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Chapter 4

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  • 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. 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.
    • INDUSTRY & MARKET FEASIBILITY ANALYSIS
    • -TWO MAIN PURPOSES:
    • 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. STEP 1: ASSESSING INDUSTRY ATTRACTIVENESS
  • 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.
    • 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:
    • NUMBER OF COMPETITORS IS LARGE OR SMALL.
    • COMPETITORS ARE NOT SIMILAR IN SIZE OR CAPABILITY.
    • THE INDUSTRY IS GROWING AT A FAST PACE.
    • THE OPPORTUNITY TO SELL A DIFFERENTIATED PRODUCT/SERVICE IS PRESENT.
  • 7.
    • 2) BARGAINING POWER OF SUPPLIERS TO THE INDUSTRY
    • -THE GREATER THE LEVERAGE THAT SUPPLIERS OF KEY RAW MATERIALS OR COMPONENTS HAVE, THE LESS ATTRACTIVE THE INDUSTRY IS.
    • -FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
    • 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 EASY TO SWITCH FROM ONE SUPPLIER TO ANOTHER OR TO SUBSTITUTE PRODUCTS.
    • THE ITEMS SUPPLIERS PROVIDE THE INDUSTRY ACCOUNT FOR A RELATIVELY SMALL PORTION OF THE COST OF THE INDUSTRY’S FINISHED PRODUCTS.
  • 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 POWERFUL BARGAINING 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:
    • INDUSTRY CUSTOMERS’ “SWITCHING COSTS” TO COMPETITORS PRODUCTS OR TO SUBSTITUTES ARE RELATIVELY HIGH.
    • THE NUMBER OF BUYERS IN THE INDUSTRY IS LARGE.
    • CUSTOMERS FIND IT DIFFICULT TO GATHER INFORMATION ON SUPPLIERS’ COST, PRICES, & PRODUCT FEATURES.
  • 9.
    • 4) THREAT OF NEW ENTRANTS TO THE INDUSTRY
    • -WHEN “BARRIERS TO ENTRY” INTO AN INDUSTRY ARE LOW, THE GREATER THE POSSIBILITY OF NEW ENTRANTS.
    • -BARRIERS TO ENTRY:
    • -OBSTACLES THAT MAKE IT DIFFICULT FOR A NEW BUSINESS TO ENTER AN INDUSTRY.
    • -CAPTIAL REQUIREMENTS, SPECIALIZED KNOWLEDGE, TECHNOLOGY
    • -THE LARGER THE POOL OF POTENTIAL NEW ENTRANTS TO AN INDUSTRY, THE GREATER IS THE THREAT TO EXISTING COMPANIES IN IT.
    • -FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
    • CAPITAL REQUIREMENTS TO ENTER THE INDUSTRY ARE LOW.
    • COST ADVANTAGES ARE NOT RELATED TO COMPANY SIZE.
    • BUYERS ARE NOT EXTREMELY BRAND LOYAL.
  • 10.
    • 5) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
    • -WHEN BUYERS HAVE AN OPPORTUNITY TO PURCHASE SUBSTIUTE PRODUCTS/SERVICES, AN INDUSTRY CAN BE TURNED ON ITS HEAD.
    • -FACTORS THAT MAKE AN INDUSTRY MORE ATTRACTIVE:
    • QUALITY SUBSTITUTE PRODUCTS ARE NOT READILY AVAILABLE.
    • THE PRICES OF SUBSTITUTE PRODUCTS ARE NOT SIGNIFICANTLY LOWER.
    • BUYERS’ COST OF SWITCHING TO SUBSTITUTE PRODUCTS IS HIGH.
  • 11. STEP 2: IDENTIFYING POTENTIAL NICHES
  • 12.
    • INDUSTRY NICHES
    • -MANY SMALL BUSINESSES PROSPER BY STICKING TO NICHES THAT ARE TOO SMALL TO ATTRACT THE ATTENTION OF LARGE COMPETITORS.
    • -OCCUPYING AN INDUSTRY NICHE SHIELDS A BUSINESS, TO SOME EXTENT, FROM THE POWER OF THE 5 FORCES.
    • -KEY QUESTIONS:
    • “ CAN WE IDENTIFY A NICHE THAT IS LARGE ENOUGH TO PRODUCE A PROFIT?
    • OR
    • 2) “CAN WE POSITION OR COMPANY UNIQUELY IN THE MARKET TO DIFFERENTIATE IT FROM THE COMPETITION IN A MENAINGFUL WAY?”
  • 13.
    • 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:
    • ARE CUSTOMERS WILLING TO PURCHASE OUR GOODS & SERVICES?
    • CAN WE PROVIDE THE PRODUCT OR SERVICE TO CUSTOMERS AT A PROFIT?
    • -TO ANSWER THESE QUESTIONS, ENTREPRENEURS NEED FEEDBACK FROM POTENTIAL CUSTOMERS.
  • 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. PRIMARY RESEARCH TECHNIQUES
  • 16. CUSTOMER SURVEYS & QUESTIONNAIRES
  • 17. FOCUS GROUPS
  • 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. 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. 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. 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.