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Chapter 5
Conducting a
Feasibility
Analysis

Copyright © Houghton Mifflin Company. All rights reserved. 5 | 2
Learning Objectives
• Prepare to conduct a feasibility analysis
• Understand the feasibility tests
• Draw conclusions from the analysis

Preparing for Feasibility Analysis
• Is there a customer and a market of sufficient
size to make the concept viable?
• Do the capital requirements to start, based on
estimates of sales and expenses, make
sense?
• Can an appropriate start-up or founding
team be assembled to effectively execute the
concept?

Preparing for Feasibility Analysis
(continued)
• Pre-Feasibility Quick Look Assessment
– draft description of the business
– examine the industry
– identify the product’s customer benefit
– examine the capabilities and experience of
management team

Figure 5.1: The Process
of Feasibility Analysis

Areas To Be Analyzed
And Questions To Ask
• Business Concept
– Who is the customer?
– What is the value proposition?
– What is the product/service being offered?
– What does the value chain look like?
– Which distribution channel alternatives are available,
and which customers will be served by them?
– Are there ways to innovate in the distribution
channel?

Areas To Be Analyzed And Questions
To Ask (continued)
• Industry And Market/Customer
– What are the demographics, life cycle stage, patterns of
change, and trends in this industry?
– Are there any barriers to entry? If so, what are they?
– What is the status of technology and R&D expenditures?
– What are typical profit margins in the industry?
– Who are the opinion leaders in the industry and how do they
affect the industry?
– What are distributors, competitors, retailers, and others
saying about the industry?
– What are the demographics of the target market?
– What is the profile of the first customer? Are there other
potential customers?
– Have you talked with customers?
– Who are your competitors, and how are you differentiated
from them?

To Ask (continued)
• Product/Service
– What are the features and benefits of the product or
service you plan to offer?
– What product development tasks must be
undertaken, and what is the timeline for completion?
– Is there potential for intellectual property rights?
– How is the product or service differentiated from
others in the market?

To Ask (continued)
• Founding Team
– What experience and expertise does each
team member have?
– Where are the gaps and how will you fill
them?

To Ask (continued)
• Financial Needs Assessment
– What are your start-up costs (…capital and noncapital)?
– What are your working capital requirements?
– What are your fixed costs?
– How long will it take to achieve a positive
cash flow from the revenues generated?
– What is the break-even point for the
business?

Feasibility Analysis Outline
for a Written Report
• Cover page
• Executive summary
• Title page
• Table of contents
• Feasibility decision
• Business concept

Feasibility Analysis Outline for a
Written Report (contd)
• Industry/Market Analysis
• Founding team
• Product/Service development plan
• Financial plan
• Timeline
• Bibliography
• Appendix

New Venture Checklist
Have you…
• identified an opportunity that you would like
to pursue?
• conducted a quick look assessment to see if
a feasibility study is warranted?
• undertaken a feasibility analysis to
understand the risks?
• drawn a conclusion as to whether to move
forward with this opportunity?

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