Chapter 4

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Chapter 4

  1. 1. CHAPTER 4 DISCUSSION QUESTIONS• What is a feasibility analysis?• What is an industry & market feasibility analysis?• Explain the 5 forces model.• What is a product or service feasibility analysis?• What is the difference between primary & secondary research?• What is a financial feasibility analysis?
  2. 2. FEASABILITY ANALYSIS”THE PROCESS OF DETERMINING WHETHER AN ENTREPRENEUR’S IDEA IS A VIABLE FOUNDATION FOR CREATING A SUCCESSFUL BUSINESS.”-ANSWERS THE QUESTION: “SHOULD WE PROCEED WITH THIS BUSINESSIDEA?”-THE EASY PART OF LAUNCING A BUSINESS IS COMING UP WITH AN IDEA FORA NEW BUSINESS CONCEPT OR APPROACH.-THE HARD PART OF LAUNCHING A BUSINESS IS TRANSFORMING THE IDEAINTO A VIABLE BUSINESS.-A FEASABILITY ANALYSIS IS CONDUCTED PRIOR TO COMMITTING THENECESSARY RESOURCES REQUIRED TO BUILDING A BUSINESS PLAN.-CONSISTS OF 3 INTERRELATED COMPONENTS: 1) INDUSTRY & MARKET FEASIBILITY ANALYSIS 2) PRODUCT OR SERVICE FEASIBILITY ANALYSIS 3) FINANCIAL FEASIBILITY ANALYSIS
  3. 3. I. INDUSTRY & MARKET FEASIBILITY ANALYSIS-TWO MAIN PURPOSES:5) ASSESSING INDUSTRY ATTRACTIVENESS -TO DETERMINE HOW ATTRACTIVE AN INDUSTRY IS OVERALL AS A “HOME” FOR A NEW BUSINESS.2) IDENTIFYING POTENTIAL NICHES -TO IDENTIFY POSSIBLE NICHES A SMALL BUSINESS CAN OCCUPY PROFITABLY.NICHE:-A DISTINCT SEGMENT OF A MARKET.
  4. 4. INDUSTRY & MARKET FEASIBILITY ANALYSISSTEP 1: ASSESSING INDUSTRY ATTRACTIVENESS
  5. 5. FIVE FORCES MODEL”A MODEL THAT RECOGNIZES THE POWER OF 5 FORCES ON AN INDUSTRY.”-A USEFUL TOOL FOR ANALYZING AN INDUSTRY’SATTRACTIVENESS.
  6. 6. 1) RIVALRY AMONG COMPANIES COMPETING IN THE INDUSTRY-THE STRONGEST OF THE 5 FORCES.-LIKE HORSES RUNNING IN A RACE, BUSINESSES IN AN INDUSTRY ARE JOCKEYING FOR POSITION IN AN ATTEMPT TO GAIN A COMPETITIVE ADVANTAGE.-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:9) NUMBER OF COMPETITORS IS LARGE OR SMALL.10)COMPETITORS ARE NOT SIMILAR IN SIZE OR CAPABILITY.11)THE INDUSTRY IS GROWING AT A FAST PACE.12)THE OPPORTUNITY TO SELL A DIFFERENTIATED PRODUCT/SERVICE IS PRESENT.
  7. 7. 2) BARGAINING POWER OF SUPPLIERS TO THE INDUSTRY-THE GREATER THE LEVERAGE THAT SUPPLIERS OF KEY RAWMATERIALS OR COMPONENTS HAVE, THE LESS ATTRACTIVETHE INDUSTRY IS.-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:7)MANY SUPPLIERS SELL A COMMODITY PRODUCT TO THECOMPANIES IN IT.8)SUBSTITUTE PRODUCTS ARE AVAILABLE FOR THE ITEMSSUPPLIERS PROVIDE.9)COMPANIES IN THE INDUSTRY FIND IT EASY TO SWITCH FROMONE SUPPLIER TO ANOTHER OR TO SUBSTITUTE PRODUCTS.10)THE ITEMS SUPPLIERS PROVIDE THE INDUSTRY ACCOUNTFOR A RELATIVELY SMALL PORTION OF THE COST OF THEINDUSTRY’S FINISHED PRODUCTS.
  8. 8. 3) BARGAINING POWER OF BUYERS-IN A CAPITALIST SOCIETY CONSUMERS HOLD A LOT OF POWER,HOWEVER, WE RARELY EXERT OUR POWER.-IN A FREE MARKET SOCIETY, THE CUSTOMERS MOST POWERFULBARGAINING TOOL IS SWITCHING TO A COMPETITOR.-SWITCHING COSTS: -AMOUNT OF $ IT COSTS A CONSUMER TO SWITCH TO A COMPETITOR’S PRODUCT OR A SUBSTITUTE PRODUCT.-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:12)INDUSTRY CUSTOMERS’ “SWITCHING COSTS” TO COMPETITORSPRODUCTS OR TO SUBSTITUTES ARE RELATIVELY HIGH.13)THE NUMBER OF BUYERS IN THE INDUSTRY IS LARGE.14)CUSTOMERS FIND IT DIFFICULT TO GATHER INFORMATION ONSUPPLIERS’ COST, PRICES, & PRODUCT FEATURES.
