ENTREPRENEURIAL SKILLS LECTURE #3 & 4 FEASIBILITY STUDY

AREAS TO COVER The importance of a Feasibility Study The Feasibility Study Procedure Elements of a Feasibility Study Conducting a feasibility Study

WHAT IS A FEASIBILITY STUDY An in-depth analysis of situational factors faced by a prospective business entity, the success of which will depend on an appropriate plan of action in order to deal with those factors.

WHAT IS A FEASIBILITY STUDY The Study enables the entrepreneur to minimize the level of risk or uncertainty in the prospective business, thus ensuring that the business will succeed as a going concern.

THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: help you to decide whether or not there is a real need for your product or service

THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: identify your segment of the market

THE IMPORTANCE OF THE FEASIBILITY STUDY A feasibility study will: force you to look at the different aspects of running a business.

THE IMPORTANCE OF THE FEASIBILITY STUDY The results of the study will answer the following questions: Are people in general interested in the product/service that the business will offer?

THE IMPORTANCE OF THE FEASIBILITY STUDY Have any large companies or organizations agreed to carry the product or use the service once it is available?

THE IMPORTANCE OF THE FEASIBILITY STUDY Which people will be most interested in buying your product/service?

THE IMPORTANCE OF THE FEASIBILITY STUDY Is it possible to earn a living from the business?

THE IMPORTANCE OF THE FEASIBILITY STUDY What sort of production schedule is needed to satisfy market needs?

THE IMPORTANCE OF THE FEASIBILITY STUDY What similar product/services are already on the market?

THE IMPORTANCE OF THE FEASIBILITY STUDY How much are people prepared to pay for your product/service?

THE IMPORTANCE OF THE FEASIBILITY STUDY How much advertising and promotion will you need to launch your product/service on the market?

RESEARCHING THE VENTURE’S FEASIBILITY Once you have thought of a business idea, you must answer the following questions through conducting of a feasibility study. Why should I start this business?

RESEARCHING THE VENTURE’S FEASIBILITY Is this a good business idea or is this merely an interesting hobby?

RESEARCHING THE VENTURE’S FEASIBILITY Is the market ready for this type of product/service?

THE FEASIBILITY STUDY PROCEDURE The quest for information on the potentials of a prospective business should not be hindered by it being overwhelming or by sheer oversight. The study should be carried out on a timely and objective basis, with appropriate skills or expertise.

THE FEASIBILITY STUDY PROCEDURE The approach to the Feasibility Study involves: The Goal: What you wish to find out? Is the business idea a viable one? What plan of action, or strategy will be required to make it work?

ELEMENTS OF THE FEASIBILITY STUDY Market Feasibility Technical Feasibility Operational Feasibility Financial Feasibility

ELEMENTS OF THE FEASIBILITY STUDY Market Feasibility

Market Feasibility Analysis of the market in terms of: Size Composition

Market Feasibility Analysis of the market in terms of: Taste Attitudes Preferences

Market Feasibility Analysis of the market in terms of: Demand Consumer income

Market Feasibility Look at factors that influences market response, viz:- The Product or Service

Market Feasibility Look at factors that influences market response, viz:- Price

Market Feasibility Look at factors that influences market response, viz:- Promotional efforts

Market Feasibility Look at factors that influences market response, viz:- Product quality

Market Feasibility Look at factors that influences market response, viz:- Distribution outlets

Competitor Analysis Who are the new venture’s current competitors? What resources do they control? What are their strengths and weaknesses? How will they respond to the new venture’s decision to enter the industry?

Competitor Analysis How can the new venture respond? Who else might be able to observe and exploit the same opportunity? Are there ways to co-opt potential or actual competitors by forming alliances?

Strategies that Capture Opportunities Peter Drucker’s Generic Competitive Strategies

Strategies that Capture Opportunities Peter Drucker’s Generic Competitive Strategies Seek an advantage in cost or competition. Cost-Advantage Strategy and Options Requires the firm to be the lowest-cost producer. Marketing-Advantage Strategy Emphasizing the uniqueness of the firm’s product or service

Laying the Foundation to Competitive Advantage To establish competitive advantage, the owner needs to understand the nature of the environment within which he or she will be operating. A benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors.

