Conducting a Feasibility Conducting a Feasibility Study and Crafting a Study and Crafting a

Business PlanBusiness Plan

Feasibility AnalysisFeasibility Analysis

The process of determining The process of determining whether an entrepreneur’s idea whether an entrepreneur’s idea is a viable foundation for is a viable foundation for creating a successful businesscreating a successful business

Elements of a Feasibility Elements of a Feasibility AnalysisAnalysis

Financial Feasibility

Industry and Market Feasibility

Product or Service Feasibility

Industry and Market Industry and Market Feasibility AnalysisFeasibility Analysis

To determine how attractive an To determine how attractive an industry is overall as a ‘home for a industry is overall as a ‘home for a new businessnew business

To identify possible niches a small To identify possible niches a small business can occupy profitablybusiness can occupy profitably

Five Forces ModelFive Forces Model

Rivalry among existing firmsSuppliers Buyers

Potential Entrants

Substitutes

Threat of new entrants

Bargaining Power ofsuppliers

Bargaining Power of buyers

RivalryRivalry Number of competitors is large or few Number of competitors is large or few

(less than 5)(less than 5) Competitors are not similar in size or Competitors are not similar in size or

capabilitycapability The industry is growing at a fast paceThe industry is growing at a fast pace The opportunity to sell a differentiated The opportunity to sell a differentiated

product or service is presentproduct or service is present

SuppliersSuppliers Many suppliers sell a commodity product Many suppliers sell a commodity product

to the companies in itto the companies in it Substitute products are available for the Substitute products are available for the

items suppliers provideitems suppliers provide Companies in the industry find it eas to Companies in the industry find it eas to

switch from one supplier to anotherswitch from one supplier to another The items suppliers provide account for a The items suppliers provide account for a

relatively small portion of the cost of relatively small portion of the cost of finished productsfinished products

BuyersBuyers Switching costs to competitors is highSwitching costs to competitors is high Number of buyers is largeNumber of buyers is large Customers demand differentiated products Customers demand differentiated products Customers find it difficult to gather info on Customers find it difficult to gather info on

suppliers costs etcsuppliers costs etc The items account for a relatively small The items account for a relatively small

portion of the customers’ finished productsportion of the customers’ finished products

New EntrantsNew Entrants Advantages of economic scale are Advantages of economic scale are

not presentnot present Capital requirements to enter are lowCapital requirements to enter are low Cost advantages are not related to Cost advantages are not related to

company sizecompany size Buyers are brand-loyalBuyers are brand-loyal Governments do not restrict entryGovernments do not restrict entry

Substitute ProductsSubstitute Products Quality substitute products are not Quality substitute products are not

readily availablereadily available Prices of substitute products are not Prices of substitute products are not

lowerlower Buyers’ cost of switching to Buyers’ cost of switching to

substitute products is high substitute products is high

Product or Service Product or Service Feasibility AnalysisFeasibility Analysis

Are customers wiling to purchase our Are customers wiling to purchase our goods and services? goods and services?

Can we provide the product or Can we provide the product or service to our customers at a profit?service to our customers at a profit?

ResearchResearch

Primary researchPrimary research Customer surveys and Customer surveys and questionnairesquestionnaires Focus groupsFocus groups Secondary researchSecondary research Trade associations and business Trade associations and business

directories directories Direct mail listsDirect mail lists Demographic dataDemographic data Census dataCensus data ForecastsForecasts Market researchMarket research ArticlesArticles Local dataLocal data WWWWWW

TrialsTrials PrototypesPrototypes: an original, functional model : an original, functional model

of a new product that entrepreneurs can of a new product that entrepreneurs can put into the hands of potential customers put into the hands of potential customers so they can see it, test it and use itso they can see it, test it and use it

In-home trialsIn-home trials: a research technique that : a research technique that involves sending researchers into involves sending researchers into customers’ homes to observe them as customers’ homes to observe them as they use the company’s product or they use the company’s product or serviceservice

Financial Feasibility AnalysisFinancial Feasibility Analysis

Capital Capital RequirementsRequirements Estimated Estimated EarningsEarnings Return on Return on InvestmentInvestment

