Description
Prompt and question are in the photos attached below.The book use for class is Barringer, B., & Ireland, D. (2015).Entrepreneurship: Successfully Launching New Ventures:5th EditionCH03 file is the powerpoint lecture. Plagiarism free.
Unformatted Attachment Preview
Chapter 3
Feasibility Analysis
Bruce R. Barringer
R. Duane Ireland
Copyright ©2016 Pearson Education, Inc.
3-1
Chapter Objectives
1 of 2
1. Explain what a feasibility analysis is and why it’s
important.
2. Describe a product/service feasibility analysis,
explain its purpose, and discuss the two primary
issues that a proposed business should consider in
this area.
3. Describe an industry/market feasibility analysis,
explain its purpose, and discuss the two primary
issues to consider when completing this analysis.
Copyright ©2016 Pearson Education, Inc.
3-2
Chapter Objectives
2 of 2
4. Explain what an organizational feasibility analysis
is and its purpose and discuss the two primary issues
to consider when completing this analysis.
5. Describe what a financial feasibility analysis is,
explain its importance, and discuss the most critical
issues to consider when completing this analysis.
6. Describe a feasibility analysis template and explain
when it is important for entrepreneurs to use this
template.
Copyright ©2016 Pearson Education, Inc.
3-3
What Is Feasibility Analysis?
Feasibility Analysis
• 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.
Copyright ©2016 Pearson Education, Inc.
3-4
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
separate components, as discussed in the following slides.
Copyright ©2016 Pearson Education, Inc.
3-5
Feasibility Analysis
Role of feasibility analysis in developing business ideas.
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3-6
Forms of Feasibility Analysis
Product/Service Feasibility
Industry/Target Market
Feasibility
Organizational Feasibility
Financial Feasibility
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3-7
Outline for a Comprehensive Feasibility
Analysis
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3-8
Product/Service Feasibility Analysis
1 of 2
Purpose
Product/Service
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.
Copyright ©2016 Pearson Education, Inc.
3-9
Product/Service Feasibility Analysis
2 of 2
Components of product/service
feasibility analysis
Product/Service
Desirability
Copyright ©2016 Pearson Education, Inc.
Product/Service
Demand
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Product/Service Desirability
1 of 3
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?
Copyright ©2016 Pearson Education, Inc.
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Product/Service Desirability
2 of 3
• 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.
Copyright ©2016 Pearson Education, Inc.
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Product/Service Desirability
3 of 3
New Venture
Fitness Drink’s
Concept Statement
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Product/Service Demand
1 of 4
• 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.
Copyright ©2016 Pearson Education, Inc.
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Product/Service Demand
2 of 4
• 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.
Copyright ©2016 Pearson Education, Inc.
3-15
Product/Service Demand
3 of 4
• 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.
Copyright ©2016 Pearson Education, Inc.
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Product/Service Demand
4 of 4
• 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).
Copyright ©2016 Pearson Education, Inc.
3-17
Industry/Target Market Feasibility Analysis
1 of 2
Purpose
Industry/Target Market
Feasibility Analysis
• 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.
Copyright ©2016 Pearson Education, Inc.
3-18
Industry/Target Market Feasibility Analysis
2 of 2
Components of industry/target market
feasibility analysis
Industry Attractiveness
Copyright ©2016 Pearson Education, Inc.
Target Market
Attractiveness
3-19
Industry Attractiveness
1 of 2
• 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—the degree to which environmental
and business trends are moving in favor rather than against
the industry.
Copyright ©2016 Pearson Education, Inc.
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Industry Attractiveness
2 of 2
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.
Copyright ©2016 Pearson Education, Inc.
3-21
Target Market 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.
Copyright ©2016 Pearson Education, Inc.
3-22
Organizational Feasibility Analysis
1 of 2
Purpose
Organizational Feasibility
Analysis
• 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.
Copyright ©2016 Pearson Education, Inc.
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Organizational Feasibility Analysis
2 of 2
Components of organizational
feasibility analysis
Management Prowess
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Resource Sufficiency
3-24
Management Prowess
• Management Prowess
– 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.
Copyright ©2016 Pearson Education, Inc.
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Resource Sufficiency
1 of 2
• 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.
