Feasibility Analysis

Prepared by Zeeshan M. Aslam

 What Is Feasibility Analysis?

• Feasibility analysis is the

process of determining whether
a business idea is viable.
• It is the preliminary evaluation
Feasibility Analysis of a business idea, conducted
for the purpose of determining
whether the idea is worth
pursuing.

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• Timing
of Feasi When To Conduct a Feasibility Analysis
bility A
nalysis
– The
prop
er ti
me to
cond
uct a
feasi
bility
analy
sis is
early
in thi
nkin 3-3
 Feasibility Analysis
Role of feasibility analysis in developing business ideas.

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 Forms of Feasibility Analysis

Industry/Target Market
Product/Service Feasibility
Feasibility

Organizational Feasibility Financial Feasibility

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Outline for a Comprehensive Feasibility Analysis

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 Product/Service Feasibility Analysis
1 of 2

Purpose
• Is an assessment of the overall
appeal of the product or service
Product/Service Feasibility being proposed.
Analysis • Before a prospective firm rushes
a new product or service into
development, it should be sure
that the product or service is what
prospective customers want.

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Product/Service Feasibility Analysis
2 of 2
Components of product/service
feasibility analysis

Product/Service Product/Service
Desirability Demand

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 Product/Service Desirability
1 of 2
First, ask the following questions to determine the basic
appeal of the product or service.
• Does it make sense? Is it reasonable? Is it something consumers
will get excited about?
• Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the
market?
• Are there any fatal flaws in the product or service’s basic design
or concept?

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 Product/Service Desirability
2 of 2
• Second, Administer a Concept Test
– A concept statement should be developed.
– A concept statement is a one page description of a busin
ess, that is distributed to people who are asked to provid
e feedback on the potential of the business idea.
– The feedback will hopefully provide the entrepreneur
• A sense of the viability or the product or service idea.
• Suggestions for how the idea can be strengthened or “tweaked”
before proceeding further.

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 Product/Service Demand
1 of 6
• Product/Service Demand
– Their are two steps to assessing product/service demand.
– Step 1: Administer a Buying Intentions Survey
– Step 2: Conduct library, Internet, and Gumshoe research

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 Product/Service Demand
2 of 6
• Buying Intentions Survey
– Is an instrument that is used to gauge customer interest i
n a product or service.
– It consists of a concept statement or a similar description
of a product or survey with a short survey attached to ga
uge customer interest.
– Internet sites like SurveyMonkey make administering a
buying intentions survey easy and affordable.

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Product/Service Demand
3 of 6

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• Library,
Internet, Product/Service Demand
and Gu 4 of 6
mshoe
Researc
h
– The s
econ
d wa
y to a
ssess
the d
eman
d for
a pro
duct
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or ser
 Product/Service Demand
5 of 6
Explanation
• A gumshoe is a detective or an
investigator that scrounges around
Gumshoe Research for information or clues wherever
they can be found.
• Be a gumshoe. Ask people
what they think about your product
or service idea. If your idea is to
sell educational toys, spend a week
volunteering at a day care center
and watch how children interact
with toys.

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 Product/Service Demand
6 of 6

• One of the most effective

things an entrepreneur
can do to conduct a
thorough product/service
feasibility analysis is to
hit the streets and talk to
potential customers.
• This potential
entrepreneur
is administering a survey
about a new product idea.

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 Industry/Target Market Feasibility Analysi
s
Purpose
1 of 2
• Is an assessment of the overall
appeal of the industry and the
Industry/Target Market target market for the proposed
Feasibility Analysis business.
• An industry is a group of firms
producing a similar product or
service.
• A firm’s target market is the
limited portion of the industry it
plans to go after.

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Industry/Target Market Feasibility Analysi
s
Components of industry/target market
2 of 2
feasibility analysis

Target Market
Industry Attractiveness
Attractiveness

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• Industry
Attracti Industry Attractiveness
veness 1 of 2
– Indus
tries
vary
in ter
ms of
their
overa
ll attr
activ
eness
.
– In ge
neral,
the m 3-19
Industry Attractiveness
2 of 2

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• Target
Market Target Market Attractiveness
Attracti
veness
– The c
halle
nge i
n ide
ntifyi
ng an
attrac
tive t
arget
mark
et is t
o fin
dam 3-21
 Organizational Feasibility Analysis
1 of 2

Purpose
• Is conducted to determine
Organizational Feasibility whether a proposed business has
Analysis sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
• Focuses on non-financial resources.

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Organizational Feasibility Analysis
2 of 2
Components of organizational
feasibility analysis

Management Prowess Resource Sufficiency

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• Manage
ment Pr
owess Management Prowess
1 of 2
– A fir
m sh
ould
candi
dly e
valua
te the
prow
ess, o
r abil
ity, o
f its
mana
geme
nt tea
m to 3-24
Management Prowess
2 of 2

• An indication of passion
is the willingness of a
new venture team to
complete a
comprehensive
feasibility analysis.

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 Resource Sufficiency
1 of 2
• Resource Sufficiency
– This topic pertains to an assessment of whether an entrep
reneur has sufficient resources to launch the proposed ve
nture.
– To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed t
o move the business idea forward successfully.
• If critical resources are not available in certain areas, it may be
impractical to proceed with the business idea.

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 Resource Sufficiency
2 of 2
Examples of nonfinancial resources that may be critical
to the successful launch of a new business
• Availability of affordable office or lab space.
• Likelihood of local and state government support of the business.
• Quality of the labor pool available.
• Proximity to key suppliers and customers.
• Willingness of high quality employees to join the firm.
• Likelihood of establishing favorable strategic partnerships.
• Proximity to similar firms for the purpose of sharing knowledge.
• Possibility of obtaining intellectual property protection in key areas.

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 Financial Feasibility Analysis
1 of 2
Purpose
• Is the final component of a
Financial Feasibility comprehensive feasibility analysis.
• A preliminary financial assessment
Analysis
is sufficient.

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 Financial Feasibility Analysis
2 of 2
Components of financial
feasibility analysis

Total Start-Up Cash Financial Performance of

Needed Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture

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• Total St
art-Up
Cash Ne Total Start-Up Cash Needed
eded
– The f
irst is
sues
refer
s to t
he th
e tota
l cas
h nee
ded t
o pre
pare t
he bu 3-30
Financial Performance of Similar Businesses
• Financial Performance of Similar Businesses
– Estimate the proposed start-up’s financial performance b
y comparing it to similar, already established businesses.
– There are several ways to doing this, all of which involv
e a little ethical detective work.
• First, there are many reports available, some for free and some
that require a fee, offering detailed industry trend analysis and
reports on thousands of individual firms.
• Second, simple observational research may be needed. For exa
mple, the owners of New Venture Fitness Drinks could estimat
e their sales by tracking the number of people who patronize si
milar restaurants and estimating the average amount each custo
mer spends.

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• Overall
Financi
alOverall
Attrac Financial Attractiveness of the Proposed Venture
1 of 2
tiveness
of the P
roposed
Investm
ent
– A nu
mber
of ot
her fi
nanci
al fac
tors a
re ass 3-32
Overall Financial Attractiveness of the Proposed Venture
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Financial Factors Associated With Promising Business
Opportunities
• Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
• High percentage of recurring revenue—meaning that once a firm wins a
client, the client will provide recurring sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of
certainty.
• Internally generated funds to finance and sustain growth.
• Availability of an exit opportunity for investors to convert equity to cash.

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