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Module 3

This study guide focuses on conducting a feasibility analysis for entrepreneurial ventures, highlighting its importance and the appropriate timing for execution. It outlines four key components of feasibility analysis: product/service, industry/target market, organizational, and financial feasibility, along with their respective purposes and considerations. The guide emphasizes the need for a concept statement and the significance of understanding target markets for successful business development.

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0% found this document useful (0 votes)
4 views7 pages

Module 3

This study guide focuses on conducting a feasibility analysis for entrepreneurial ventures, highlighting its importance and the appropriate timing for execution. It outlines four key components of feasibility analysis: product/service, industry/target market, organizational, and financial feasibility, along with their respective purposes and considerations. The guide emphasizes the need for a concept statement and the significance of understanding target markets for successful business development.

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22bgu1224ms
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FM-AA-CIA-15 Rev.

0 10-July-2020

Study Guide in Tech101 Technopreneurship Module No. 3

STUDY GUIDE FOR MODULE NO. 3

CONDUCTING A FEASIBILITY ANALYSIS


MODULE OVERVIEW

This module emphasizes the importance of feasibility analysis. It discusses the proper time to
complete a feasibility analysis. Moreover, it also discusses the forms of feasibility analysis
which include product/service feasibility, industry/target market feasibility, organizational feasibility
and financial feasibility. Lastly, it presents the outline for a comprehensive feasibility analysis.

MODULE LEARNING OBJECTIVES

At the end of this module, you will:


• Explain what a feasibility analysis is and why it’s important;
• Discuss the proper time to complete a feasibility analysis when developing an
entrepreneurial venture;
• Describe the purpose of a product/service feasibility analysis and the two primary issues that
a proposed business should consider in this area;
• Explain a concept statement and its components;
• Describe the purpose of a buying intentions survey and how it’s administered;
• Explain the importance of library, Internet, and gumshoe research;
• Describe the purpose of industry/market feasibility analysis and the two primary issues to
consider in this area;
• Discuss the characteristics of an attractive industry;
• 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 critical issues to
consider in this area.

LEARNING CONTENTS (Conducting a Feasibility Analysis)

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
- The proper time to conduct a feasibility analysis is early in thinking through the prospects
for a new business.

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- 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:
✓ Product/Service Feasibility
✓ Industry/Target Market Feasibility
✓ Organizational Feasibility
✓ Financial Feasibility
Figure 3.1 shows the role of feasibility analysis in developing business ideas.

Figure 3.1: Feasibility Analysis

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
Forms of Feasibility Analysis
• Product/Service Feasibility
- Purpose

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✓ 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.
- Components of product/service feasibility analysis
✓ Product/Service Desirability
- First, ask the following questions to determine the basic appeal of the product or
service:
1. Does it make sense? Is it reasonable? Is it something consumers will get
excited about?
2. Does it take advantage of an environmental trend, solve a problem, or take
advantage of a gap in the marketplace?
3. Is this a good time to introduce the product or service to the market?
4. Are there any fatal flaws in the product or service’s basic design or concept?
- Second, Administer a Concept Test
1. A concept statement should be developed.
2. 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.
3. The feedback will hopefully provide the entrepreneur a sense of the viability or
the product or service idea and suggestions for how the idea can be
strengthened or “tweaked” before proceeding further.
✓ Product/Service Demand
- There are two steps to assessing product/service demand.
- Step 1: Administer a Buying Intentions Survey
➢ Buying Intentions Survey is an instrument that is used to gauge customer
interest in a product or service.
➢ It consists of a concept statement or a similar description of a product or
survey with a short survey attached to gauge customer interest.
- Step 2: Conduct library, Internet, and Gumshoe research
➢ The second way to assess the demand for a product or service is by
conducting library, Internet, and gumshoe research.
➢ Reference librarians can often point you towards resources to help you
investigate a business idea, such as industry-specific trade journal and
industry reports.
➢ Internet searches can often yield important information about the
potentially viability of a product or service idea.

