Feasibility Study Lessons 4 & 5 PDF

ENTREPRENEURSHIP LECTURE #4 & 5 FEASIBILITY STUDY 1  AREAS TO COVER 1. The importance of a Feasibility Study 2. The Feasibility Study Procedure 3. Elements of a Feasibility Study 4. Business Models 5. Conducting a feasibility Study...

ENTREPRENEURSHIP LECTURE #4 & 5 FEASIBILITY STUDY 1  AREAS TO COVER 1. The importance of a Feasibility Study 2. The Feasibility Study Procedure 3. Elements of a Feasibility Study 4. Business Models 5. Conducting a feasibility Study 2 WHAT IS A FEASIBILITY STUDY An in-depth analysis of situational factors faced by a prospective business entity, the success of which will depend on an appropriate plan of action in order to deal with those factors. 3 WHAT IS A FEASIBILITY STUDY The Study enables the entrepreneur to minimize the level of risk or uncertainty in the prospective business, thus ensuring that the business will succeed as a going concern. 4  THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 1. help you to decide whether or not there is a real need for your product or service 5  THE IMPORTANCE OF THE FEASIBILITY STUDY The results of the study will answer the following questions: 1. Are people in general interested in the product/service that the business will offer? 6  THE IMPORTANCE OF THE FEASIBILITY STUDY 1. Which set/group(s) of persons will be most interested in buying your product/service? 7  THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 1. identify your competitors and your potential market share THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 1. force you to look at the various aspects of running a business. 9 THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 1. Determine whether any large companies or organizations will agree to carry the product or use the service once it is available. THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 4. Help determine whether it is possible to earn a living from the business. 11  THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 4. Help you understand the production schedule needed to satisfy market needs. 12  THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 4. Will identify similar product/services which are already on the market. 13  THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: 4. Show the price people prepared to pay for your product/service. 14  THE IMPORTANCE OF THE FEASIBILITY STUDY 4. A feasibility study will: 5. Show how much advertising and promotion will you need to launch your product/service on the market. 15 RESEARCHING THE VENTURE’S FEASIBILITY Once you have thought of a business idea, you must answer the following questions through conducting of a feasibility study. 1. Why should I start this business? 16 RESEARCHING THE VENTURE’S FEASIBILITY 1. Is this a good business idea or is this merely an interesting hobby? 17  RESEARCHING THE VENTURE’S FEASIBILITY 1. Is the market ready for this type of product/service?  THE FEASIBILITY STUDY PROCEDURE The search for information on the potentials of a prospective business should not be abandoned because it appears to be overwhelming, neither should it be neglected by sheer oversight. The study should be carried out on a timely and objective basis, with appropriate skills or expertise. 19 THE FEASIBILITY STUDY PROCEDURE The approach to the Feasibility Study involves: 1. The Goal: What you wish to find out? Is the business idea a viable one? What plan of action, or strategy will be required to make it work? 20  4 ELEMENTS OF THE FEASIBILITY STUDY 1. Market Feasibility 2. Technical Feasibility 3. Operational Feasibility 4. Financial Feasibility 21  ELEMENTS OF THE FEASIBILITY STUDY 1. Market Feasibility 22 Market Feasibility Analysis of the market in terms of: A. Size B. Composition 23 Market Feasibility Analysis of the market in terms of: C. Taste D. Attitudes E. Preferences 24 Market Feasibility Analysis of the market in terms of: F. Demand G. Consumer income 25  Feasibility Look at factors that influences market response, i.e.- 2. The Product or Service 26 Market Feasibility Look at factors that influences market response, viz:- A. Price 27 Market Feasibility Look at factors that influences market response, viz:- B. Promotional efforts 28 Market Feasibility Look at factors that influences market response, viz:- C. Product quality 29 Market Feasibility Look at factors that influences market response, viz:- D. Distribution outlets 30  3. Competitor Analysis A. Who are the new venture’s current competitors? B. What resources do they control? C. What are their strengths and weaknesses? D. How will they respond to the new venture’s decision to enter the industry? 31  Competitor Analysis E. How can the new venture respond? F. Who else might be able to observe and exploit the same opportunity? G. Are there ways to co-opt potential or actual competitors by forming alliances? 32 Strategies that Capture Opportunities 4. Michael Porter Competitive Strategies 33 Strategies that Capture Opportunities Peter Drucker’s Generic Competitive Strategies  Seek an advantage in cost or competition. Cost-Advantage Strategy and Options  Requires the firm to be the lowest-cost producer. Marketing-Advantage Strategy  Emphasizing the uniqueness of the firm’s product or service 34  Laying the Foundation to Competitive Advantage Competitive Advantage  To establish competitive advantage, the owner needs to understand the nature of the environment within which he or she will be operating.  A benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors. 35  Competitive Advantage Unique Service Price/Value Features Competitive Advantage Notable Product Accessibility Attributes Customer Service 36 Technical Feasibility Technical Feasibility Allows for an analysis of the skills and abilities that will be required to carry out the business Technical Feasibility Special equipment, machinery, and technical know-how. 39 Technical Feasibility Sources by which the equipment will be obtained. 40 Operational Feasibility 41  Operational Feasibility Special consideration should be given to how the business will operate i.e. the prospects for: securing supplies 42  Operational Feasibility Sourcing adequate staff 43  Operational Feasibility Ensuring that quality and cost control will be maintained. 