Conducting a Feasibility Study and Crafting a Business Plan

Feasibility Analysis The process of determining whether an entrepreneur’s idea is a viable foundation for creating a successful business

Elements of a Feasibility Analysis Financial Feasibility Product or Service Feasibility Industry and Market Feasibility

Industry and Market Feasibility Analysis To determine how attractive an industry is overall as a ‘home for a new business To identify possible niches a small business can occupy profitably

Five Forces Model Potential Entrants Threat of new entrants Rivalry among existing firms Suppliers Bargaining Power of suppliers Bargaining Power of buyers Buyers Substitutes

Rivalry Number of competitors is large or few (less than 5) Competitors are not similar in size or capability The industry is growing at a fast pace The opportunity to sell a differentiated product or service is present

Suppliers 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 eas to switch from one supplier to another The items suppliers provide account for a relatively small portion of the cost of finished products

Buyers Switching costs to competitors is high Number of buyers is large Customers demand differentiated products Customers find it difficult to gather info on suppliers costs etc The items account for a relatively small portion of the customers’ finished products

New Entrants Advantages of economic scale are not present Capital requirements to enter are low Cost advantages are not related to company size Buyers are brand-loyal Governments do not restrict entry

Substitute Products Quality substitute products are not readily available Prices of substitute products are not lower Buyers’ cost of switching to substitute products is high

Product or Service Feasibility Analysis Are customers wiling to purchase our goods and services? Can we provide the product or service to our customers at a profit?

Research Primary research Customer surveys and questionnaires Focus groups Secondary research Trade associations and business directories Direct mail lists Demographic data Census data Forecasts Market research Articles Local data WWW Research

Trials Prototypes: 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 and use it In-home trials: a research technique that involves sending researchers into customers’ homes to observe them as they use the company’s product or service

Financial Feasibility Analysis Capital Requirements Estimated Earnings Return on Investment

A Business Plan A written summary of an entrepreneur’s proposed business venture, its operational and financial details, its marketing opportunities and strategy, and its managers’ skills and abilities

3 Functions Guides an entrepreneur Attracts lenders and investors Reality Test Competitive Test Value Test Represents/reflects its creator

Elements of a Business Plan Title Page and Contents Executive Summary Vision and Mission Statement Company History Business and Industry Profile Business Strategy Description of the Firm’s Product or Service Marketing Strategy Competitor Analysis Description of Management Team Plan of Operation Pro Forma Financial Statements The Loan or Investment Proposal

What Lenders and Investors Look for in a Business Plan Capital Capacity Collateral Character Conditions

Executive Summary The company’s business model and basis for competitive edge The company’s target markets and the benefits its product or service will provide The qualification of the founders and/or key employees The key financial highlights

Business and Industry Profile Overview of industry or market segment Existing or anticipated profitability of the industry Company’s general business goals Company’s immediate objectives

Business Strategy How to gain competitive edge How to achieve the goals and objectives Methods to satisfy KSFs of the industry

Description of Product or Service Overview of how customers will use it Any patents, trademarks or copyright Honest comparison with competition Feature (descriptive fact about a product or service) vs Benefit (what a customer gains from the product or service) Description of production process, strategic raw materials, sources, costs.

Marketing Strategy Defining the target market Who? Where? How many? Why? Proving that a profitable market exists Showing customer interest Documenting market claims

Marketing Strategy Advertising Market Size and trend Location Pricing Distribution

Competitor Analysis Each significant competitor Advantage over each

Description of Management Team Qualifications of those with at least 20% ownership Resumes How to avoid primary reasons for business failures

Plan of Operation Organizational chart Form of ownership

Pro Forma Financial Statements Monthly for 3 years by quarter 3 sets: pessimistic, most likely, optimistic Statement of assumptions

Loan or Investment Proposal Purpose of financing Amount requested Plans for repayment/exit strategy Timetable for implementation Evaluation of risks