Competitive Advantage Unique Service Features Price/Value Competitive Advantage Notable Product Attributes Accessibility Customer Service

Technical Feasibility

Technical Feasibility Allows for an analysis of the skills and abilities that will be required to carry out the business

Technical Feasibility Special equipment, machinery, and technical know-how.

Technical Feasibility Sources by which the equipment will be obtained.

Operational Feasibility

Operational Feasibility Special consideration should be given to how the business will operate i.e. the prospects for: securing supplies

Operational Feasibility Sourcing adequate staff

Operational Feasibility Ensuring that quality and cost control will be maintained.

Financial Feasibility

Financial Feasibility An analysis of the financial needs of the business and how the needs will be met. Options for obtaining financing include attracting equity contributors, and securing loans.

Financial Feasibility The analysis should consider targeted return on investment and expected levels of profitability.

Sources of Funds

Sources of Funds Equity Debt Personal Savings Friends and Relatives Other Individual Investors Business Suppliers Asset-Based Lenders Commercial Banks Government-Sponsored Programs Community-Based Financial Institutions Large Corporations Venture Capital Firms Sale of Stock Friends and Relatives

What Is a Small Business? Criteria for Defining Smallness in Business Financing supplied by one person or small group Localized business operations (except marketing) Business’ size small relative to larger competitors Fewer than 100 employees

THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Look at trends in the economy Look at the needs of the community

THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Look at changes which are causing people difficulty Listen to the comments of people

THE BUSINESS IDEA METHODS FOR GENERATING IDEAS Read the newspapers and listen to the radio and watch the TV Look at how people spend their time, their fashion, eating habits, etc.

METHODS FOR GENERATING IDEAS Focus Groups

METHODS FOR GENERATING IDEAS Brainstorming

METHODS FOR GENERATING IDEAS Problem Inventory Analysis

METHODS FOR GENERATING IDEAS Reverse Brainstorming

METHODS FOR GENERATING IDEAS Gordon Method Checklist Method Free Association Collective Notebook Method

THE FEASIBILITY STUDY PROCEDURE The Methods: How will the study be carried out? These methods allow for both primary and secondary data. Primary Data: Those obtained first hand, according to the researcher’s own design

THE FEASIBILITY STUDY PROCEDURE Secondary Data: Those previously obtained that may be accessed for use in a present study.

Primary Data Methods for obtaining primary data: Observation: looking at the natural flow of activities Experiment: a controlled method of testing cause and effect Survey: test of knowledge, beliefs, preferences, by interviewing a sample representative Focus groups: interactive chat with a small group of representatives.

Secondary Data Sources of Secondary Data Government publications Periodicals, books, magazines Commercial data such as previous research Company reports, brochures, handboks.

QUESTIONNAIRE DESIGN Much attention should be given to the designing of a questionnaire or related interview tool. The questionnaire consist of a set of questions presented to the respondents It should be carefully developed and tested prior to it being administered.

QUESTIONNAIRE DESIGN Careful attention should be given to the questions in terms of Forms Wording, and Sequencing. Irrelevant questions should not be included and important ones should not be omitted.

QUESTIONNAIRE DESIGN The are two main forms of questions: CLOSED-ENDED Questions accompanied by pre-specified responses for which the respondents may choose one or more responses. OPENED-ENDED Questions that allow respondents to give a response in their own words.

THE RESULTS How will you respond to the findings? What actions will you take?

THE RESULTS Use Statistical Methods to tabulate your findings, viz: Pie Charts Simple Multiple Bar Graphs Pictograms Tables Line graphs bar charts

THE RESULTS The findings must be analyzed based on the goals of the study. The analysis allows for appropriate conclusions to be drawn. provides the framework for specific recommendations.

CONDUCTING A MARKET RESEARCH- THE ELEMENTS Target Population Selection of Sample Objectives Methodology Findings Analysis Conclusions & Recommendations Appendices.