44 Financial Feasibility 45 Financial Feasibility An analysis of the financial needs of the business and how the needs will be met. Options for obtaining financing include attracting equity contributors, and securing loans. 46 Financial Feasibility The analysis should consider targeted return on investment and expected levels of profitability. 47 Sources of Funds 48  Sources of Funds Personal Savings Friends and Relatives Other Individual Investors Business Suppliers Asset-Based Lenders Commercial Banks Equity Debt Government-Sponsored Programs Community-Based Financial Institutions Large Corporations Venture Capital Firms Sale of Stock 49  Business Models The business model adopted for a given business effectively determines its feasibility The business model is developed and chosen in response to feedback from research conducted Digicel employed a different business model from that used by Cable and Wireless and reaped greater success. 50  The Business Model Canvas The Business Model Canvas developed by Alexander Osterwalder, is a strategic management and entrepreneurial tool which can be used to assess and develop/evolve a the business model for a given business It has nine basic building blocks which must be assessed and validated (tested and adjusted) to ensure a viable business model The Business Model Canvas allows you to describe, design, challenge, invent, and pivot your business model. http://www.businessmodelgeneration.com/canvas 51  The Business Model Canvas Building Blocks/Elements 1. Value Propositions The different products/service bundles which the company intends to deliver to its customers 2. Customer Segments The different customer groups which the company intends to serve 3. Customer Relationships Specifies the type of relationship that needs to be created with customers to delight and retain them. 52  The Business Model Canvas Building Blocks/Elements 4. Channels 4. The different ways in which the company intends to deliver its value proposition to its customer segments 5. Revenue Streams Identifies the various ways which the company can earn income form its assets and operations. 6. Key Activities The main activities which the company needs to carry out in the creation and delivery of its value proposition 53  The Business Model Canvas Building Blocks/Elements 7. Key resources The resources that are necessary to create value for the customer 8. Key Partners Partners (strategic alliances) which the company can use to support the creation/delivery of its value proposition 9. Cost structure Identifies the main items and processes which contributes to overhead and operational cost 54 The Business Model Canvas 55 The Completed Business Model Canvas 56 What Is a Small Business? Criteria for Defining Smallness in Business Financing supplied by one person or small group Localized business operations (except marketing) Business’ size small relative to larger competitors Fewer than 100 employees 57 THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Look at trends in the economy Look at the needs of the community 58 THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Look at changes which are causing people difficulty Listen to the comments of people 59 THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Read the newspapers and listen to the radio and watch the TV Look at how people spend their time, their fashion, eating habits, etc. 60  METHODS FOR GENERATING IDEAS Focus Groups 61  METHODS FOR GENERATING IDEAS Brainstorming 62  METHODS FOR GENERATING IDEAS Problem Inventory Analysis 63  METHODS FOR GENERATING IDEAS Reverse Brainstorming 64  METHODS FOR GENERATING IDEAS Gordon Method Checklist Method Free Association Collective Notebook Method 65  THE FEASIBILITY STUDY PROCEDURE 2. The Methods: How will the study be carried out? These methods allow for both primary and secondary data. 1. Primary Data: Those obtained first hand, according to the researcher’s own design 66  THE FEASIBILITY STUDY PROCEDURE 1. Secondary Data: Those previously obtained that may be accessed for use in a present study. 67  Primary Data Methods for obtaining primary data: 1. Observation: looking at the natural flow of activities 2. Experiment: a controlled method of testing cause and effect 3. Survey: test of knowledge, beliefs, preferences, by interviewing a sample representative 4. Focus groups: interactive chat with a small group of representatives. 68  Secondary Data Sources of Secondary Data 1. Government publications 2. Periodicals, books, magazines 3. Commercial data such as previous research 4. Company reports, brochures, handboks. 69  QUESTIONNAIRE DESIGN Much attention should be given to the designing of a questionnaire or related interview tool. The questionnaire consist of a set of questions presented to the respondents It should be carefully developed and tested prior to it being administered. 70  QUESTIONNAIRE DESIGN Careful attention should be given to the questions in terms of Forms Wording, and Sequencing. Irrelevant questions should not be included and important ones should not be omitted. 71  QUESTIONNAIRE DESIGN The are two main forms of questions: 1. CLOSED-ENDED Questions accompanied by pre- specified responses for which the respondents may choose one or more responses. 2. OPENED-ENDED Questions that allow respondents to give a response in their own words. 72  THE RESULTS How will you respond to the findings? What actions will you take? 73  THE RESULTS Use Statistical Methods to tabulate your findings, viz: Pie Charts Simple Multiple Bar Graphs Pictograms Tables Line graphs bar charts 74  THE RESULTS The findings must be analyzed based on the goals of the study. The analysis 1. allows for appropriate conclusions to be drawn. 2. provides the framework for specific recommendations. 75  CONDUCTING A MARKET RESEARCH- THE ELEMENTS 1. Target Population 2. Selection of Sample 3. Objectives 4. Methodology 5. Findings 6. Analysis 7. Conclusions & Recommendations 8. Appendices. 76