Introduction to Feasibility Analysis Chapter 3 Modified from Barringer and Ireland (2006)

Introduction to Feasibility Introduction to Feasibility AnalysisAnalysis

Chapter 3Chapter 3Modified from Barringer and Ireland (2006)Modified from Barringer and Ireland (2006)

What Is Feasibility Analysis?What Is Feasibility Analysis?

Feasibility AnalysisFeasibility Analysis– Preliminary evaluation of idea to determining if it’s worth Preliminary evaluation of idea to determining if it’s worth

pursuingpursuing– Provides more secure notion that a business idea is viableProvides more secure notion that a business idea is viable

Did analysis, feasible businessDid analysis, feasible business: Intuit (Quicken, Quickbooks, etc.): Intuit (Quicken, Quickbooks, etc.)– Personal experience, observed others, surveyed customersPersonal experience, observed others, surveyed customers

Did analysis, not feasibleDid analysis, not feasible: Retailing Insights (grocery cart): Retailing Insights (grocery cart)– Determined not a sufficient scale for advertising, needed large proportion Determined not a sufficient scale for advertising, needed large proportion

of grocery storesof grocery stores

– Dropped idea, focused on core competency, developed TrakusDropped idea, focused on core competency, developed Trakus

No analysis, failed firmNo analysis, failed firm: Iridium (satellite phones): Iridium (satellite phones)– Too complex technology, too long to develop, new technology took over, Too complex technology, too long to develop, new technology took over,

line of sight to satellite, large phone, low battery powerline of sight to satellite, large phone, low battery power

Preparing a Concept StatementPreparing a Concept Statement

Concept StatementConcept Statement– One page description of a businessOne page description of a business– Given to people who provide feedback on the Given to people who provide feedback on the

potential of the ideapotential of the idea– Purpose of feedback: Purpose of feedback:

Give sense of the viability of the business ideaGive sense of the viability of the business idea

Suggestions for how the idea can be strengthened or Suggestions for how the idea can be strengthened or altered before proceedingaltered before proceeding

– Prepare before feasibility analysisPrepare before feasibility analysis

Preparing a Concept StatementPreparing a Concept Statement

Components of Concept Statement Components of Concept Statement (similar to elevator (similar to elevator pitch components)pitch components)

– Description of the product or serviceDescription of the product or service

– Description of target marketDescription of target market

– Benefits of the product or service (value proposition)Benefits of the product or service (value proposition)

– Description of product/service differentiators Description of product/service differentiators

– Description of how product/service sold/ distributedDescription of how product/service sold/ distributed

– Description of the founder(s) of the firmDescription of the founder(s) of the firm

When To Conduct a Feasibility AnalysisWhen To Conduct a Feasibility Analysis

Timing of Feasibility AnalysisTiming of Feasibility Analysis

– After concept statement evaluationAfter concept statement evaluation

– After opportunity recognition, before business planAfter opportunity recognition, before business plan

– Before a lot of resources are investedBefore a lot of resources are invested

Four Components of Full Feasibility AnalysisFour Components of Full Feasibility Analysis

– Product/Service FeasibilityProduct/Service Feasibility

– Industry/Market FeasibilityIndustry/Market Feasibility

– Organizational FeasibilityOrganizational Feasibility

– Financial Feasibility (covered in Dr. Janney’s class)Financial Feasibility (covered in Dr. Janney’s class)

Feasibility AnalysisFeasibility Analysis

Figure 3.1

Role of feasibility analysis in developing successful business ideas

Product/Service FeasibilityProduct/Service Feasibility– Composed of two primary testsComposed of two primary tests

Concept testingConcept testingUsability testingUsability testing

Industry/Market FeasibilityIndustry/Market Feasibility– Three primary issues a proposed business should consider:Three primary issues a proposed business should consider:

Industry attractivenessIndustry attractivenessMarket timelinessMarket timelinessIdentification of a niche market.Identification of a niche market.

