copyright © 2011 pearson education conducting a feasibility analysis and crafting a winning...
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Copyright © 2011 Pearson Education
Conducting a Feasibility Conducting a Feasibility Analysis and Crafting a Analysis and Crafting a Winning Business PlanWinning Business Plan
Conducting a Feasibility Conducting a Feasibility Analysis and Crafting a Analysis and Crafting a Winning Business PlanWinning Business Plan
CHAPTER CHAPTER 44
Copyright © 2011 Pearson Education 4 - 2Ch. 4: Feasibility Analysis & Business Plan
Feasibility AnalysisFeasibility Analysis
Entrepreneurs do not lack creative Entrepreneurs do not lack creative ideas, but …ideas, but …
Is a particular idea a viable foundation Is a particular idea a viable foundation for creating a successful business? for creating a successful business?
Feasibility study addresses the Feasibility study addresses the question: “Should we proceed with question: “Should we proceed with this business idea?”this business idea?”
Copyright © 2011 Pearson Education 4 - 3Ch. 4: Feasibility Analysis & Business Plan
A feasibility study:A feasibility study: IsIs not not the same as a business plan. the same as a business plan. Serves as a filter, screening out ideas that Serves as a filter, screening out ideas that
lack the potential for building a successful lack the potential for building a successful business business beforebefore an entrepreneur commits an entrepreneur commits the necessary resources to building a the necessary resources to building a business plan. business plan.
Is an investigative tool.Is an investigative tool.
Feasibility AnalysisFeasibility Analysis
Copyright © 2011 Pearson Education 4 - 4Ch. 4: Feasibility Analysis & Business Plan
Industry and Industry and Market FeasibilityMarket Feasibility
Product or ServiceProduct or ServiceFeasibilityFeasibility
FinancialFinancialFeasibilityFeasibility
Elements of a Feasibility AnalysisElements of a Feasibility Analysis
Copyright © 2011 Pearson Education 4 - 5Ch. 4: Feasibility Analysis & Business Plan
Industry and Market Feasibility
Product or ServiceProduct or ServiceFeasibilityFeasibility
FinancialFinancialFeasibilityFeasibility
Elements of a Feasibility AnalysisElements of a Feasibility Analysis
Copyright © 2011 Pearson Education 4 - 6Ch. 4: Feasibility Analysis & Business Plan
Industry and Market Industry and Market Feasibility AnalysisFeasibility Analysis
Two areas of focus:Two areas of focus:
1.1. Determining how attractive an Determining how attractive an industry is overall as a “home” for a industry is overall as a “home” for a new business.new business.
2.2. Identifying possible niches a small Identifying possible niches a small business can occupy profitably. business can occupy profitably.
Copyright © 2011 Pearson Education 4 - 7Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Five forces interact with one another to Five forces interact with one another to determine the setting in which companies determine the setting in which companies compete and, hence, the attractiveness of compete and, hence, the attractiveness of the industry:the industry:
1.1. Rivalry among companies in the industryRivalry among companies in the industry
2.2. Bargaining power of suppliersBargaining power of suppliers
3.3. Bargaining power of buyersBargaining power of buyers
4.4. Threat of new entrantsThreat of new entrants
5.5. Threat of substitute products or servicesThreat of substitute products or services
Copyright © 2011 Pearson Education 4 - 8Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 9Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 10Ch. 4: Feasibility Analysis & Business Plan
Rivalry Among CompaniesRivalry Among Companies
Strongest of the five forcesStrongest of the five forces Industry is more attractive when:Industry is more attractive when:
Number of competitors is large, or, at Number of competitors is large, or, at the other extreme, quite smallthe other extreme, quite small
Competitors are not similar in size or Competitors are not similar in size or capacitycapacity
Industry is growing fastIndustry is growing fast Opportunity to sell a differentiated Opportunity to sell a differentiated
product or service existsproduct or service exists
Copyright © 2011 Pearson Education 4 - 11Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 12Ch. 4: Feasibility Analysis & Business Plan
Bargaining Power of Bargaining Power of SuppliersSuppliers
The greater the leverage of suppliers, The greater the leverage of suppliers, the less attractive the industry.the less attractive the industry.
Industry is more attractive when:Industry is more attractive when: Many suppliers sell a commodity Many suppliers sell a commodity
productproduct Substitutes are availableSubstitutes are available Switching costs are lowSwitching costs are low Items account for a small portion of Items account for a small portion of
the cost of finished productsthe cost of finished products
Copyright © 2011 Pearson Education 4 - 13Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 14Ch. 4: Feasibility Analysis & Business Plan
Bargaining Power of Bargaining Power of BuyersBuyers
Buyers’ influence is high when number of Buyers’ influence is high when number of customers is small and cost of switching to a customers is small and cost of switching to a competitor’s product is low. competitor’s product is low.
