Feasibility Analysis in Business

Feasibility Analysis

• Feasibility analysis determines if a business idea is viable
• It's a preliminary evaluation of a business idea
• The purpose is to determine if pursuing the idea is worthwhile
• Analysis is conducted early in the process to save resources

Objectives of Feasibility Analysis

• Explain what feasibility analysis is and why it's important
• Describe and explain product/service feasibility analysis and the two primary issues to consider
• Describe industry/market feasibility analysis and the two primary issues to consider
• Explain organizational feasibility analysis and the two primary issues to consider
• Describe financial feasibility analysis and the most critical issues to consider
• Describe a feasibility analysis template and explain when entrepreneurs should use one

When to Conduct a Feasibility Analysis

• Conduct analysis early in the process, before investing significant resources
• Analyze before investing substantial resources to avoid unnecessary costs

Forms of Feasibility Analysis

• Product/Service Feasibility
• Industry/Target Market Feasibility
• Organizational Feasibility
• Financial Feasibility

Outline for a Comprehensive Feasibility Analysis

• Part 1: Product/Service Feasibility
  • Product/service desirability
  • Product/service demand
• Part 2: Industry/Target Market Feasibility
  • Industry attractiveness
  • Target market attractiveness
• Part 3: Organizational Feasibility
  • Management prowess
  • Resource sufficiency
• Part 4: Financial Feasibility
  • Total start-up cash needed
  • Financial performance of similar businesses
  • Overall financial attractiveness of the proposed venture

Product/Service Feasibility Analysis

• Purpose: Assessing the overall appeal of the product or service
• Before development, ensure the product/service aligns with customers' wants

Product/Service Desirability

• Does the product/service make sense?
• Does it leverage trends or address gaps?
• Is it a good market entry time?
• Does it have any critical flaws?

Product/Service Demand Analysis

• Two-step process
• Step 1: Talking face-to-face with potential customers.
• Step 2: Using online tools (e.g., Google AdWords, landing pages) to assess demand.

Industry/Target Market Feasibility

• Purpose: Assessing the industry's and target market's appeal for the business
• Industry: A group of firms producing similar products or services
• Target Market: The specific portion of the industry being targeted

Industry Attractiveness

• Industries vary in overall attractiveness
• Characteristics of an attractive industry:
  • Young rather than old
  • Early rather than late in its life cycle
  • Fragmented rather than concentrated
  • Growing rather than shrinking
  • Products/services considered must-haves instead of wants
  • Not crowded
  • High rather than low operating margins
  • Not dependent on historically low raw material prices

Target Market Attractiveness

• Identifying an attractive target market is crucial for business success
• Consider the market's size, avoiding larger competitors, thorough assessment
• Significant ingenuity needed to gather information about the target market

Organizational Feasibility Analysis

• Purpose: Determining if the proposed business has sufficient management expertise, organizational competence, and resources to launch successfully
• Focuses on non-financial resources

Management Prowess

• Evaluating management team's ability to successfully launch the venture
• Focus on the team's passion for the business idea and understanding of the market.

Resource Sufficiency

• Assessing if the entrepreneur has sufficient resources to launch the venture.
• Listing 6-12 crucial resources to successfully move the business idea forward.

Financial Feasibility Analysis

• Purpose: Assesses the financial viability of the business
• Components of financial feasibility analysis are:
• Total start-up cash needed
• Financial performance of similar businesses
• Overall financial attractiveness of the proposed venture

Total Start-Up Cash Needed

• Determining the total cash needed to prepare the business for its first sale
• All anticipated capital purchases and operating expenses, up to the first $1 in revenue, are included in the budget.
• Projecting startup costs is critical to the venture's success

Financial Performance of Similar Businesses

• Evaluating the performance of similar established businesses
  • Searching for relevant reports (free and paid) to provide detailed industry trend analyses
  • Utilizing observational research, as needed

Overall Financial Attractiveness

• Evaluating the financial attractiveness and prospects of the venture
• Consider financial factors associated with promising ventures (e.g., steady growth, high recurring revenue, reliable forecasting)

First Screen Template

• Helps entrepreneurs identify initial viability of business ideas based on parameters assessed.
• A tool used to determine if an idea cuts muster at the initial stage for further development. If the business idea doesn't pass initial screening, it may not be viable enough to proceed to a formal business plan.

This quiz covers the essential aspects of feasibility analysis, a vital step in determining the viability of a business idea. Participants will explore various types of feasibility studies, including product, market, organizational, and financial analyses. Understanding these concepts is crucial for entrepreneurs to make informed decisions while minimizing resource wastage.