Copyright ©2016 Pearson Education, Inc.
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Resource Sufficiency
2 of 2
Examples of nonfinancial 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.
Copyright ©2016 Pearson Education, Inc.
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Financial Feasibility Analysis
1 of 2
Purpose
Financial Feasibility
Analysis
• Is the final component of a
comprehensive feasibility analysis.
• A preliminary financial assessment
is sufficient.
Copyright ©2016 Pearson Education, Inc.
3-28
Financial Feasibility Analysis
2 of 2
Components of financial
feasibility analysis
Total Start-Up Cash
Needed
Financial Performance of
Similar Businesses
Overall Financial
Attractiveness of the
Proposed Venture
Copyright ©2016 Pearson Education, Inc.
3-29
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.
Copyright ©2016 Pearson Education, Inc.
3-30
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.
Copyright ©2016 Pearson Education, Inc.
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Overall Financial Attractiveness of the
Proposed Venture
1 of 2
• 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.
Copyright ©2016 Pearson Education, Inc.
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Overall Financial Attractiveness of the
Proposed Venture
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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.
Copyright ©2016 Pearson Education, Inc.
3-33
First Screen
• First Screen
– Shown in Appendix 3.1 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.
Copyright ©2016 Pearson Education, Inc.
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Copyright ©2016 Pearson Education, Inc.
3-35
the tradition and have donned the blue apron, in recogni-
tion that cooking involves a lifetime of learning.
Blue Apron has distribution centers in New York and
Northern California. It currently ships approximately
3-33. If you had to make your decision on just the infor
mation provided in the pitch and on the company’s
website, would you fund this company? Why a
why not?
CASE 3.1
How “Listening to Customers” Has Shaped
Modify Watches
• Web: www.modifywatches.com • Facebook: Modify Watches • Twitter: @Modify Watches
Bruce R. Barringer, Oklahoma State University
R. Duane Ireland, Texas A&M University
Introduction
told them they wanted. Luckily, they found a buyer that
was able to take advantage of the Refill Revolution plat
Modify Watches was started by Aaron Schwartz and
form. The company itself wouldn’t have been successful
Gary Coover, shortly after the two received their MBAS
as a stand-alone business.
from UC-Berkeley’s Hass School of Business in 2010.
While in college, Schwartz started a sustainability busi-
ness called Refill Revolution. He also took a class from
Giving Steve Blank and Eric Ries’s
Steve Blank and Eric Ries-champions of the lean
Philosophy a Try
start-up movement. The class was called “Customer
Modify Watches started from a different premise. The
Development in High-Tech Enterprises.” The staple
general idea was to sell affordable watches that have
concepts underlying the class were “building a minimal interchangeable faces and bands. That approach would
viable product” and “get out of the building.” Building give customers the ability to switch their watch face
a minimal viable product means that a start-up’s initial and band to match their clothing or mood. Rather than
product should include just enough core features to
pushing forward, the firm chose to give Blank and Ries’s
allow early adopters to provide feedback. The start-up philosophy a try. They knew the idea rested on a core
can then iterate based on the feedback. “Get out of the hypothesis: people would buy interchangeable watch
building” refers to the notion that it’s impossible to know parts. To test the hypothesis, they went to eBay and
what customers really want without talking to them.
bought cheap interchangeable watches. They then built
Blank and Ries’s class impacted Schwartz. He re- an inexpensive website, using Weebly.com, that fea-
alized that Refill Revolution, which he eventually sold, tured jokes, images of the watch parts, nicknames for
wasn’t built utilizing Blank and Ries’s principles. Instead, every single watch-color combination, and “Buy Now”
he and his co-founders built a service based on what
buttons. The inexpensive watches were their minimal
they thought was right, rather than on what customers viable product. They just wanted to see how people
A sample of Modify
Watches
BOBA GUYS
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Drifyindagies, Inc.
vailable
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CHAPTER 3
FEASIBILITY ANALYSIS
101
would buy. The test validated the idea that they could
sell interchangeable watch faces and brands.
er, what
– before
s would
le infor-
mpany’s
Why or
expensive combination of face and strap costs $40 plus
shipping. The company also has a license with the Major
League Baseball Player’s Association, so you can get a
watch face with your favorite baseball team’s logo on it.