Organizational FeasibilityOrganizational Feasibility– There are two primary issues to consider in this area:There are two primary issues to consider in this area:

Management prowessManagement prowessResource sufficiencyResource sufficiency

Financial FeasibilityFinancial Feasibility– The most important issues to consider at this stage are:The most important issues to consider at this stage are:

Capital requirementsCapital requirementsFinancial rate of returnFinancial rate of returnOverall attractiveness of the investmentOverall attractiveness of the investment

Overview of Full Feasibility Analysis Overview of Full Feasibility Analysis (4 forms of feasibility analysis)(4 forms of feasibility analysis)









Overview of Full Feasibility AnalysisOverview of Full Feasibility Analysis

Product/Service FeasibilityProduct/Service Feasibility

Product/Service Feasibility AnalysisProduct/Service Feasibility Analysis

– Assessment of overall appeal of proposed product/serviceAssessment of overall appeal of proposed product/service

– Main ideaMain idea: before rushing to development, be sure : before rushing to development, be sure product/service is what prospective customers wantproduct/service is what prospective customers want

Two components of product/service feasibility Two components of product/service feasibility analysis:analysis:

1.1. Concept testingConcept testing

2.2. Usability testingUsability testing

Product/Service Feasibility: 1Product/Service Feasibility: 1stst Component Component

Concept TestingConcept Testing

– PurposePurpose: Gauge customer interest, desirability, purchase : Gauge customer interest, desirability, purchase intentionsintentions

– Involves showing a representation of product/service to Involves showing a representation of product/service to prospective users prospective users

Occurs before the prototype stageOccurs before the prototype stage

Websites and graphic designs are taking this to a new levelWebsites and graphic designs are taking this to a new level

– Concept test Concept test ≠ ≠ concept statement concept statement

Concept test: tests feasibility of specific product/service idea Concept test: tests feasibility of specific product/service idea

Concept statement: is a preliminary evaluation of entire business ideaConcept statement: is a preliminary evaluation of entire business idea

Product/Service Feasibility: 3 reasons to conductProduct/Service Feasibility: 3 reasons to conduct

1.1. Validate underlying premises of product/ service ideaValidate underlying premises of product/ service idea• Use phone interviews, focus groups, watch consumers perform tasks, Use phone interviews, focus groups, watch consumers perform tasks,

customer advisory boardscustomer advisory boards

• ExEx: PepsiCo developed model of 5 types of teens and tries to predict : PepsiCo developed model of 5 types of teens and tries to predict how trends move through teen populationshow trends move through teen populations

2.2. Help developing ideaHelp developing idea• Iteratively show idea to potential customers and make changes along Iteratively show idea to potential customers and make changes along

the waythe way

• ExEx: IDEO product development firm: IDEO product development firm

3.3. Estimate potential market shareEstimate potential market share• Survey questionsSurvey questions

• Market research surveysMarket research surveys• Caution: Caution: Numbers always optimisticNumbers always optimistic

Product/Service Feasibility: 2Product/Service Feasibility: 2ndnd Component Component

Usability TestingUsability Testing

– PurposePurpose: determine ease-of-use and user’s perceptions of : determine ease-of-use and user’s perceptions of using productusing product

While tempting to rush a product/service to market usability tests While tempting to rush a product/service to market usability tests are good investments of resources are good investments of resources

Eliminate potentially frustrating aspects of product/servicesEliminate potentially frustrating aspects of product/services

Involves creating a physical prototype and giving it to users, Involves creating a physical prototype and giving it to users, measuring usage results, and making modifications as necessarymeasuring usage results, and making modifications as necessary

– Iterative in natureIterative in nature

– Also calledAlso called: user tests, beta tests, or field trials: user tests, beta tests, or field trials

http://http://scholar.google.comscholar.google.com

Product/Service Feasibility: Product/Service Feasibility: 3 forms of usability testing3 forms of usability testing

1.1. Basic PrototypeBasic Prototype: fairly simple prototype that is : fairly simple prototype that is given to friends/colleagues for feedbackgiven to friends/colleagues for feedback• American Inventor American Inventor

• Gym class exercise matGym class exercise mat

2.2. Elaborate Usability TestElaborate Usability Test: large-scale tests for well-: large-scale tests for well-funded or existing venturesfunded or existing ventures• Lab testing, elaborate customer measurement devices Lab testing, elaborate customer measurement devices

(e.g., Google), etc.(e.g., Google), etc.