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➢ A gumshoe is a detective or an investigator that scrounges around for


information or clues wherever they can be found.
➢ Be a gumshoe. Ask people what they think about your product or service
idea. If your idea is to sell educational toys, spend a week volunteering at
a day care center and watch how children interact with toys.
- 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. This potential entrepreneur is administering a survey about
a new product idea.
• Industry/Target Market Feasibility
- Purpose
✓ 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.
✓ A firm’s target market is the limited portion of the industry it plans to go after.
- Components of industry/target market feasibility analysis
✓ Industry Attractiveness
- Industries vary in terms of their overall attractiveness.
- In general, the most attractive industries have these characteristics:
1. Are young rather than old
2. Are early rather than late in their life cycle
3. Are fragmented rather than concentrated
4. Are growing rather than shrinking
5. Sell products or services that customers “must have” rather than “want to
have”
6. Are not crowded
7. Have high rather than low operating margins
8. Are not highly depended on the historically low price of a key raw material, like
gasoline or flour to remain profitable
✓ 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 an entire
industry.
- Often, considerably ingenuity must be employed to finding information to assess
the attractiveness of a specific target market.

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• Organizational Feasibility
- Purpose
✓ 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.
- Components of organizational feasibility analysis
✓ 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: 1) The passion that the solo
entrepreneur or the founding team has for the business idea. 2) The extent to
which 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. If critical resources are not available in certain areas, it may be
impractical to proceed with the business idea.
- Examples of nonfinancial resources that may be critical to the successful launch
of a new business:
1. Availability of affordable office or lab space.
2. Likelihood of local and state government support of the business.
3. Quality of the labor pool available.
4. Proximity to key suppliers and customers.
5. Willingness of high quality employees to join the firm.
6. Likelihood of establishing favorable strategic partnerships.
7. Proximity to similar firms for the purpose of sharing knowledge.
8. Possibility of obtaining intellectual property protection in key areas.
• Financial Feasibility
- Purpose
✓ The final component of a comprehensive feasibility analysis.
✓ A preliminary financial assessment is sufficient.
- Components of financial feasibility analysis

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✓ Total Start-Up Cash Needed


- The first issue refers to the the total cash needed to prepare the business to
make its first sale.
- 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. 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. Second, simple observational research may be needed.
✓ Overall Financial Attractiveness of the Proposed Venture
- 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.
- Financial Factors Associated with Promising Business Opportunities:
1. Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
2. High percentage of recurring revenue—meaning that once a firm wins a client,
the client will provide recurring sources of revenue.
3. Ability to forecast income and expenses with a reasonable degree of certainty.
4. Internally generated funds to finance and sustain growth.
5. Availability of an exit opportunity for investors to convert equity to cash.

LEARNING ACTIVITY 1

Application Questions:
1. Michelle Smith is thinking about launching a website to sell sports apparel for petite women. She
designed a website but not isn’t sure if it’s user friendly enough to launch. Provide Michelle some
concrete suggestions for how she can receive feedback on the usability of her site.
2. Suppose you’re interested in opening a musical instruments store near the college or university
you attend, to sell guitars, drums, and other types of musical instruments. What online resources
would you draw on to conduct secondary research regarding the industry/target market feasibility of
your business idea? How would you use the resources?

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RNING ACTIVITY 2

LEARNING ACTIVITY 2

In your own words, answer the following questions:


1. Briefly describe each of the four areas that a properly executed feasibility analysis explores.
2. Describe the attributes of an attractive industry for a new venture.
3. What is a target market? Why do most start-ups focus on relatively small target markets to
begin with rather than larger markets with more substantial demand?

SUMMARY

❖ Feasibility analysis is the process of determining whether a business idea is viable. A


properly conducted feasibility analysis includes four separate components, these include
product/service feasibility, industry/target market feasibility, organizational feasibility and
financial feasibility.
❖ The proper time to conduct a feasibility analysis is early in thinking through the prospects for
a new business idea. It follows opportunity recognition but comes before the development of
a business plan.
❖ A concept statement is a preliminary description of a product idea.
❖ A target market is a place within a larger market segment that represents a narrower group
of customers with similar needs. Most start-ups simply don’t have the resources needed to
participate in a broad market, at least initially. Instead, by focusing on a smaller target
market a firm can usually avoid head-to-head competition with industry leaders and can
focus on serving a specialized market very well.

REFERENCES

Barringer, B.R. & Ireland, R.D. (2013). Entrepreneurship: Successfully Launching New Ventures,
4th Ed. Pearson Education.

Scarborough, Norman M. (2011). Essentials of Entrepreneurship and Small Business Management,


6th Ed. Pearson.

Allen, Kathleen R. (2016). Launching New Ventures: An Entrepreneurial Approach, 7 th Ed. Cengage
Learning.

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