Modify has continued to involve customers every
step of the way, often in very substantive manners. An
illustrative example is an initiative launched in November
2011. Modify rolled out crowd-sourcing platform Napkin
Labs’ (www.napkinlabs.com) brainstorming app to its
Facebook page. The app allows companies to create vir-
tual, interactive focus groups with its customers. Modify
ran a competition that asked customers to submit sug-
gestions for co-branding products. An idea to co-brand
a watch with the Wounded Warrior Project won. Modify
had to push back the deadline for the competition be-
cause of the large number of submissions it received.
Kickstarter
up
Company Launch
Modify Watches launched soon afterwards. It didn’t take
the company long to develop a certain character, which
was customer focused. They called their customers “The
ModiFamily.” When people complimented them on their
products, they referred to their motto, which is “We’re not
craftsmen, we’re just good listeners.” Not everything went
swimmingly, though. Coover left Modify in August 2010
to join a strategy team with Samsung in South Korea.
Schwartz, like Coover, had planned to resume a full time
job but decided to commit to Modify full-time. Schwartz,
like Coover, planned to resume a full-time job but decided
to commit to Modify on a full-time basis instead. He did
not take a salary the first year to help the company get
and running, and the company was initially run out of
his apartment. A big break occurred shortly after launch
when Schwartz was on a cross-country flight. He met a
business executive on the plane and ended up selling
him 2,500 watches. That sale earned Schwartz the bless-
ing of his family and advisers to stick with the business.
Schwartz also started surrounding himself with a talented
team. He hired Ashil Parag, who he describes as an A+
designer. As his tech director he hired a UC-Berkeley stu-
dent named Sean Linehan, whom Schwartz described as
“as talented as anyone I have ever met.”
The company’s focus on customers wasn’t forced.
In fact, in an article Schwartz wrote for Startup America
he said that “interacting with customers gives us (the
Modify Watch team) happiness on a daily basis.”
Similarly, in an article Schwartz wrote for Forbes, he pro-
vided the following advice for business founders: “Think
of your customers as family and friends. It sounds silly,
but when you believe that folks you care about rely on
your product or service, you will work harder to make
sure they are treated well.” Schwartz’s actions indicated
that his sentiments are real. From the beginning, for ex-
ample, whoever does the packing for a Modify Watches
order includes their business card. The card includes
the team member’s e-mail address and their cell phone
number, just in case a customer wants to give them a
shout
. The more Modify’s team members interact with
customers, Schwartz figures, the better the company will
be able to design watches that their customers want.
er that
on plat-
ccessful
Modify Watches’ current initiative is its Mod-to-Order
campaign. It is an initiative that will allow the company
to produce individual customized watches for people.
So if you’d like a watch with your best friend’s image on
it, Modify Watch will be able to do that for you. To raise
money for the machinery and staff needed to make in-
dividually customized watches, Modify ran a Kickstarter
campaign in early 2014. If you’d really like to get a
sense of what Modify Watches is all about, go to www.
kickstarter.com, type Modify in the search bar, and
watch the videos that the company made to promote
the campaign. They are expertly done and fully convey
Modify Watches’ culture and values. Modify reached
its goal and received contributions from 790 backers.
Of course, while the outward purpose of the campaign
was to raise $50,000 to buy equipment and hire people,
the campaign had another purpose. Harkening back to
Blank and Ries’s philosophy of launching a minimal via-
ble product, the Kickstarter campaign and its accompa-
nying videos were the minimal viable product for Mod-
to-Order. The $54,873 in pledges from 790 backers was
the validation needed to move the idea forward.
e. The
t have
sh would
face
ner than
and Ries’s
a core
– watch
y and
then built
at fea-
mes for
uy Now”
minimal
people
Modify Watches
From the get-go, Modify Watches tapped into the cus-
tomization movement. Its line of watches includes mul-
tiple faces and straps, all of which are interchangeable,
so you can design any style you’d like. To fully appreci-
ate the number of watch faces and bands the company
offers, pause for a moment and visit its website. The
watches come in two sizes, big and bigger. They’re
water resistant and made of stainless steel and plas-
tic. Changing straps is very simple. If you have a large
enough collection of straps and faces, you can have a
different daily look on your wrist for some time. The least
The Difference Listening to Customers Makes
One thing Schwartz likes to emphasize is that listening
to customers makes a difference. Along with the prac-
tices mentioned above, Modify surveys its fans at least
quarterly, and its entire team has calls with customers
every week. In a guest post written on the Tech Cocktail
blog, Schwartz noted the following substantive changes
the company has made strictly as a result of listening to
customers.
