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A Model for New Ventures:

Feasibility Planning
Objectives
 Concept of a Planning Paradigm
 Four stage growth model of entrepreneurship
 Fundamentals of a good feasibility plan
 Major components in a feasibility plan
 Planning responsibilities and ways in which entrepreneurs can get
assistance

Success in a Business
 No absolute answers on how to succeed in business, like wise
is new venture
 A paradigm, a general pattern of how to progress from an
abstract idea to achieve sustained sales
 The model, or paradigm, encompasses a feasibility plan. This
is a pragmatic business plan reflecting the philosophy that
entrepreneurs should do the planning necessary to ensure
that feasibility of a venture without becoming speechless in
the process.

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• Half dozen leading models – describe

entrepreneurship process
• Hundred of different sequences for creating
new ventures
• Each sequence having variations
according to the unique characteristics
of individual ventures
• Entrepreneurs can follow one paradigm
only with the understanding that it provides
a framework – not a mandate – for required
activities
• Experience of two entrepreneurs having
entirely different sequence of events
• Ross Petrot founder of EDS
• Michael Dell founder of DCC
• Petrot, Cowboy Capitalist, started EDS in
1962 with $1,000 and an idea for using
computer as integrated systems.
Envisioned computer terminals connected
through telcom systems and information
processing on global basis.
• Dell, at age of 20, turned a guess into a ¼
billion business. Working part time selling
IBM PCs near his campus, discovered huge
price markups and prepared a low cost
“clone”. Core strategy of direct sales and
3 low cost clones of IBM PCs.

The Four Stage Growth Model

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pre-start-up Start-up Early growth Later growth

stage stage stage stage

The period during The initial period of

Which entrepreneurs
Plan the venture and
Do the preliminary
Work of obtaining In a market and make
Resources and
Getting
Organized prior to
Start-up
Business when the
Entrepreneurs must
Position the venture
Necessary
Adjustment to
Assure survival
A period of often rapid
Development and
growth when the
Venture may
undergo major changes
In markets; finance, and
Resource utilization
The evolution of a
Venture into a large
Company with active
Composition in an
Established
industry

What is the purpose of the venture?

Business concept What does the entrepreneur want to
defined Accomplish with business?

Product-market Product research: is the product or service feasible?

study Market research: who will buy? where are they?
What competitors exist?

Financial projections: what cash is

Financial Needed? How will income be generated?
planning What expenses are expected? What is invested?
Borrowed?
What is needed to meet operating requirements?

Pre-start-up
implementation
Getting ready to start: the entrepreneur
Must find resources; purchase beginning inventory
Hire throes needed at start-up and obtain necessary
licenses

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Sales : To attain monthly sales volume as projected at prices projected in feasibility plan.
To achieve projected sales mix of projected and services as summarized inn feasibility plan.

Revenue: To achieve cash flow with in budget based on sale volume and price projection.
To meet targets above variable costs with appropriate operating margins.

Growth: To realize incremental growth within seasonal pattern of forecast.

To maintain balance of growth with ability to underwrite inventory, materials and human
resources.

Position: To solidify a long-term position in a appropriate markets as a result of adaptation during

start-up
To identify market strategy for niches or opportunities in new products services, or
markets during start ups

Very slow Perceived Very rapid

comfort zone

Sales increase slowly Incremental growth is Sales increase rapidly as

Because of the Within a comfort zone of New products gain
Nature of the The ventures resources and Wide acceptance in new
Product or the limited Owners profit objectives. markets
market

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 Describe the four stage in the growth model and how they
differ.
 Explain five set of activities essential during the start-up-
stage.
 Define growth continuum and contrast new venture activities
at the polar extremes. What is the ‘comfort zone’ in the
continuum?

Venture Describe the propose and nature of

defined The business

Product or
service Describe the product of or service to
Be sold

Market
Describe market size and location and
characteristic
customers

Entrepreneurial
team Describe the founders key people
And their roles.

Financial
summary
Describe estimates of revenue and expenses
Founders, debt , and capital needed.

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Product or Quality and relativity , use and how the product

service Or service will be positioned in growth
Markets.

Pricing
system Pricing methods, discount, quantity and
Bulk prices.

Promotional Strategy of combining appropriate uses

mix Of public relation, advertising, displays,
Events, demonstration, personal sales, etc.

Distribution Use of market channels, including retail, catalog,

channels Personal sales or other
Approaches.

Service and
warranties Description of service-after-sale policies, repair
Service and product warranties.

Marketing Define leadership roles,

leadership Persons responsible for marketing and sales.