Industry is more attractive when:Industry is more attractive when: Customers’ switching costs are highCustomers’ switching costs are high Number of buyers is largeNumber of buyers is large Customers want differentiated productsCustomers want differentiated products Customers find it difficult to collect information Customers find it difficult to collect information
for comparing suppliersfor comparing suppliers Items account for a small portion of customers’ Items account for a small portion of customers’
finished products finished products
Copyright © 2011 Pearson Education 4 - 15Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 16Ch. 4: Feasibility Analysis & Business Plan
Threat of New EntrantsThreat of New Entrants The larger the pool of potential new entrants, The larger the pool of potential new entrants,
the less attractive an industry is.the less attractive an industry is. Industry is more attractive to new entrants Industry is more attractive to new entrants
when:when: Advantages of economies of scale are absent.Advantages of economies of scale are absent.
Capital requirements to enter are lowCapital requirements to enter are low
Cost advantages are not related to company sizeCost advantages are not related to company size
Buyers are not loyal to existing brandsBuyers are not loyal to existing brands
Government does not restrict the entrance of new Government does not restrict the entrance of new companies companies
Copyright © 2011 Pearson Education 4 - 17Ch. 4: Feasibility Analysis & Business Plan
Five Forces ModelFive Forces Model
Industry Competitors
Rivalry among existing firms
Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Suppliers
Bargaining PowerBargaining Powerof Suppliersof Suppliers
Substitutes
PotentialEntrants
Threat ofThreat ofNew EntrantsNew Entrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services
Copyright © 2011 Pearson Education 4 - 18Ch. 4: Feasibility Analysis & Business Plan
Threat of SubstitutesThreat of Substitutes Substitute products or services can turn Substitute products or services can turn
an industry on its head.an industry on its head. Industry is more attractive to new entrants Industry is more attractive to new entrants
when:when: Quality substitutes are not readily Quality substitutes are not readily
availableavailable Prices of substitute products are not Prices of substitute products are not
significantly lower than those of the significantly lower than those of the industry’s productsindustry’s products
Buyers’ switching costs are highBuyers’ switching costs are high
Copyright © 2011 Pearson Education 4 - 19Ch. 4: Feasibility Analysis & Business Plan
Five Forces MatrixFive Forces Matrix
Copyright © 2011 Pearson Education 4 - 20Ch. 4: Feasibility Analysis & Business Plan
Business PrototypingBusiness Prototyping
Entrepreneurs test their business Entrepreneurs test their business models on a small scale before models on a small scale before committing serious resources to committing serious resources to launch a business that might not work. launch a business that might not work.
Recognizes that a business idea is a Recognizes that a business idea is a hypothesis that needs to be tested hypothesis that needs to be tested before taking it full scale. before taking it full scale.
Copyright © 2011 Pearson Education 4 - 21Ch. 4: Feasibility Analysis & Business Plan
Industry and Industry and Market FeasibilityMarket Feasibility
Product or ServiceFeasibility
FinancialFinancialFeasibilityFeasibility
Elements of a Feasibility AnalysisElements of a Feasibility Analysis
Copyright © 2011 Pearson Education 4 - 22Ch. 4: Feasibility Analysis & Business Plan
Product or Service Product or Service Feasibility AnalysisFeasibility Analysis
Determines the degree to which a Determines the degree to which a product or service idea appeals to product or service idea appeals to potential customers and identifies the potential customers and identifies the resourced necessary to produce it. resourced necessary to produce it.
Two questions:Two questions:1.1. Are customers willing to purchase Are customers willing to purchase
our product or service?our product or service?
2.2. Can we provide the product or Can we provide the product or service to customers at a profit? service to customers at a profit?
Copyright © 2011 Pearson Education 4 - 23Ch. 4: Feasibility Analysis & Business Plan
Product or Service Product or Service Feasibility AnalysisFeasibility Analysis
Primary research: Collect data firsthand Primary research: Collect data firsthand and analyze it.and analyze it. Customer surveys and questionnairesCustomer surveys and questionnaires Focus groupsFocus groups
Secondary research: Gather data that Secondary research: Gather data that already has been compiled and analyze it. already has been compiled and analyze it.
PrototypesPrototypes In-home trialsIn-home trials
Copyright © 2011 Pearson Education 4 - 24Ch. 4: Feasibility Analysis & Business Plan
Industry and Industry and Market FeasibilityMarket Feasibility
Product or ServiceProduct or Service FeasibilityFeasibility
FinancialFeasibility
Elements of a Feasibility AnalysisElements of a Feasibility Analysis
Copyright © 2011 Pearson Education 4 - 25Ch. 4: Feasibility Analysis & Business Plan
Financial Feasibility AnalysisFinancial Feasibility Analysis
Capital requirements –an estimate of how Capital requirements –an estimate of how much start-up capital is required to much start-up capital is required to launch the business.launch the business.
