Feasibility Analysis

The process of determining whether an

entrepreneurs idea is a viable
foundation for creating a successful
business

Elements of a Feasibility Analysis

Financial Feasibility

Industry and
Market Feasibility

Product or
Service Feasibility

Industry and Market

Feasibility Analysis

To determine how attractive an industry is overall as a

home for a new business

To identify possible niches a small business can occupy
profitably

Five Forces Model

Potential
Entrants
Threat of new entrants

Suppliers

Bargaining
Power of
suppliers

Rivalry among
existing firms

Substitutes

Bargaining
Power of
buyers

Buyers

Rivalry
Number of competitors is large or few (less than 5)
Competitors are not similar in size or capability
The industry is growing at a fast pace
The opportunity to sell a differentiated product or

service is present

Suppliers
Many suppliers sell a commodity product to the
companies in it
Substitute products are available for the items
suppliers provide
Companies in the industry find it eas to switch
from one supplier to another
The items suppliers provide account for a relatively
small portion of the cost of finished products

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

costs etc
The items account for a relatively small portion of the
customers finished products

New Entrants
Advantages of economic scale are not present
Capital requirements to enter are low
Cost advantages are not related to company size
Buyers are brand-loyal
Governments do not restrict entry

Substitute Products
Quality substitute products are not readily available
Prices of substitute products are not lower
Buyers cost of switching to substitute products is high

Product or Service
Feasibility Analysis

Are customers wiling to purchase our goods and

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

 Primary research
Customer surveys and
questionnaires
Focus groups
Secondary research
Trade associations and business
directories
Direct mail lists
Demographic data
Census data
Forecasts
Market research
Articles
Local data
WWW

Trials
Prototypes: an original, functional model of a new

product that entrepreneurs can put into the hands of

potential customers so they can see it, test it and use it
In-home trials: a research technique that involves
sending researchers into customers homes to observe
them as they use the companys product or service

Financial Feasibility Analysis

Capital

Requirements
Estimated
Earnings
Return on
Investment

A Business Plan
A written summary of an entrepreneurs proposed

business venture, its operational and financial details,

its marketing opportunities and strategy, and its
managers skills and abilities

3 Functions
Guides an entrepreneur
Attracts lenders and investors

Reality Test
Competitive Test
Value Test
Represents/reflects its creator

Elements
ofContents
a Business Plan
Title Page and

Executive Summary
Vision and Mission Statement
Company History
Business and Industry Profile
Business Strategy
Description of the Firms Product or Service
Marketing Strategy
Competitor Analysis
Description of Management Team
Plan of Operation
Pro Forma Financial Statements
The Loan or Investment Proposal

What Lenders and Investors Look for in

a Business Plan
Capital
Capacity
Collateral
Character
Conditions

Executive Summary
The companys business model and basis for

competitive edge
The companys target markets and the benefits its
product or service will provide
The qualification of the founders and/or key
employees
The key financial highlights

Business and Industry Profile

Overview of industry or market segment
Existing or anticipated profitability of the industry
Companys general business goals
Companys immediate objectives

Business Strategy

How to gain competitive edge

How to achieve the goals and objectives
Methods to satisfy KSFs of the industry

Description of Product or Service

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

Benefit (what a customer gains from the product or

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

Marketing
Strategy
Defining the target market
Who?
Where?
How many?
Why?
Proving that a profitable market exists
Showing customer interest
Documenting market claims

Marketing Strategy
Advertising
Market Size and trend
Location
Pricing
Distribution

Competitor Analysis

Each significant competitor

Advantage over each

Description of Management Team

Qualifications of those with at least 20% ownership

Resumes
How to avoid primary reasons for business failures

Plan of Operation

Organizational chart
Form of ownership

Pro Forma Financial Statements

Monthly for 3 years by quarter

3 sets: pessimistic, most likely, optimistic
Statement of assumptions

Loan or Investment Proposal

Purpose of financing
Amount requested
Plans for repayment/exit strategy
Timetable for implementation
Evaluation of risks