Course Title –
Entrepreneurship and
New Venture Creation
Course Code- ENTR601
Credit- 3
Course level- PG
Module - 2
Evaluating Entrepreneurial Options and Startup Opportunities
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developing_creativity_quick_guide.htm
Understanding the idea
and the Opportunity
Business opportunity can be described as an economic idea which
can be implemented to create a business enterprise and earn profits.
Before selecting an opportunity entrepreneur has to ensure two
things:
1. There is good market for the product he is going to produce
2. The rate of return on investment is attractive to be accepted by
him.
Evaluating Venture Opportunities
• A simple way to find prima facie whether an idea that
one has would be an opportunity lies in answering some
of the following fundamental questions:
• Does your business idea respond to someone’s pain,
discomfort, displeasure, anxiety and so on?
• Do you find a large market for your idea as could be
assessed from having a large number of people looking
forward to relief from the aforementioned pains and discomfort?
• Do these people from the assessed target market consisting of
individuals, companies or governments have adequate money to
pay for relieving themselves from their pain, anxiety and
discomfort?
• Do they need your product or service immediately or can
their need be postponed?
• Does your idea have something unique in it so that it can
avoid competition?
• Do you possess some of the important assets such as
money, access to customers, technology, leadership skills,
employees, execution capability, location and patent that would
give you sustainable competitive advantage.
• Do you have a winning team with complementary skills
and similar values to execute your idea? Would your idea
generate adequate cash flows and valuable information to take
Answering these questions scientifically and backed up by facts and figures help
in opportunity recognition, which passes through the idea stage, concept stage,
product/service development stage, test marketing stage and the product/service
launch stage (Fig. 5.4). The real test of an idea lies in the market testing stage
that could be said to be a litmus test for the success or failure of a venture.
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What is a Feasibility Study?
• An assessment of the practicality and viability of a
proposed business idea.
Feasibility Studies
• What is the Purpose?
Highlight its importance in decision-making, risk
minimization, and helping entrepreneurs avoid wasting
resources on unviable ideas.
Analyze Societal-Level Trends
•Use an appropriate tool like the PESTEL model to assess both
the current situation and the likely changes as they may affect
you.
• Political factors – federal & provincial & municipal
government policy, nature of political decisions, potential
political changes, infrastructure plans, etc.
• Economic factors – interest rates, inflation rates, exchange
rates, tax rates, GDP growth, health of the economy, etc.
• Social factors –population characteristics like age
distribution and education levels, changes in demand for
types of products and services, etc.
• Technological factors – new processes, new products,
infrastructure, etc.
• Environmental factors – effects of climate/weather, water
availability, smog and pollution issues, etc.
• Legal factors – labour laws, minimum wage rates, liability
issues, etc.
•Assess the impact these trends have upon the venture:
• Do the trends uncover opportunities and threats?
• Can opportunities be capitalized on?
• Can problems be mitigated?
• Can the venture be sustained?
Analyze Industry-Level Trends
•Use an appropriate tool like the Five Forces Model (Porter, 1985) to analyze
the industry in which you expect to operate.
• Horizontal relationships – threat of substitutes, rivalry among existing
competitors, threat of new entrants
• Vertical Relationships – bargaining power of buyers, bargaining power
of suppliers
Analyze Market-Level Trends
•Use an appropriate method like a market profile analysis to
assess the position within the industry in which you expect to
operate.
• Determine the answers to questions like the following:
• How attractive is the market?
• In what way are competitors expected to respond if
you enter the market?
• What is the current size of the market and how large is
it expected to be?
• What are the current and projected growth rates?
• At what stage of the development cycle is the market?
• What level of profits can be expected in the market?
• What proportion of the market can be captured? What will
be the cost to capture this proportion and what is the cost to
capture the proportion required for business sustainability?
According to Porter (1996), strategy is about doing different things than
competitors or doing similar things but in different ways. To develop an effective
strategy, an entrepreneur must understand the competition.
To understanding the competitive environment, entrepreneurs must do the
following:
•determine who their current direct and indirect competitors are and who the
future competitors will be
•understand the similarities and differences in quality, price, competitive
advantages, and other factors their proposed business and the existing competitors
•establish whether they can offer different products or services—or the same
products or services in different ways—to attract enough customers to meet their
goals
•anticipate how the competitors will react in response to the new venture’s entry
into the market
Analyze Firm-level Trends (ORGANISATIONAL ANALYSIS)
There are several tools available for firm-level analysis, and usually several of
them should be applied because they serve different purposes.
•Use an appropriate tool like a SWOT Analysis/TOWS Matrix to formulate and
evaluate potential strategies to leverage organizational strengths,
overcome/minimize weaknesses, take advantage of opportunities, and
overcome/minimize threats. You will also need to do a financial analysis and take
into account the founder fit and the competencies a venture should possess.
• SWOT analysis – identify organizational strengths and weaknesses and
external opportunities and threats
• TOWS matrix – develop strategies to:
• leverage strengths to take advantage of opportunities
• leverage strengths to overcome threats
• mitigate weaknesses by taking advantage of opportunities
• mitigate weaknesses while minimizing the potential threats or the
For analyzing a firm’s strategy, apply a VRIO Framework analysis.
•While conceptualizing the resource-based view (RBV) of the firm, Barney
(1997) and Barney and Hesterly (2006) identified the following four
considerations regarding resources and their ability to help a firm gain a
competitive advantage. Together, the following four questions make up the
VRIO Framework, which can help assess a firm’s capacity, determine what
competencies a venture should have, and determine whether competences are
valuable, rare, inimitable, and exploitable.
• Value – Is a particular resource (financial, physical,
technological, organizational, human, reputational, innovative)
valuable to a firm because it helps it take advantage of
opportunities or eliminate threats?
