FEASIBILITY

ANALYSIS
WHAT IS FEASIBILITY ANALYSIS?

Feasibility analysis is the

process of determining
whether a business idea
Feasibility Analysis 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?
(CONT’D)

Feasibility analysis takes

the guesswork (to a
Feasibility Analysis certain degree) out of a
business launch, and
provides an entrepreneur
with a more secure notion
that a business idea is
feasible or viable.
 WHAT IS FEASIBILITY ANALYSIS?
(CONT’D)
A mental transition must be made when
completing a feasibility analysis.
– A feasibility analysis is an assessment of a
potential business rather than strictly a product or
service idea.
Components of a Properly Conducted Feasibility
Analysis
– A properly conducted feasibility analysis includes
four components: Product/Service Feasibility,
Industry/Target Market Feasibility, Organizational
Feasibility, and Financial Feasibility.
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.
– 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 components: Product/Service Feasibility,
Industry/Target Market Feasibility, Organizational
Feasibility, and Financial Feasibility.
 PREPARING FOR FEASIBILITY
ANALYSIS
• Is there a customer and a market of
sufficient size to make the concept viable?
• Do the capital requirements to start, based
on estimates of sales and expenses, make
sense?
• Can an appropriate start-up or founding
team be assembled to effectively execute
the concept?
 PREPARING FOR FEASIBILITY
ANALYSIS (CONT’D)
• Pre-Feasibility Quick Look Assessment
– Draft description of the business
– Examine the industry
– Identify the product’s
customer benefit
– Examine the capabilities
and experience of
management team
 THE PROCESS
OF FEASIBILITY ANALYSIS
 FEASIBILITY ANALYSIS
Role of feasibility analysis in developing business
ideas.
FORMS OF FEASIBILITY ANALYSIS

Product/Service Industry/Target Market

Feasibility Feasibility

Organizational
Financial Feasibility
Feasibility
OUTLINE FOR A COMPREHENSIVE
FEASIBILITY ANALYSIS
PRODUCT/SERVICE FEASIBILITY
ANALYSIS
Purpose
• Is an assessment of the
Product/Service overall appeal of the product
Feasibility Analysis 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 (CONT’D)
Components of product/service
feasibility analysis

Product/Service Product/Service
Desirability Demand
PRODUCT/SERVICE DESIRABILITY
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
(CONT’D)
• Second, Administer a Concept Test
– A concept statement
should be developed.
– A concept statement
is a 1-page description
of a business that is
distributed to at least
25 people familiar with the target industry (i.e.,
mostly prospective customers and industry
experts) who are asked to provide feedback on
the potential of the business idea.
 PRODUCT/SERVICE DESIRABILITY
(CONT’D)
• A Concept Test
– The feedback provides the
entrepreneur:
 A sense of the
viability of the
product/service idea.
 The suggestions for how the idea can be
strengthened or “tweaked” before proceeding
further.
– The goal is to find a “product/market fit” between
the benefits of the product/service offers, and
what prospective customers need and require.
 PRODUCT/SERVICE DESIRABILITY
(CONT’D)
• A Concept Test
– Includes the following:
 A description of the product or service

 The intended target market.

 The benefits of the product or service.

 A description of how the product or service

will be positioned relative to competitors.

 A brief description of the company’s

management team.
PRODUCT/SERVICE DESIRABILITY
(CONT’D)

NEW VENTURE
FITNESS
DRINK’S
CONCEPT
STATEMENT
 PRODUCT/SERVICE DEMAND
• Product or Service Demand
– There are three methods to assess product or
service demand.
[Link] face-to-face with
potential customers.
[Link] online tools to
assess demand.
[Link] library, Internet,
and Gumshoe research.
 PRODUCT/SERVICE DEMAND
(CONT’D)
• Talking Face-to-Face With Potential Customers.
– The only way to know if your product or service is
what people want and need is by talking to them.
Have to think carefully about who the potential
customers are.
– Entrepreneurs should also talk to as many of the
relevant players in an industry as possible.
– One approach to finding qualified people to talk to
about a product or service idea, or to react to a
concept statement, is to contact the trade
associations and/or attend industry trade shows.
CATEGORIES OF PEOPLE TO TALK TO AS PART OF
A PRODUCT/SERVICE FEASIBILITY ANALYSIS FOR
A NEW TYPE OF HOME HEALTH-CARE SERVICE
 PRODUCT/SERVICE DEMAND
(CONT’D)
• Utilizing Online Tools to Assess Demand
– Online tools (such as administering surveys,
utilizing Q&A sites, and conducting online
marketing research) can be used to assess
product demands.
Have to be careful to avoid confirmation bias
(a tendency to search for information that
validates preconceptions).
– Online survey platforms: SurveyMonkey, Google
Consumer Surveys.
– Q&A sites (Quora, Bright Journey) can be utilized
to get feedback about product/service demand.
 PRODUCT/SERVICE DEMAND
(CONT’D)
• Utilizing Online Tools to Assess Demand
 Online marketing research sites: Google Trends,

