS:
-MONEY NEEDED TO START UP A BUSINESS VENTURE.
2) ESTIMATED EARNINGS:
-A FORECAST OF THE EARNING POTENTIAL OF THE PROPOSED
BUSINESS.
3) RETURN ON INVESTMENT:
-DETERMINES THE RATE OF RETURN ON THE CAPITAL INVESTED.
