<ul><li>CHAPTER 4 DISCUSSION QUESTIONS </li></ul><ul><li>What is a feasibility analysis? </li></ul><ul><li>What is an indu...
FEASABILITY ANALYSIS -”THE PROCESS OF DETERMINING WHETHER AN ENTREPRENEUR’S IDEA IS A VIABLE FOUNDATION FOR CREATING A SUC...
<ul><li>INDUSTRY & MARKET FEASIBILITY ANALYSIS </li></ul><ul><li>-TWO MAIN PURPOSES: </li></ul><ul><li>ASSESSING INDUSTRY ...
STEP 1: ASSESSING INDUSTRY ATTRACTIVENESS
FIVE FORCES MODEL -”A MODEL THAT RECOGNIZES THE POWER OF 5 FORCES ON AN INDUSTRY.” -A USEFUL TOOL FOR ANALYZING AN INDUSTR...
<ul><li>1) RIVALRY AMONG COMPANIES COMPETING IN THE INDUSTRY </li></ul><ul><li>-THE STRONGEST OF THE 5 FORCES. </li></ul><...
<ul><li>2) BARGAINING POWER OF SUPPLIERS TO THE INDUSTRY </li></ul><ul><li>-THE GREATER THE LEVERAGE THAT SUPPLIERS OF KEY...
<ul><li>3) BARGAINING POWER OF BUYERS </li></ul><ul><li>-IN A CAPITALIST SOCIETY CONSUMERS HOLD A LOT OF POWER, HOWEVER, W...
<ul><li>4) THREAT OF NEW ENTRANTS TO THE INDUSTRY </li></ul><ul><li>-WHEN “BARRIERS TO ENTRY” INTO AN INDUSTRY ARE LOW, TH...
<ul><li>5) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES </li></ul><ul><li>-WHEN BUYERS HAVE AN OPPORTUNITY TO PURCHASE SUBSTI...
STEP 2: IDENTIFYING POTENTIAL NICHES
<ul><li>INDUSTRY NICHES </li></ul><ul><li>-MANY SMALL BUSINESSES PROSPER BY STICKING TO NICHES THAT ARE TOO SMALL TO ATTRA...
<ul><li>PRODUCT OR SERVICE FEASIBILITY ANALYSIS </li></ul><ul><li>-”AN ANALYSIS THAT DETERMINES THE DEGREE TO WHICH A PROD...
PRIMARY VS SECONDARY RESEARCH PRIMARY RESEARCH: -INFORMATION THAT AN ENTREPRENEUR COLLECTS FIRST-HAND & ANALYZES. SECONDAR...
PRIMARY RESEARCH TECHNIQUES
CUSTOMER SURVEYS & QUESTIONNAIRES
FOCUS GROUPS
<ul><li>SECONDARY RESEARCH SOURCES </li></ul><ul><li>TRADE ASSOCIATIONS & BUSINESS DIRECTORIES </li></ul><ul><li>DIRECT MA...
PROTOTYPE -”AN ORIGINAL, FUNCTIONAL MODEL OF A NEW PRODUCT THAT ENTREPRENEURS CAN PUT INTO THE HANDS OF POTENTIAL CUSTOMER...
IN-HOME TRIAL -”A RESEARCH TECHNIQUE THAT INVOLVES SENDING RESEARCHERS INTO CUSTOMERS’ HOMES TO OBSERVE THEM AS THEY USE T...
FINANCIAL FEASIBILITY ANALYSIS -”INVOLVES ASSESSING THE FINANCIAL FEASIBILITY OF A PROPOSED BUSINESS VENTURE.” -3 MAJOR EL...
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Chapter 4

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Chapter 4

  1. 1. <ul><li>CHAPTER 4 DISCUSSION QUESTIONS </li></ul><ul><li>What is a feasibility analysis? </li></ul><ul><li>What is an industry & market feasibility analysis? </li></ul><ul><li>Explain the 5 forces model. </li></ul><ul><li>What is a product or service feasibility analysis? </li></ul><ul><li>What is the difference between primary & secondary research? </li></ul><ul><li>What is a financial feasibility analysis? </li></ul>
  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 BUSINESS IDEA?” -THE EASY PART OF A LAUNCING A BUSINESS IS COMING UP WITH AN IDEA FOR A NEW BUSINESS CONCEPT OR APPROACH. -THE HARD PART OF LAUNCHING A BUSINESS IS TRANSFORMING THE IDEA INTO A VIABLE BUSINESS. -A FEASABILITY ANALYSIS IS CONDUCTED PRIOR TO COMMITTING THE NECESSARY 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. <ul><li>INDUSTRY & MARKET FEASIBILITY ANALYSIS </li></ul><ul><li>-TWO MAIN PURPOSES: </li></ul><ul><li>ASSESSING INDUSTRY ATTRACTIVENESS </li></ul><ul><li>-TO DETERMINE HOW ATTRACTIVE AN INDUSTRY IS OVERALL AS A “HOME” FOR A NEW BUSINESS. </li></ul><ul><li>2) IDENTIFYING POTENTIAL NICHES </li></ul><ul><li>-TO IDENTIFY POSSIBLE NICHES A SMALL BUSINESS CAN OCCUPY PROFITABLY. </li></ul><ul><li>NICHE: </li></ul><ul><li>-A DISTINCT SEGMENT OF A MARKET. </li></ul>
  4. 4. STEP 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’S ATTRACTIVENESS .