Google’s AdWords.
 Landing Page:
A single web page that typically provides direct
sales copy, like “Click here to buy a
Hawaiian vacation.”
 Running an AdWords and Landing Page
campaign is a practical and affordable way to get
another data point in regard to assessing demand
for a new product or service idea.
 PRODUCT/SERVICE DEMAND
(CONT’D)
• Library, Internet, and Gumshoe Research
– The third way to assess
the demand for a product
/service is by conducting
library, Internet, and
gumshoe research.
– Reference librarians can
often point you toward resources to help you
investigate a business idea, such as industry-
specific trade journals and industry reports.
– Internet searches can yield important
information about potential viability of
 PRODUCT/SERVICE DEMAND
(CONT’D)
Explanation
 A gumshoe is a detective or an

investigator that scrounges around for

Gumshoe information or clues wherever they
Research 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.
 PRODUCT/SERVICE DEMAND
(CONT’D)
• 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.
• If the business idea involves a physical product,
the steps described
previously should be
followed by building
a prototype of the
product, and testing it
with the potential
customers.
 INDUSTRY/TARGET MARKET
FEASIBILITY ANALYSIS
Purpose:
Industry/Target • It is an assessment of
Market Feasibility the overall appeal of the
Analysis industry and the target
market for the proposed
business.
An industry is a group
of firms producing a
similar product or
service.
 INDUSTRY/TARGET MARKET
FEASIBILITY ANALYSIS
Purpose
Industry/Target • A firm’s target market is
Market Feasibility the limited portion of the
industry it plans to go after.
Analysis
Most firms, and
certainly
entrepreneurial start-
ups, select/carve out a
specific target market
and try to service that
group of customers well
 INDUSTRY/TARGET MARKET
FEASIBILITY ANALYSIS (CONT’D)
Components of industry/target market
feasibility analysis

Target Market
Attractiveness

Industry
Attractiveness
 INDUSTRY ATTRACTIVENESS
• Industry Attractiveness
– Industries vary in terms of their overall
attractiveness.
– In general, the most attractive industries have
the characteristics depicted on the next slide.
– Particularly important is the degree to which
environmental and business trends are moving
in favor rather than against the industry.
 INDUSTRY ATTRACTIVENESS
(CONT’D)
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 and 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.
 TARGET MARKET ATTRACTIVENESS
• Target Market Attractiveness
– By focusing on a smaller target market, a start-up
or a small firm can usually avoid head-to-head
competition with industry leaders and can focus
on serving a specialized market very well.
Often it's not realistic for a start-up to introduce
a totally original product idea into a completely
new market.
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.
 TARGET MARKET ATTRACTIVENESS
• Target Market Attractiveness
– Assessing attractiveness
of a target market is
tougher than that of an
entire industry.
– Often, information from
more than one industry
and/or market must be
collected and synthesized
to make an informed
judgment, which needs
considerable ingenuity
 ORGANIZATIONAL FEASIBILITY
ANALYSIS
Purpose:
• Is conducted to determine
Organizational whether a proposed
Feasibility Analysis business has sufficient
management expertise,
organizational competence,
and resources to launch a
business successfully.
• Focuses on non-financial
resources.
ORGANIZATIONAL FEASIBILITY
ANALYSIS (CONT’D)
Components of organizational
feasibility analysis
Management Resource
Prowess Sufficiency
 MANAGEMENT PROWESS
• Management Prowess
– A proposed business should 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 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.
 RESOURCE SUFFICIENCY
• 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.
 RESOURCE SUFFICIENCY
(CONT’D)
Examples of nonfinancial resources that may be critical
to the successful launch of a new business
•
ffordable office space
•
ab space, manufacturing space, or space to launch a
service business
•
vailability of contract manufacturers or service
providers
•
ey management employees (now and in the future)
FINANCIAL FEASIBILITY ANALYSIS

Purpose
Financial Feasibility • Is the final component of a
Analysis comprehensive feasibility
analysis.
• A preliminary financial
assessment is sufficient.
FINANCIAL FEASIBILITY ANALYSIS
(CONT’D)
Components of financial
feasibility analysis

Total Start-Up Cash Financial Performance of

Needed Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture
TOTAL START-UP CASH NEEDED

• 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.
 FINANCIAL PERFORMANCE OF
SIMILAR BUSINESSES
• 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.
For example, the owners of New Venture Fitness Drinks
could estimate their sales by tracking the number of
people who patronize similar restaurants and estimating
the average amount each customer spends.
OVERALL FINANCIAL ATTRACTIVENESS
OF THE PROPOSED VENTURE
• 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 (CONT’D)

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
• Availability of an exit opportunity for investors to convert
equity to cash
 FIRST SCREEN

• First Screen
– There 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.