COMP1170

Entrepreneurs
hip for
Computer
Scientists
Lecture 3
Clinton Gittens
Feasibility Analysis
• Explain what a feasibility analysis is and why it’s
important.
• Describe a product/service feasibility analysis,
explain its purpose, and discuss the two primary
issues that a proposed business should consider in
this area.
•Describe an industry/market feasibility analysis,
explain its purpose, and discuss the two primary
issues to consider when completing this analysis.
Objectives
• Explain what an organizational feasibility analysis
is and its purpose and discuss the two primary
issues to consider when completing this analysis.
• Describe what a financial feasibility analysis is,
explain its importance, and discuss the most
critical issues to consider when completing this
analysis.
•Describe a feasibility analysis template and
explain when it is important for entrepreneurs to
Objectives
use this template.
• 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.

What Is 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 discussed in the following
slides.

When To Conduct a Feasibility Analysis

• Role of feasibility analysis in developing business
ideas

Feasibility Analysis
 Industry/Target Market
Product/Service Feasibility
Feasibility

Organizational Feasibility Financial Feasibility

Forms of Feasibility Analysis

Outline for a Comprehensive Feasibility
Analysis
• 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 Feasibility Analysis

• 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
• Second, Administer a Concept Test
– 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
• New Venture Fitness Drink’s
Concept Statement

Product/Service Desirability
• Product/Service Demand
– There are two 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.

Product/Service Demand
• 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.
• 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
• Utilizing Online Tools, Such as Google AdWords
and Landing Pages, to Assess Demand
– The second way to assess demand is to utilize online
tools to gauge reaction from potential customers.
Some entrepreneurs purchase text ads on search engines that
show up when a user is searching for a product that is close to
their idea. If the searcher clicks on the text ad, they are
directed to a landing page that describes the idea. 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.
Product/Service Demand
• Utilizing Online Tools, Such as Google AdWords
and Landing Pages, to Assess Demand (continued)
– A variety of additional online tools are available to help
assess the demand for a new product or service.
– Examples include:
• Sites that provide feedback on business ideas (Foundersuite,
Quirky).
• Market Research (CrowdPicker, Google Trends).
• Online Surveys (Survey Monkey, Google Consumer Surveys).
• Q&A Sites (Quora, Stack Overflow).

Product/Service Demand
• 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.
• A firm’s target market is the limited portion of the
industry it plans to go after.

Industry/Target Market Feasibility Analysis

• Components of industry/target market feasibility
analysis

Target Market
Industry Attractiveness
Attractiveness

Industry/Target Market Feasibility Analysis

• 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
• Characteristics of Attractive Industries
– Are young rather than old.
– Are early rather than late in their life cycle.
– Are fragmented rather than concentrated.
– Are growing rather than shrinking.
– Are selling products/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
• 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 an entire
industry.
– Often, considerable ingenuity must be employed to find
information to assess the attractiveness of a specific
target market.

Target Market Attractiveness

• 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.

Organizational Feasibility Analysis

• Components of organizational feasibility analysis

Management Prowess Resource Sufficiency

Organizational Feasibility Analysis

• 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:
– The passion that the sole entrepreneur or the founding
team has for the business idea.
– The extent to which the sole entrepreneur or the
founding team understands the markets in which the
firm will participate.

Management Prowess
• 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.

Resource Sufficiency
• Examples of non-financial 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.
– Ability to form favorable business partnerships.
Resource Sufficiency
• Is the final component of a comprehensive
feasibility analysis.
• A preliminary financial assessment is sufficient.
• Components of financial feasibility analysis
Total Start-Up Cash Financial Performance of
Needed Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture

Financial Feasibility Analysis

• 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.

Total Start-Up Cash Needed

• 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.
There are many reports available, free and paid,
–
offering detailed industry trend analysis and reports on
thousands of individual firms.
– 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
Financial patronize similar
Performance restaurants
of Similar and
Businesses
estimating the average amount each customer spends.
• Overall Financial Attractiveness of the Proposed
Investment
– A number of other financial factors are associated with
promising business start-ups.
– 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.
– The table 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.
Overall Financial
– Availability Attractiveness
of an of for
exit opportunity theinvestors
Proposedto
Venture
convert equity to cash.
• First Screen
– This 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.
– If a business idea cuts muster at this stage, the next
step is to complete a business plan.

First Screen