  6. 6. <ul><li>1) RIVALRY AMONG COMPANIES COMPETING IN THE INDUSTRY </li></ul><ul><li>-THE STRONGEST OF THE 5 FORCES. </li></ul><ul><li>-LIKE HORSES RUNNING IN A RACE, BUSINESSES IN AN INDUSTRY ARE JOCKEYING FOR POSITION IN AN ATTEMPT TO GAIN A COMPETITIVE ADVANTAGE. </li></ul><ul><li>-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE: </li></ul><ul><li>NUMBER OF COMPETITORS IS LARGE OR SMALL. </li></ul><ul><li>COMPETITORS ARE NOT SIMILAR IN SIZE OR CAPABILITY. </li></ul><ul><li>THE INDUSTRY IS GROWING AT A FAST PACE. </li></ul><ul><li>THE OPPORTUNITY TO SELL A DIFFERENTIATED PRODUCT/SERVICE IS PRESENT. </li></ul>
  7. 7. <ul><li>2) BARGAINING POWER OF SUPPLIERS TO THE INDUSTRY </li></ul><ul><li>-THE GREATER THE LEVERAGE THAT SUPPLIERS OF KEY RAW MATERIALS OR COMPONENTS HAVE, THE LESS ATTRACTIVE THE INDUSTRY IS. </li></ul><ul><li>-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE: </li></ul><ul><li>MANY SUPPLIERS SELL A COMMODITY PRODUCT TO THE COMPANIES IN IT. </li></ul><ul><li>SUBSTITUTE PRODUCTS ARE AVAILABLE FOR THE ITEMS SUPPLIERS PROVIDE. </li></ul><ul><li>COMPANIES IN THE INDUSTRY FIND IT EASY TO SWITCH FROM ONE SUPPLIER TO ANOTHER OR TO SUBSTITUTE PRODUCTS. </li></ul><ul><li>THE ITEMS SUPPLIERS PROVIDE THE INDUSTRY ACCOUNT FOR A RELATIVELY SMALL PORTION OF THE COST OF THE INDUSTRY’S FINISHED PRODUCTS. </li></ul>
  8. 8. <ul><li>3) BARGAINING POWER OF BUYERS </li></ul><ul><li>-IN A CAPITALIST SOCIETY CONSUMERS HOLD A LOT OF POWER, HOWEVER, WE RARELY EXERT OUR POWER. </li></ul><ul><li>-IN A FREE MARKET SOCIETY, THE CUSTOMERS MOST POWERFUL BARGAINING TOOL IS SWITCHING TO A COMPETITOR. </li></ul><ul><li>-SWITCHING COSTS: </li></ul><ul><li>-AMOUNT OF $ IT COSTS A CONSUMER TO SWITCH TO A COMPETITOR’S PRODUCT OR A SUBSTITUTE PRODUCT. </li></ul><ul><li>-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE: </li></ul><ul><li>INDUSTRY CUSTOMERS’ “SWITCHING COSTS” TO COMPETITORS PRODUCTS OR TO SUBSTITUTES ARE RELATIVELY HIGH. </li></ul><ul><li>THE NUMBER OF BUYERS IN THE INDUSTRY IS LARGE. </li></ul><ul><li>CUSTOMERS FIND IT DIFFICULT TO GATHER INFORMATION ON SUPPLIERS’ COST, PRICES, & PRODUCT FEATURES. </li></ul>
  9. 9. <ul><li>4) THREAT OF NEW ENTRANTS TO THE INDUSTRY </li></ul><ul><li>-WHEN “BARRIERS TO ENTRY” INTO AN INDUSTRY ARE LOW, THE GREATER THE POSSIBILITY OF NEW ENTRANTS. </li></ul><ul><li>-BARRIERS TO ENTRY: </li></ul><ul><li>-OBSTACLES THAT MAKE IT DIFFICULT FOR A NEW BUSINESS TO ENTER AN INDUSTRY. </li></ul><ul><li>-CAPTIAL REQUIREMENTS, SPECIALIZED KNOWLEDGE, TECHNOLOGY </li></ul><ul><li>-THE LARGER THE POOL OF POTENTIAL NEW ENTRANTS TO AN INDUSTRY, THE GREATER IS THE THREAT TO EXISTING COMPANIES IN IT. </li></ul><ul><li>-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE: </li></ul><ul><li>CAPITAL REQUIREMENTS TO ENTER THE INDUSTRY ARE LOW. </li></ul><ul><li>COST ADVANTAGES ARE NOT RELATED TO COMPANY SIZE. </li></ul><ul><li>BUYERS ARE NOT EXTREMELY BRAND LOYAL. </li></ul>