3.3. Hybrid Test: Hybrid Test: Follow-me-home testing (e.g., day-in-Follow-me-home testing (e.g., day-in-the-life research)the-life research)

Product/Service Feasibility: 5 BenefitsProduct/Service Feasibility: 5 Benefits

1.1. Getting product right the first timeGetting product right the first time

2.2. Create a beta (or early adopter community)Create a beta (or early adopter community)

3.3. Avoid obvious flaws in product/service designAvoid obvious flaws in product/service design

• MobileStar wireless “hotspots”MobileStar wireless “hotspots”

4.4. Use time and resources more efficientlyUse time and resources more efficiently

5.5. Potentially identify complementary product/ Potentially identify complementary product/ service offeringsservice offerings

• iPod accessoriesiPod accessories

Industry/Market Feasibility AnalysisIndustry/Market Feasibility Analysis

Industry/Market Feasibility AnalysisIndustry/Market Feasibility Analysis

– Purpose: Purpose: assess overall appeal of the marketassess overall appeal of the market

– 3 primary issues to consider:3 primary issues to consider:

1.1. Industry attractiveness, Industry attractiveness,

2.2. Market timeliness, andMarket timeliness, and

3.3. Identification of a niche marketIdentification of a niche market

Industry/Market Feasibility Analysis: Industry/Market Feasibility Analysis: Industry AttractivenessIndustry Attractiveness

Issue 1: Industry AttractivenessIssue 1: Industry Attractiveness– Primary determinant of feasibility is attractiveness of Primary determinant of feasibility is attractiveness of

industry chosenindustry chosen

– Characteristics of attractive industries:Characteristics of attractive industries:

Large and growing (growth is very important)Large and growing (growth is very important)

Industries are important to customers (e.g., must haves vs. likes)Industries are important to customers (e.g., must haves vs. likes)

Early in the industry lifecycle to avoid price competitionEarly in the industry lifecycle to avoid price competition

Industries are not crowded with competitorsIndustries are not crowded with competitors

– How to assess industry attractiveness?How to assess industry attractiveness?

Forces in the broad environment (e.g., technological, Forces in the broad environment (e.g., technological, sociocultural/demographic, political/legal, economic, global trends)sociocultural/demographic, political/legal, economic, global trends)

Porter’s Five Forces analysis (we’ll cover next week)Porter’s Five Forces analysis (we’ll cover next week)

Other primary and secondary researchOther primary and secondary research

Industry/Market Feasibility Analysis: Industry/Market Feasibility Analysis: Market TimelinessMarket Timeliness

Issue 2: Market TimelinessIssue 2: Market Timeliness– Will the market be receptive to the product/service?Will the market be receptive to the product/service?

– If it’s a modification on existing offerings (e.g., cell phones If it’s a modification on existing offerings (e.g., cell phones with cameras) ask:with cameras) ask:

Is the window of opportunity open?Is the window of opportunity open?

Are customers buying?Are customers buying?

Are competitors making money?Are competitors making money?

– If it’s a breakthrough product/service (e.g., Yahoo with If it’s a breakthrough product/service (e.g., Yahoo with internet search engines, eBay with online auctions, etc.) ask:internet search engines, eBay with online auctions, etc.) ask:

Can we capture a first-mover advantage?Can we capture a first-mover advantage?

– ExampleExample: Microsoft in computer operating systems: Microsoft in computer operating systems

Will we suffer from a second-mover advantage?Will we suffer from a second-mover advantage?