Estimated earnings – forecasted income Estimated earnings – forecasted income statementsstatements
Return on investment – Combining the Return on investment – Combining the previous two estimates to determine how previous two estimates to determine how much investors can expect their much investors can expect their investments to return. investments to return.
Copyright © 2011 Pearson Education 4 - 26Ch. 4: Feasibility Analysis & Business Plan
The Business PlanThe Business Plan
A written summary of:A written summary of: An entrepreneur’s proposed business An entrepreneur’s proposed business
ventureventure The operational and financial detailsThe operational and financial details The marketing opportunities and strategyThe marketing opportunities and strategy The managers’ skills and abilities. The managers’ skills and abilities.
A business plan is the best insurance against A business plan is the best insurance against launching a business destined to fail or launching a business destined to fail or mismanaging a potentially successful company. mismanaging a potentially successful company.
Copyright © 2011 Pearson Education 4 - 27Ch. 4: Feasibility Analysis & Business Plan
The Business Plan:The Business Plan:Two Essential FunctionsTwo Essential Functions
1.1. Guiding the company by Guiding the company by charting its future course charting its future course and defining its strategy and defining its strategy for following it.for following it.
2.2. Attracting lenders and Attracting lenders and investors who will provide investors who will provide needed capital.needed capital.
Copyright © 2011 Pearson Education 4 - 28Ch. 4: Feasibility Analysis & Business Plan
A Plan Must Pass Three TestsA Plan Must Pass Three Tests
1. 1. The Reality Test The Reality Test – proving that :– proving that : A market really does exist for your product or A market really does exist for your product or
service. service. You can actually build or provide it for the cost You can actually build or provide it for the cost
estimates in the plan.estimates in the plan.
2. 2. The Competitive Test The Competitive Test – evaluates: – evaluates: A company’s position relative to its competitors.A company’s position relative to its competitors. Management’s ability to create a company that Management’s ability to create a company that
will gain an edge over its rivals.will gain an edge over its rivals.
3. 3. The Value Test The Value Test – proving that:– proving that: A venture offers investors or lenders an attractive A venture offers investors or lenders an attractive
rate of return or a high probability of repayment.rate of return or a high probability of repayment.
Copyright © 2011 Pearson Education 4 - 29Ch. 4: Feasibility Analysis & Business Plan
Why Take the Time to Why Take the Time to Build a Business Plan?Build a Business Plan?
Although building a plan does not Although building a plan does not guarantee success, it does increase your guarantee success, it does increase your chances of succeeding in business.chances of succeeding in business.
A plan is like a road map that serves as a A plan is like a road map that serves as a guide on a journey through unfamiliar, guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t harsh, and dangerous territory. Don’t attempt the trip without a map!attempt the trip without a map!
Copyright © 2011 Pearson Education 4 - 30Ch. 4: Feasibility Analysis & Business Plan
Key Elements of a Business PlanKey Elements of a Business Plan
Title Page and Table of ContentsTitle Page and Table of Contents Executive SummaryExecutive Summary Vision and Mission StatementVision and Mission Statement Company HistoryCompany History Business and Industry ProfileBusiness and Industry Profile
OurBusinessPlan
Copyright © 2011 Pearson Education 4 - 31Ch. 4: Feasibility Analysis & Business Plan
FIGURE 4.3
Mission, Goalsand Objectives
Copyright © 2011 Pearson Education 4 - 32Ch. 4: Feasibility Analysis & Business Plan
Key Elements of a Business PlanKey Elements of a Business Plan
Title Page and Table of ContentsTitle Page and Table of Contents Executive SummaryExecutive Summary Mission StatementMission Statement Company HistoryCompany History Business and Industry ProfileBusiness and Industry Profile Business StrategyBusiness Strategy Description of Products/ServicesDescription of Products/Services
TheBusinessPlan
Copyright © 2011 Pearson Education 4 - 33Ch. 4: Feasibility Analysis & Business Plan
Features vs. BenefitsFeatures vs. Benefits
Feature Feature – a descriptive fact about a – a descriptive fact about a product or service:product or service:
“an ergonomically designed, “an ergonomically designed, more comfortable handle” more comfortable handle”
Benefit Benefit – what a customer gains from – what a customer gains from the product or service feature:the product or service feature:
“fewer problems with carpal “fewer problems with carpal tunnel syndrome and tunnel syndrome and increased productivity” increased productivity”
Copyright © 2011 Pearson Education 4 - 34Ch. 4: Feasibility Analysis & Business Plan
Key Elements of a Business PlanKey Elements of a Business Plan
Marketing StrategyMarketing Strategy Document market claimsDocument market claims Show customer interestShow customer interest
Competitor AnalysisCompetitor Analysis Description of Management TeamDescription of Management Team Plan of OperationPlan of Operation Projected Financial StatementsProjected Financial Statements Loan or Investment ProposalLoan or Investment Proposal
(continued)(continued)
OurBusinessPlan
TheBusinessPlan
Copyright © 2011 Pearson Education 4 - 35Ch. 4: Feasibility Analysis & Business Plan
Guidelines for PreparingGuidelines for Preparinga Business Plana Business Plan
Remember: No one can create your plan Remember: No one can create your plan forfor you.you.