LAUNCHING A NEW BUSINESS

Three key issues in the pre-start-up phase:

1) Testing concept feasibility

2) Developing a business plan
3) Acquiring resources (Cash and Personnel)

Three key issues in the start-up phase:

1) Finding customers
2) Building a structure
3) Generating positive cash flows

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Opportunity Creation
 Developing a product, service, process, or niche that has not
existed before. Opportunity recognition requires high levels of
creativity.

 Typically, opportunity creation involves an invention process

that is characterized by four activities:
 connection,
 discovery,
 invention, and
 application

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Opportunity Creation
 Connection occurs when two ideas are brought together that normally are not
juxtaposed, such as nature and machines, which produced the field of
nanotechnology or microscopic machines that copy nature in the way that they
operate.

 Discovery happens once a connection has been made. It is actually the result of
the connection in the form of an idea.

 Inventions are the product of turning an idea into a product or service.

 Application comes about when the inventor is able to apply the invention to a
number of different uses or applications in a variety of industries and situations.

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Opportunity Recognition
The process of using creative skills to
identify a new innovation --- (a product,
service, process, or marketing method) ---
which is often based on something
already existing in the marketplace.

How to recognize a business

opportunity
 List all the ideas in no particular order.

 Eliminate those ideas that can’t generate a profit and

don’t fit the business model very well.

 Review the remaining ideas and choose the one that

inspires the most passion and enthusiasm

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The Initial Business Concept:

There are four essential elements required to test whether or not a
potential business idea is feasible:

 What is the product and/or service that is the basis for the
business?

 Who is the customer likely to be?

 What is the benefit of your product/service to the customer?

 How will the benefit be delivered?

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Feasibility Analysis
 The entrepreneur develops an idea into a business
opportunity or business concept that is then tested in
the market through a process of feasibility analysis.

 Feasibility analysis is used to inform the entrepreneur

about the conditions required to move forward and
develop the business. This may involve market research.

 Once the entrepreneur has determined that the concept

is feasible, a business plan is developed to detail how
the company will be structured and to describe its
operation.
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Feasibility Analysis
The business concept (which is essentially a specific product or service) is
tested through a process of feasibility analysis that answers
three fundamental questions:

1. Are there customers and a market of sufficient size

to make the concept feasible?

2. Do the capital requirements to start, based on

estimates of sales and expenses, make sense?

3. Can an appropriate start-up team be put together to

make it happen?

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Components of Feasibility Analysis

Thus, there are actually four areas which are tested in the
feasibility analysis:

 The product/service
 Industry/market/consumer
 Founding team
 Financials

See the feasibility questions in Table 3.1

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Feasibility Analysis: Key Questions

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Viability
 Testing the business concept in the real world is what actually
determines if the business has viability. Thus, the business must
actually be launched and operated in the environment to
determine viability.

 In a business, the term viability is the point when the company

is able to generate sufficient cash flows to allow the business to
survive on its own without cash infusions from outside sources
such as the entrepreneur's own resources, investors, or a bank
loan.

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Eight Common Elements in a

Feasibility/Business Plan
 Executive Summary
 Business Concept
 Product or Service
 Market Research and Analysis
 Market Plan
 Manufacturing or operations
 Entrepreneurial Team
 Financial Documentation

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Five Forces Analysis for New Venture

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Goals of Market Research

To find out:

 Who is most likely to purchase the product or service at

market introduction?
 What do these customers typically buy, how do they buy
it, and how do they hear about it?
 What is their buying pattern? How often do they buy?
 What are the customers’ needs and how can the new
venture meet those needs?

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The Best Founders

Founders of successful companies have many things in
common. They are:

 A common vision
 Passion and a willingness to dedicate themselves
 Experience in the industry
 Contacts for capital
 Experience in basic business functions
 Excellent credit ratings

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Bootstrappers
 Bootstrappers are start-up entrepreneurs
who have no financial resources beyond their
own savings.

 They realize that to get what they need to

start their businesses—location, equipment,
money, and perhaps employees—they must
possess a double dose of ingenuity and
supreme self-assuredness.

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Successful Bootstrappers
 John Schnatter founded Papa John’s International, the
$164+ million pizza restaurant franchise, with $1,600 in
personal savings.

 Bill Gates and Paul Allen started Microsoft in a cheap

apartment in Albuquerque with virtually no overhead, a
borrowed computer, and very little capital.

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The Bootstrap Business Location

 Businesses that don’t require a
storefront location can begin their
development in a spare room or a
garage.