– ExampleExample: IBM vs. Dell in personal computer retailing: IBM vs. Dell in personal computer retailing

Industry/Market Feasibility Analysis:Industry/Market Feasibility Analysis:Niche MarketsNiche Markets

Issue 3: Identification of a Niche MarketIssue 3: Identification of a Niche Market

– Niche markets are places in larger market segments that Niche markets are places in larger market segments that represent narrower groups of customersrepresent narrower groups of customers

– 2 reasons for new firms to sell to niche markets:2 reasons for new firms to sell to niche markets:

Allows a firm to establish itself in industry and avoid competing Allows a firm to establish itself in industry and avoid competing against major competitors (e.g., specialty retailers vs. Wal-Mart)against major competitors (e.g., specialty retailers vs. Wal-Mart)

Allows a firm to focus on serving specialized markets very well Allows a firm to focus on serving specialized markets very well

Avoids trying to be everything to everybody in a broad marketAvoids trying to be everything to everybody in a broad market

– Successful exampleSuccessful example: buyandhold.com and small scale : buyandhold.com and small scale investmentsinvestments

– Problematic exampleProblematic example: Iridium and satellite phones (tried to : Iridium and satellite phones (tried to serve everyone)serve everyone)

Organizational Feasibility AnalysisOrganizational Feasibility Analysis

Organizational FeasibilityOrganizational Feasibility

– Purpose: Purpose: determine if business has sufficient determine if business has sufficient skills/resources to bring product/service to market skills/resources to bring product/service to market successfullysuccessfully

– Non-financial factors important to consider hereNon-financial factors important to consider here

– 2 primary issues to consider:2 primary issues to consider:

1.1. Management prowessManagement prowess

2.2. Resource sufficiencyResource sufficiency

Organizational Feasibility Analysis:Organizational Feasibility Analysis:Management ProwessManagement Prowess

Issue 1: Management ProwessIssue 1: Management Prowess– Firm must evaluate the ability of the management team Firm must evaluate the ability of the management team

– Determine if has the passion and expertise to launch the Determine if has the passion and expertise to launch the ventureventure

– 2 most important factors in this area:2 most important factors in this area:Passion the solo entrepreneur/founding team has for the ideaPassion the solo entrepreneur/founding team has for the idea

Extent the entrepreneur/founding team understands the markets in Extent the entrepreneur/founding team understands the markets in which the firm will participate which the firm will participate

– Ventures with established networks have an advantageVentures with established networks have an advantage

– Successful ExampleSuccessful Example: eBay: eBay

– Failed ExampleFailed Example: Garden.com (e.g., no gardening/ gardening : Garden.com (e.g., no gardening/ gardening retail expertiseretail expertise

Organizational Feasibility Analysis:Organizational Feasibility Analysis:Resource SufficiencyResource Sufficiency

Issue 2: Resource SufficiencyIssue 2: Resource Sufficiency– Assessment of resources needed to launch proposed Assessment of resources needed to launch proposed

ventureventure

– Focus is on Focus is on nonfinancial resources:nonfinancial resources:Availability of affordable office or lab space, Availability of affordable office or lab space,

Likelihood of government support, Likelihood of government support,

Labor pool quality, Labor pool quality,

Proximity to key suppliers, customers, and similar firms (clusters)Proximity to key suppliers, customers, and similar firms (clusters)

Likelihood of strategic partnerships, Likelihood of strategic partnerships,

Likelihood of attaining IPLikelihood of attaining IP

– To test resource sufficiencyTo test resource sufficiency: list critical nonfinancial : list critical nonfinancial resources needed to move idea forward successfullyresources needed to move idea forward successfully

If resources not available, it may be impractical to proceed with the If resources not available, it may be impractical to proceed with the business ideabusiness idea

Introduction to Feasibility Analysis Chapter 3 Modified from Barringer and Ireland (2006)

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Transcript of Introduction to Feasibility Analysis Chapter 3 Modified from Barringer and Ireland (2006)