  9. 9. 4) THREAT OF NEW ENTRANTS TO THE INDUSTRY-WHEN “BARRIERS TO ENTRY” INTO AN INDUSTRY ARE LOW, THEGREATER THE POSSIBILITY OF NEW ENTRANTS.-BARRIERS TO ENTRY: -OBSTACLES THAT MAKE IT DIFFICULT FOR A NEWBUSINESS TO ENTER AN INDUSTRY. -CAPTIAL REQUIREMENTS, SPECIALIZED KNOWLEDGE, TECHNOLOGY-THE LARGER THE POOL OF POTENTIAL NEW ENTRANTS TO ANINDUSTRY, THE GREATER IS THE THREAT TO EXISTINGCOMPANIES IN IT.-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:13)CAPITAL REQUIREMENTS TO ENTER THE INDUSTRY ARE LOW.14)COST ADVANTAGES ARE NOT RELATED TO COMPANY SIZE.15)BUYERS ARE NOT EXTREMELY BRAND LOYAL.
  10. 10. 5) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES-WHEN BUYERS HAVE AN OPPORTUNITY TO PURCHASESUBSTIUTE PRODUCTS/SERVICES, AN INDUSTRY CAN BETURNED ON ITS HEAD.-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:7)QUALITY SUBSTITUTE PRODUCTS ARE NOT READILYAVAILABLE.8)THE PRICES OF SUBSTITUTE PRODUCTS ARE NOTSIGNIFICANTLY LOWER.9)BUYERS’ COST OF SWITCHING TO SUBSTITUTE PRODUCTS ISHIGH.
  11. 11. INDUSTRY & MARKET FEASIBILITY ANALYSISSTEP 2: IDENTIFYING POTENTIAL NICHES
  12. 12. INDUSTRY NICHES-MANY SMALL BUSINESSES PROSPER BY STICKING TO NICHESTHAT ARE TOO SMALL TO ATTRACT THE ATTENTION OF LARGECOMPETITORS.-OCCUPYING AN INDUSTRY NICHE SHIELDS A BUSINESS, TOSOME EXTENT, FROM THE POWER OF THE 5 FORCES.-KEY QUESTIONS:9)“CAN WE IDENTIFY A NICHE THAT IS LARGE ENOUGH TOPRODUCE A PROFIT?OR2) “CAN WE POSITION OUR COMPANY UNIQUELY IN THEMARKET TO DIFFERENTIATE IT FROM THE COMPETITION IN AMENAINGFUL WAY?”
  13. 13. II. PRODUCT OR SERVICE FEASIBILITY ANALYSIS-”AN ANALYSIS THAT DETERMINES THE DEGREE TO WHICH A PRODUCT OR SERVICE IDEA APPEALS TO POTENTIAL CUSTOMERS & IDENTIFIES THE RESOURCES NECESSARY TO PRODUCE THE PRODUCT OR PROVIDE THE SERVICE.”-THE ANALYSIS ADDRESSES 2 QUESTIONS:5) ARE CUSTOMERS WILLING TO PURCHASE OUR GOODS & SERVICES?6) CAN WE PROVIDE THE PRODUCT OR SERVICE TO CUSTOMERS AT A PROFIT?-TO ANSWER THESE QUESTIONS, ENTREPRENEURS NEED FEEDBACK FROM POTENTIAL CUSTOMERS.
  14. 14. PRIMARY VS SECONDARY RESEARCHPRIMARY RESEARCH:-INFORMATION THAT AN ENTREPRENEUR COLLECTSFIRST-HAND & ANALYZES.SECONDARY RESEARCH:-INFORMATION THAT HAS ALREADY BEEN COMPILED & ISAVAILABLE FOR USE, OFTEN AT A VERY REASONABLECOST OR SOMETIMES EVEN FREE.
  15. 15. PRIMARY RESEARCH TECHNIQUES
  16. 16. CUSTOMER SURVEYS & QUESTIONNAIRES
  17. 17. FOCUS GROUPS
  18. 18. SECONDARY RESEARCH SOURCES•TRADE ASSOCIATIONS & BUSINESS DIRECTORIES•DIRECT MAIL LISTS•DEMOGRAPHIC DATA•CENSUS DATA•FORECASTS•MARKET RESEARCH•ARTICLES•LOCAL DATA•WORLD WIDE WEB
  19. 19. OTHER WAYS TO GET CUSTOMER FEEDBACK
  20. 20. PROTOTYPE-”AN ORIGINAL, FUNCTIONAL MODEL OF A NEW PRODUCTTHAT ENTREPRENEURS CAN PUT INTO THE HANDS OFPOTENTIAL CUSTOMERS SO THEY CAN SEE IT, TEST IT, &USE IT.”
  21. 21. IN-HOME TRIAL-”A RESEARCH TECHNIQUE THAT INVOLVES SENDINGRESEARCHERS INTO CUSTOMERS’ HOMES TO OBSERVETHEM AS THEY USE THE COMPANY PRODUCT ORSERVICE.”
  22. 22. III. FINANCIAL FEASIBILITY ANALYSIS-”INVOLVES ASSESSING THE FINANCIAL FEASIBILITY OF A PROPOSED BUSINESS VENTURE.”-3 MAJOR ELEMENTS:1) CAPITAL REQUIREMENTS:-MONEY NEEDED TO START UP A BUSINESS VENTURE.2) ESTIMATED EARNINGS:-A FORECAST OF THE EARNING POTENTIAL OF THE PROPOSED BUSINESS.3) RETURN ON INVESTMENT:-DETERMINES THE RATE OF RETURN ON THE CAPITAL INVESTED.

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