 Negotiate free rent and lower lease

rates in buildings where a lessor is
having difficulty releasing the space.

 Lease a portion of a larger company’s

space and take advantage of its
reception area and conference room.

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START-UP RESOURCES
Putting together sufficient resources to start a business requires
enormous creativity and persistence, with the ultimate reward
being a company that is able to reach critical mass and take
advantage of significantly more choices for growth capital.

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Why are So Many Ventures Self-Funded?

Many new ventures are initially funded by the

entrepreneur, because:

 No intellectual property rights or licenses to give them a

competitive advantage

 Many lack a significant track record of success

 Many ventures have not fully defined themselves in the

marketplace, which makes investment risky.

 Investors see new ventures as too risky

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The Entrepreneurial Mindset

• Entrepreneurial Mindset
 Describes the most common characteristics
associated with successful entrepreneurs as well
as the elements associated with the “dark side” of
entrepreneurship.
• Who Are Entrepreneurs?
 Independent individuals, intensely committed and
determined to persevere, who work very hard.
 They are confident optimists who strive for
integrity.
 They burn with the competitive desire to excel and
use failure as a learning tool.
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Sources of Research on Entrepreneurs

Research and Speeches,

Direct
Popular Seminars and
Observation
Publications Presentations

The
Entrepreneurial
Mindset

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Sources of Research on Entrepreneurs…

• Publications • Direct Observation of
 Technical and professional Practicing Entrepreneurs
journals  Interviews
 Textbooks on  Surveys
entrepreneurship
 Case studies
 Books about
entrepreneurship • Speeches, Seminars, and
 Biographies or Presentations by Practicing
autobiographies of Entrepreneurs
entrepreneurs
 Compendiums about
entrepreneurs
 News periodicals
 Venture periodicals
 Newsletters
 Proceedings of conferences
34  The Internet

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Common Characteristics of Entrepreneurs

• Commitment, • Calculated risk taking
determination, and • Tolerance for failure
perseverance
• High energy level
• Drive to achieve
• Creativity and
• Opportunity orientation Innovativeness
• Initiative and responsibility • Vision
• Persistent problem solving • Self-confidence and
• Seeking feedback optimism
• Internal locus of control • Independence
• Tolerance for ambiguity • Team building

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Characteristics Often Attributed to Entrepreneurs

1. Confidence 15. Intelligence 29. Pleasant personality
2. Perseverance, determination 16. Orientation to clear goals 30. Egotism
3. Energy, diligence 17. Positive response to 31. Courage
challenges
4. Resourcefulness 32. Imagination
18. Independence
5. Ability to take calculated risks 33. Perceptiveness
19. Responsiveness to
6. Dynamism, leadership 34. Toleration of ambiguity
suggestions and criticism
7. Optimism 35. Aggressiveness
20. Time competence, efficiency
8. Need to achieve 36. Capacity for enjoyment
21. Ability to make decisions
9. Versatility; knowledge of quickly 37. Efficacy
product, market, machinery,
22. Responsibility 38. Commitment
technology
23. Foresight 39. Ability to trust workers
10. Creativity
24. Accuracy, thoroughness 40. Sensitivity to others
11. Ability to influence others
25. Cooperativeness 41. Honesty, integrity
12. Ability to get along well with
people 26. Profit orientation 42. Maturity, balance
13. Initiative 27. Ability to learn from mistakes
14. Flexibility 28. Sense of power

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Entrepreneurship Theory
• Entrepreneurs cause entrepreneurship.
 Entrepreneurship is a function of the
entrepreneur:

 Entrepreneurship is the interaction of skills

related to inner control, planning and goal setting,
risk taking, innovation, reality perception, use of
feedback, decision making, human relations, and
independence.
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The Dark Side of Entrepreneurship

• The Entrepreneur’s Confrontation with Risk
 Financial risk versus profit (return) motive varies
in entrepreneurs’ desire for wealth.
 Career risk—loss of employment security
 Family and social risk—competing commitments
of work and family
 Psychic risk—psychological impact of failure on
the well-being of entrepreneurs

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Typology of Entrepreneurial Styles

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Stress and the Entrepreneur

• Entrepreneurial Stress
 The extent to which entrepreneurs’ work demands
and expectations exceed their abilities to perform
as venture initiators, they are likely to experience
stress.
• Causes of Entrepreneurial Stress
 Loneliness
 Immersion in business
 People problems
 Need to achieve

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Dealing with Stress

• Networking

• Getting away from it all

• Communicating with employees

• Finding satisfaction outside the company

• Delegating

• Exercising Rigorously

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