Business model change. A good share of Modify’s
business comes from customizing watches for
brands. The idea to do this came from a Google
employee who contacted Modify and asked if
they could make a Goole Chrome watch. Modify
said yes, and a new product line was born. It now
designs branded watches for Google, Facebook,
the Pac 12 conference, and a number of other
businesses and organizations.
(continued)
Modify Indusries, Inc.
|
102
PART 2
DEVELOPING SUCCESSFUL BUSINESS IDEAS
sup-
The right product improvements. Modify reaches
out to customers in a variety of ways to ask what
they want (and don’t want) in their watches. At
one point, Modify assumed that people would
want the watches to be water resistant, have a
stopwatch, and have a backlight. A total of 95
percent wanted the watches to be water resistant
while less than 10 percent wanted a stopwatch
and even fewer wanted a backlight.
Adding brand-name licensing. Modify’s fans
asked early and often for licensed properties like
Major League Baseball. The company took the
feedback, and it has been rewarded with signifi-
cant product sales.
Design decisions. Before Modify launches a new
limited-edition watch, it always asks its fans to
vote on what should be made.
feasibility analysis and what additional research might
the founders have pursued when assessing the feasi-
bility of their firm’s product?
3-35. What target market is Modify Watches seeking to
serve and how attractive is that market?
3-36. What evidence can you provide from the case to
port the view that Schwartz is very interested in under-
standing customers’ reactions to Modify’s products?
3-37. If you were asked to complete an organizational
analysis of Modify, what conclusions would you reach
regarding the firm’s management prowess and re-
source sufficiency at the time the firm launched and
immediately thereafter?
Discussion Questions
3-34. What type of research did those leading Modify
Watches conduct when completing a product/service
Sources: Modify Watch home page, www.modifywatches.com,
accessed April 5, 2014; A. Schwartz, “Lean Methodology: Building
a Product Company with the Lessons of Steve Blank and Eric Ries,”
http:tech.co, available at http://tech.co/lean-methodology-steve-
blank-eric-ries-2013-06, posted June 13, 2013, accessed April 4,
2014; A. Schwartz, “3 Keys to Startup Success: Hustle, Follow-
Through and Curiosity,” Forbes, January 26, 2012; A. Schwartz, “Six
Startup Lessons Learned by Modify Watches Co-Founder, Aaron
Schwarts,” available at http://www.s.co/content/todays-featured-
startup-modify-watches, accessed April 4, 2014.
CASE 3.2
Embrace Infant Warmer: Sometimes a Business Start
Is a Matter of Life and Death
• Web: http://embraceglobal.org • Facebook: Embrace • Twitter: @embracewarmer
Introduction
When Rahul Panicker, Jane Chen, and Linus Liang
enrolled in Design for Extreme Affordability, a course
taught in the Design School at Stanford University, little
did they know that the class would change their lives.
And little did they know that a short three years later,
premature babies born in rural India, who often don’t
survive because of hypothermia, would have a new
chance at life because of a product they designed
The Design for Extreme Affordability class draws
students from across the Stanford campus. The goal
of the class is to develop solutions for formidable,
real-world problems. The project Panicker, Chen, and
Liang were assigned was to develop a low-cost infant
incubator for use in developing countries Thi
topic that the three knew nothin
incubators cost up to $20,000 a piece.
freeze to death in a room that is at room temperature
Nearly half of the world’s low-birth-weight babies are
born in India. Hospitals have incubators that provide
consistent, life-saving heat to premature babies. But
incubators. The team could systematically reduce the
The obvious solution was to drive down the cost of
cost of traditional incubators by eliminating nonessential
parts and using cheaper materials. Rather than moving
forward, Liang got funding for a trin
incubators in developings
pital he noticed som
incubators
electrical engineerin
students
UO
Aho
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Business Finance