Potential lenders want to see financial Potential lenders want to see financial projections, but they are more interested in the projections, but they are more interested in the strategiesstrategies for reaching those projections. for reaching those projections.
Show how you plan to set your business apart Show how you plan to set your business apart from competitors; don’t fall into the “me too” from competitors; don’t fall into the “me too” trap.trap.
Identify your target market and offer evidence Identify your target market and offer evidence that customers for your product or service that customers for your product or service exist. exist.
Copyright © 2011 Pearson Education 4 - 36Ch. 4: Feasibility Analysis & Business Plan
Tips on PreparingTips on Preparinga Business Plana Business Plan
Make sure your plan has an attractive Make sure your plan has an attractive cover. (First impressions are crucial.)cover. (First impressions are crucial.)
Rid your plan of all spelling and Rid your plan of all spelling and grammatical errors. grammatical errors.
Make your plan visually appealing. Make your plan visually appealing. Include a table of contents to allow Include a table of contents to allow
readers to navigate your plan easily. readers to navigate your plan easily. Make it interesting. Make it interesting.
Copyright © 2011 Pearson Education 4 - 37Ch. 4: Feasibility Analysis & Business Plan
Tips on PreparingTips on Preparinga Business Plana Business Plan
Your plan must prove that the business will Your plan must prove that the business will make money (not necessarily immediately, make money (not necessarily immediately, but eventually).but eventually).
Use spreadsheets to generate financial Use spreadsheets to generate financial forecasts.forecasts.
AlwaysAlways include cash flow projections. include cash flow projections. Keep your plan “crisp” – between 25 and 40 Keep your plan “crisp” – between 25 and 40
pages long.pages long. Tell the truth – Tell the truth – alwaysalways. .
(continued)(continued)
Copyright © 2011 Pearson Education 4 - 38Ch. 4: Feasibility Analysis & Business Plan
The “5 Cs” of CreditThe “5 Cs” of Credit
CapitalCapital CapacityCapacity CollateralCollateral CharacterCharacter ConditionsConditions
Copyright © 2011 Pearson Education 4 - 39Ch. 4: Feasibility Analysis & Business Plan
Presenting the PlanPresenting the Plan
Demonstrate enthusiasm, but don’t be Demonstrate enthusiasm, but don’t be overemotional.overemotional.
Know your audience thoroughly. Know your audience thoroughly. ““Hook” investors quickly with an up-Hook” investors quickly with an up-
front explanation of the venture, its front explanation of the venture, its opportunities, and its benefits to them.opportunities, and its benefits to them.
Hit the highlights; focus on Hit the highlights; focus on the details later.the details later.
Keep your presentationKeep your presentationsimple – 2 or 3 major points. simple – 2 or 3 major points.
Copyright © 2011 Pearson Education 4 - 40Ch. 4: Feasibility Analysis & Business Plan
Presenting the PlanPresenting the Plan
Avoid overloading your audience with Avoid overloading your audience with technological jargon.technological jargon.
Use visual aids.Use visual aids. Close by reinforcing the nature of the Close by reinforcing the nature of the
opportunity. opportunity. Be prepared (with details) for potential Be prepared (with details) for potential
investors’ questions.investors’ questions. Follow up with every investor to whom Follow up with every investor to whom
you make your presentation.you make your presentation.
(continued)(continued)
Copyright © 2011 Pearson Education 4 - 41Ch. 4: Feasibility Analysis & Business Plan
ConclusionConclusion
There are no guarantees for success.There are no guarantees for success. Creating a business plan will be valuable Creating a business plan will be valuable
primarily because of the process itself.primarily because of the process itself. The business planning process may The business planning process may
provide insight to increase the chances provide insight to increase the chances for success.for success.
The business plan: Entrepreneurs The business plan: Entrepreneurs benefit; lenders and investors demand it!benefit; lenders and investors demand it!
Copyright © 2011 Pearson Education 4 - 42Ch. 4: Feasibility Analysis & Business Plan
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