• Rarity – Is a particular resource rare in that it is controlled by or
available to relatively few others?
• Imitability – Is a particular resource difficult to imitate so that
those who have it can retain cost advantages over those who
might try to obtain or duplicate it?
• Organization – Are the resources available to a firm useful to it
because it is organized and ready to exploit them?
Assess the financial attractiveness of the venture:
•Analyze similar firms in industry.
• Comparative ratio and financial analysis can help determine industry
norm returns, turnover ratios, working capital, operating efficiency, and
other measures of firm success.
•Project market share.
• Analyze the key industry players’ relative market share, and make
judgments about how the proposed venture would fare within the
industry.
• Use information from market profile analysis and key industry player
analysis.
•Analyze Expected Margins.
• Involves projecting expected margins from venture
• Useful information might come from financial analysis, market profile
analysis.
•Analyze break-even point.
• Involves using information from margin analysis to determine break even
volume and break-even sales.
• Is there sufficient volume to sustain the venture?
•Analyze Pro forma.
• Forecasting income and assets required to generate profits
•Analyze Sensitivity.
• What will be the likely impact if some assumed variable values change?
•Project Return on Investments (ROI).
• Projecting the ROI from undertaking the venture
• What is the opportunity cost of undertaking the venture
Founder fit is an important consideration for entrepreneurs screening venture
opportunities. While there are plenty of examples of entrepreneurs successfully
starting all types of businesses, “technical capability can be an important if not all-
important factor in pursuing ventures success” (Vesper, 1996, p. 149). Factors
such as the experience, training, credentials, reputation, and social capital an
entrepreneur has can play an important role in their success or failure in starting a
new venture. Even when an entrepreneur can recruit expert help through business
partners or employees, they may also need to possess technical skills required in
that particular kind of business.
A common and useful way to help screen venture options is to seek input from
experts, peers, mentors, business associates, and perhaps other stakeholders like
potential customers and direct family members.
FEASIBILITY ANALYSIS AND RISK TAKING ABILITY
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Feasibility study examines the viability or sustainability of an idea, project, or
business. The study examines whether there are enough resources to implement it,
and the concept has the potential to generate reasonable profits. In addition, it will
demonstrate the benefits received in return for taking the risk of investing in the idea.
Feasibility Study analyses whether the proposed business
ideas will succeed or fail.
There are different types of studies to check feasibility,
such as technical feasibility, market feasibility,
organization feasibility, and financial feasibility, that
help a company determine the viability of a business plan.
It is crucial to check whether the proposed business plan is within the
achievable limits of the company. The companies can do studies regarding
resources, return on investment, technical capabilities, organizational
competencies, whether they can complete the plan within a proposed time
frame, etc.
Technical Feasibility
Technical feasibility study checks for accessibility of technical resources in the
organization. In case technological resources exist, the study team will conduct
assessments to check whether the technical team can customize or update the
existing technology to suit the new method of workings for the project by
properly checking the health of the hardware and software.
Many factors need to be taken into consideration here, like staffing requirements,
transportation, and technological competency.
Financial Feasibility
Financial feasibility allows an organization to determine
cost-benefit analysis. It gives details about the investment that has to go
in to get the desired level of benefit (profit). Factors such as total cost
and expenses are considered to arrive simultaneously. With this data, the
companies know their present state of financial affairs and anticipate
future monetary requirements and the sources from which the company
can acquire them. Investors can largely benefit from the economic
analysis done. Assessing the return on investment of a particular asset
or acquisition can be a financial feasibility study example.
Market Feasibility
It assesses the industry type, the existing marketing characteristics and
improvements to make it better, the growth evident and needed, competitive
environment of the company’s products and services. Preparations of sales
projections can thus be a good market feasibility study example.
Organization Feasibility
Organization feasibility focuses on the organization’s structure, including the
legal system, management team’s competency, etc. It checks whether the
existing conditions will suffice to implement the business idea.
Feasibility
Analysis/Project
Appraisal
Feasibilty Analysis
• It is the process of determining if a business idea is viable.
• The four important processes are:-
• Recognizing a business idea
• Testing a feasibility of the idea
• Writing a business plan
• Launching the business
Feasibility Analysis
• Proposed Business Venture
• Spending the time and resources necessary to move forward with the
business idea depends on………………
• Product/ Service feasibility
• Industry / Market Feasibilty
• Organizational Feasibility
• Financial Feasibilty
• For the feasibility Analysis both primary and secondary research
needs to be conducted.
Product /Service Feasibility
• Product Service Feasibility is an assessment of overall appeal of the
product or service being proposed.
• There are two components:-
• Product /service desirability
• Product/service demand
•
Product /service desirability
• A concept test needs to be done. It includes preliminary description of a product or service
idea, which is called as concept statement. It is shown to industry experts and prospective
customers to solicit their feedback.
• A description of the product or service.
• The intended target market
• The benefits of the product or service
• Positioning of the product or service.
• Brief description of the company’s management team.
Product/ Service demand
• It analyzes if there is demand for the product or service.
• One of ways to determine is through a buying intentions survey.
• A buying intentions survey is an instrument to gauge customer
interest in a product or service.
• Library , Internet Research,
Industry/ Target Market Feasibility
• Industry Attractiveness
• Target market Attractiveness
Organizational feasibility Analysis
• It is conducted to determine whether a proposed business has
sufficient management expertise , organizational competence and
resources to successfully launch its business.
• It has got two determinants-
• Management Prowess
• Resource sufficiency
Financial Feasibility analysis
• It is the final component of a comprehensive feasibility analysis.
• Total start up cash needed
• Financial performance of similar businesses
Feasibility Study Examples
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