  10. 10. <ul><li>5) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES </li></ul><ul><li>-WHEN BUYERS HAVE AN OPPORTUNITY TO PURCHASE SUBSTIUTE PRODUCTS/SERVICES, AN INDUSTRY CAN BE TURNED ON ITS HEAD. </li></ul><ul><li>-FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE: </li></ul><ul><li>QUALITY SUBSTITUTE PRODUCTS ARE NOT READILY AVAILABLE. </li></ul><ul><li>THE PRICES OF SUBSTITUTE PRODUCTS ARE NOT SIGNIFICANTLY LOWER. </li></ul><ul><li>BUYERS’ COST OF SWITCHING TO SUBSTITUTE PRODUCTS IS HIGH. </li></ul>
  11. 11. STEP 2: IDENTIFYING POTENTIAL NICHES
  12. 12. <ul><li>INDUSTRY NICHES </li></ul><ul><li>-MANY SMALL BUSINESSES PROSPER BY STICKING TO NICHES THAT ARE TOO SMALL TO ATTRACT THE ATTENTION OF LARGE COMPETITORS. </li></ul><ul><li>-OCCUPYING AN INDUSTRY NICHE SHIELDS A BUSINESS, TO SOME EXTENT, FROM THE POWER OF THE 5 FORCES. </li></ul><ul><li>-KEY QUESTIONS: </li></ul><ul><li>“ CAN WE IDENTIFY A NICHE THAT IS LARGE ENOUGH TO PRODUCE A PROFIT? </li></ul><ul><li>OR </li></ul><ul><li>2) “CAN WE POSITION OR COMPANY UNIQUELY IN THE MARKET TO DIFFERENTIATE IT FROM THE COMPETITION IN A MENAINGFUL WAY?” </li></ul>
  13. 13. <ul><li>PRODUCT OR SERVICE FEASIBILITY ANALYSIS </li></ul><ul><li>-”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.” </li></ul><ul><li>-THE ANALYSIS ADDRESSES 2 QUESTIONS: </li></ul><ul><li>ARE CUSTOMERS WILLING TO PURCHASE OUR GOODS & SERVICES? </li></ul><ul><li>CAN WE PROVIDE THE PRODUCT OR SERVICE TO CUSTOMERS AT A PROFIT? </li></ul><ul><li>-TO ANSWER THESE QUESTIONS, ENTREPRENEURS NEED FEEDBACK FROM POTENTIAL CUSTOMERS. </li></ul>
  14. 14. PRIMARY VS SECONDARY RESEARCH PRIMARY RESEARCH: -INFORMATION THAT AN ENTREPRENEUR COLLECTS FIRST-HAND & ANALYZES. SECONDARY RESEARCH: -INFORMATION THAT HAS ALREADY BEEN COMPILED & IS AVAILABLE FOR USE, OFTEN AT A VERY REASONABLE COST OR SOMETIMES EVEN FREE.
  15. 15. PRIMARY RESEARCH TECHNIQUES
  16. 16. CUSTOMER SURVEYS & QUESTIONNAIRES
  17. 17. FOCUS GROUPS
  18. 18. <ul><li>SECONDARY RESEARCH SOURCES </li></ul><ul><li>TRADE ASSOCIATIONS & BUSINESS DIRECTORIES </li></ul><ul><li>DIRECT MAIL LISTS </li></ul><ul><li>DEMOGRAPHIC DATA </li></ul><ul><li>CENSUS DATA </li></ul><ul><li>FORECASTS </li></ul><ul><li>MARKET RESEARCH </li></ul><ul><li>ARTICLES </li></ul><ul><li>LOCAL DATA </li></ul><ul><li>WORLD WIDE WEB </li></ul>
  19. 19. PROTOTYPE -”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, & USE IT.”
  20. 20. IN-HOME TRIAL -”A RESEARCH TECHNIQUE THAT INVOLVES SENDING RESEARCHERS INTO CUSTOMERS’ HOMES TO OBSERVE THEM AS THEY USE THE COMPANY PRODUCT OR SERVICE.”
  21. 21. 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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