1 entrepreneurial skills lecture #3 & 4 feasibility study

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ENTREPRENEURIAL SKILLS

LECTURE #3 & 4FEASIBILITY STUDY

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AREAS TO COVER

1. The importance of a Feasibility Study

2. The Feasibility Study Procedure

3. Elements of a Feasibility Study

4. Conducting a feasibility Study

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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.

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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.

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A feasibility study will:1. help you to decide whether or not

there is a real need for your product or service

THE IMPORTANCE OF THE FEASIBILITY STUDY

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A feasibility study will:1. identify your segment of the

market

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A feasibility study will:1. force you to look at the different

aspects of running a business.

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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?

THE IMPORTANCE OF THE FEASIBILITY STUDY

1. Have any large companies or organizations agreed to carry the product or use the service once it is available?

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THE IMPORTANCE OF THE FEASIBILITY STUDY

1. Which people will be most interested in buying your product/service?

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4. Is it possible to earn a living from the business?

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4. What sort of production schedule is needed to satisfy market needs?

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4. What similar product/services are already on the market?

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4. How much are people prepared to pay for your product/service?

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4. How much advertising and promotion will you need to launch your product/service on the market?

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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?

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RESEARCHING THE VENTURE’S FEASIBILITY

1. Is this a good business idea or is this merely an interesting hobby?

RESEARCHING THE VENTURE’S FEASIBILITY

1. Is the market ready for this type of product/service?

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THE FEASIBILITY STUDY PROCEDURE

The quest for information on the potentials of a prospective business should not be hindered by it being overwhelming or by sheer oversight.

The study should be carried out on a timely and objective basis, with appropriate skills or expertise.

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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?

THE FEASIBILITY STUDY PROCEDURE

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ELEMENTS OF THE FEASIBILITY STUDY

1. Market Feasibility

2. Technical Feasibility

3. Operational Feasibility

4. Financial Feasibility

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ELEMENTS OF THE FEASIBILITY STUDY

1. Market Feasibility

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Market Feasibility

Analysis of the market in terms of:1. Size2. Composition

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Market Feasibility

Analysis of the market in terms of:1. Taste2. Attitudes3. Preferences

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Market Feasibility

Analysis of the market in terms of:1. Demand7. Consumer income

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Market Feasibility

Look at factors that influences market response, viz:- The Product or Service

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Market Feasibility

Look at factors that influences market response, viz:- Price

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Market Feasibility

Look at factors that influences market response, viz:- Promotional efforts

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Market Feasibility

Look at factors that influences market response, viz:- Product quality

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Market Feasibility

Look at factors that influences market response, viz:- Distribution outlets

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Competitor Analysis

Who are the new venture’s current competitors?

What resources do they control? What are their strengths and weaknesses? How will they respond to the new venture’s

decision to enter the industry?

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Competitor Analysis

How can the new venture respond? Who else might be able to observe and exploit

the same opportunity? Are there ways to co-opt potential or actual

competitors by forming alliances?

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Strategies that Capture Opportunities

Peter Drucker’s Generic Competitive Strategies

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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

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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.

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Competitive Advantage

Unique ServiceFeatures

Notable ProductAttributes

CustomerService

Accessibility

CompetitiveCompetitiveAdvantageAdvantage

Price/Value

Technical Feasibility

Technical Feasibility Allows for an analysis of the skills

and abilities that will be required to carry out the business

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Technical Feasibility Special equipment, machinery, and

technical know-how.

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Technical Feasibility Sources by which the equipment

will be obtained.

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Operational Feasibility

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Operational Feasibility

Special consideration should be given to how the business will operate i.e. the prospects for: securing supplies

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Operational Feasibility

Sourcing adequate staff

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Operational Feasibility

Ensuring that quality and cost control will be maintained.

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Financial Feasibility

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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.

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Financial Feasibility

The analysis should consider targeted return on investment and expected levels of profitability.

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Sources of Funds

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DebtEquity

Personal Savings

Other Individual Investors

Business Suppliers

Asset-Based Lenders

Commercial Banks

Government-Sponsored Programs

Community-Based Financial Institutions

Large Corporations

Venture Capital Firms

Sale of Stock

Friends and Relatives

Sources of Funds

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What Is a Small Business?Criteria for Defining Smallness in BusinessFinancing supplied by one person or small group

Localized business operations (except marketing)

Business’ size small relative to larger competitors

Fewer than 100 employees

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THE BUSINESS IDEAMETHODS FOR GENERATING IDEAS Look at trends in the economy Look at the needs of the community

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THE BUSINESS IDEAMETHODS FOR GENERATING IDEAS Look at changes which are causing

people difficulty Listen to the comments of people

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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.

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METHODS FOR GENERATING IDEAS

Focus Groups

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METHODS FOR GENERATING IDEAS

Brainstorming

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METHODS FOR GENERATING IDEAS

Problem Inventory Analysis

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METHODS FOR GENERATING IDEAS

Reverse Brainstorming

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METHODS FOR GENERATING IDEAS

Gordon Method Checklist Method Free Association Collective Notebook Method

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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

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1. Secondary Data: Those previously obtained that may be accessed for use in a present study.

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Primary Data Methods for obtaining primary data:1. Observation: looking at the natural

flow of activities2. Experiment: a controlled method of

testing cause and effect3. Survey: test of knowledge, beliefs,

preferences, by interviewing a sample representative

4. Focus groups: interactive chat with a small group of representatives.

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Secondary Data Sources of Secondary Data1. Government publications2. Periodicals, books, magazines3. Commercial data such as

previous research4. Company reports, brochures,

handboks.

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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.

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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.

QUESTIONNAIRE DESIGN

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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.

QUESTIONNAIRE DESIGN

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THE RESULTS How will you respond to the

findings? What actions will you take?

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THE RESULTS

Use Statistical Methods to tabulate your findings, viz:

Pie Charts Simple Multiple Bar

Graphs Pictograms Tables Line graphs bar charts

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The findings must be analyzed based on the goals of the study.

The analysis1. allows for appropriate conclusions

to be drawn.2. provides the framework for specific

recommendations.

THE RESULTS

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CONDUCTING A MARKET RESEARCH- THE

ELEMENTS

1. Target Population2. Selection of Sample3. Objectives4. Methodology5. Findings6. Analysis7. Conclusions & Recommendations8. Appendices.