A Business PlanA Business Plan

A written summary of an A written summary of an entrepreneur’s proposed business entrepreneur’s proposed business venture, its operational and financial venture, its operational and financial details, its marketing opportunities details, its marketing opportunities and strategy, and its managers’ skills and strategy, and its managers’ skills and abilitiesand abilities

3 Functions 3 Functions

Guides an entrepreneurGuides an entrepreneur Attracts lenders and investorsAttracts lenders and investors Reality TestReality Test Competitive TestCompetitive Test Value TestValue Test Represents/reflects its creatorRepresents/reflects its creator

Elements of a Business PlanElements of a Business Plan Title Page and ContentsTitle Page and Contents Executive SummaryExecutive Summary Vision and Mission StatementVision and Mission Statement Company HistoryCompany History Business and Industry ProfileBusiness and Industry Profile Business StrategyBusiness Strategy Description of the Firm’s Product or ServiceDescription of the Firm’s Product or Service Marketing StrategyMarketing Strategy Competitor AnalysisCompetitor Analysis Description of Management TeamDescription of Management Team Plan of OperationPlan of Operation Pro Forma Financial StatementsPro Forma Financial Statements The Loan or Investment ProposalThe Loan or Investment Proposal

What Lenders and Investors What Lenders and Investors Look for in a Business PlanLook for in a Business Plan

CapitalCapital CapacityCapacity CollateralCollateral CharacterCharacter ConditionsConditions

Executive SummaryExecutive Summary The company’s business model and The company’s business model and

basis for competitive edgebasis for competitive edge The company’s target markets and the The company’s target markets and the

benefits its product or service will benefits its product or service will provide provide

The qualification of the founders and/or The qualification of the founders and/or key employees key employees

The key financial highlights The key financial highlights

Business and Industry Business and Industry ProfileProfile

Overview of industry or market Overview of industry or market segmentsegment

Existing or anticipated profitability of Existing or anticipated profitability of the industrythe industry

Company’s general business goalsCompany’s general business goals Company’s immediate objectivesCompany’s immediate objectives

Business StrategyBusiness Strategy

How to gain competitive edgeHow to gain competitive edge How to achieve the goals and How to achieve the goals and

objectives objectives Methods to satisfy KSFs of the Methods to satisfy KSFs of the

industry industry

Description of Product or Description of Product or ServiceService

Overview of how customers will use itOverview of how customers will use it Any patents, trademarks or copyrightAny patents, trademarks or copyright Honest comparison with competitionHonest comparison with competition Feature (descriptive fact about a product Feature (descriptive fact about a product

or service) vs Benefit (what a customer or service) vs Benefit (what a customer gains from the product or service)gains from the product or service)

Description of production process, Description of production process, strategic raw materials, sources, costs.strategic raw materials, sources, costs.

Marketing StrategyMarketing Strategy Defining the target marketDefining the target marketWho?Who?Where?Where?How many?How many?Why?Why? Proving that a profitable market existsProving that a profitable market existsShowing customer interestShowing customer interestDocumenting market claimsDocumenting market claims

Marketing StrategyMarketing Strategy

AdvertisingAdvertising Market Size and trendMarket Size and trend LocationLocation PricingPricing DistributionDistribution

Competitor AnalysisCompetitor Analysis

Each significant competitorEach significant competitor Advantage over eachAdvantage over each

Description of Management Description of Management Team Team

Qualifications of those with at least Qualifications of those with at least 20% ownership20% ownership

ResumesResumes How to avoid primary reasons for How to avoid primary reasons for

business failuresbusiness failures

Plan of OperationPlan of Operation

Organizational Organizational chartchart

Form of ownershipForm of ownership

Pro Forma Financial Pro Forma Financial StatementsStatements

Monthly for 3 years by quarterMonthly for 3 years by quarter 3 sets: pessimistic, most likely, 3 sets: pessimistic, most likely,

optimisticoptimistic Statement of assumptionsStatement of assumptions

Loan or Investment ProposalLoan or Investment Proposal

Purpose of financingPurpose of financing Amount requestedAmount requested Plans for repayment/exit strategyPlans for repayment/exit strategy Timetable for implementationTimetable for implementation Evaluation of risksEvaluation of risks