Chapter 4

Conducting a Feasibility Analysis

and Designing a Business Model

Copyright © 2016 Pearson Education, Inc

Idea Assessment
• Idea assessment:

• The process of examining

a particular need in the
market, developing a
solution for that need,
and determining the
entrepreneur’s ability to
successfully turn the idea
into a business.
New Business
Planning
Process

4-3
 • Entrepreneurs do not lack creative ideas, but …
Feasibility • Is a particular idea a viable foundation for
creating a successful business?
Analysis • Feasibility study addresses the question:
“Should we proceed with this business idea?”
Feasibility Analysis

• A feasibility study:
• Is not the same as a business plan.
• Serves as a filter, screening out ideas that lack
the potential for building a successful business
before an entrepreneur commits the necessary
resources to building a business plan.
• Is an investigative tool.

Ch. 4: Feasibility Analysis & Business Plan 4-5

Elements of a Feasibility Analysis

4-6
Industry and Product or Service
Market Feasibility Feasibility

Financial
Feasibility
Field ( Industry )and Market Feasibility Analysis

Two areas of focus:

1. Determining how attractive a Field is overall
as a “home” for a new enterprise.
2. Identifying possible niches a small
enterprises can occupy profitably.
Environmental
Forces and
New Ventures

4-8
 FY
2019/2020
Egypt`s Ease of Doing Business Index
 Best Value
for startups
Egypt advances to 105th rank compared to 117th in 2017: Corruption Perceptions Index

https://ww.egyptindependent.com/egyp
t-advances-to-105th-rank-compared-to-
117th-in-2017-corruption-perceptions-
index/
 Smart
phones
 4 - 14

• Assess industry attractiveness using six macro forces:

1. Sociocultural
Industry and 2. Technological

Market 3.
4.
Demographic
Economic
Feasibility 5. Political and legal
6. Global
Analysis

Copyright © 2016 Pearson Education, Inc

 Five forces interact with one another to
determine the setting in which Enterprises
compete and, hence, the attractiveness of the
industry:
Five Forces • Rivalry among Enterprises in the Field
Model • Bargaining power of suppliers
• Bargaining power of buyers
• Threat of new entrants
• Threat of substitute products or services
1.Rivalry Among other Enterprises

• Strongest of the five forces

• Enterprise is more attractive when:
• Number of competitors is large, or, at the
other extreme, quite small
• Competitors are not similar in size or
capacity
• Field is growing fast
• Opportunity to offer a differentiated
product or service exists
2.Bargaining Power of Suppliers

• The greater the leverage of suppliers, the

less attractive the enterprise.
• Industry is more attractive when:
• Substitutes are available
• Switching risks are low
• Safe exit plans with no or wit low
financial losses
• Public opinion will be aware by
drastic changes
3.Bargaining Power of Buyers
• Buyers’ influence is high when number of
customers is small and cost of switching to a
competitor’s low.
• A field is more attractive when:
• Beneficiary switching costs are high
• Number of potential beneficiaries are
large
• Beneficiaries want differentiated
products
• Beneficiaries find it difficult to collect
information for comparing suppliers
 4.Threat of New Entrants

• The larger the pool of potential new entrants, the

less attractive an industry is.
• Industry is more attractive to new entrants when:
• Advantages of economies of scale are absent.
• Capital requirements to enter are low
• Beneficiaries are not loyal to existing
enterprises
• Government does not restrict the entrance of
new entrants
5.Threat of Substitutes

• Substitute products or services can turn an

industry on its head.
• Industry is more attractive to new entrants
when:
• Quality substitutes are not readily
available
• Prices of substitute products are not
significantly lower than those of the
current industry’s products
• Buyers’ switching costs are high
Five Forces Matrix
Elements of a Feasibility Analysis

4 - 23
Product or Service
Industry and Feasibility
Market Feasibility

Financial
Feasibility
Product or Service - Feasibility Analysis
• Determines the degree to which a product or
service idea appeals to potential Beneficiary and
identifies the resourced necessary to produce it.
• Two questions:
1. Are Beneficiaries willing to acquire our
product or service?
2. Can we provide the product or service to
customers at a profit?
 • Primary research: Collect
data firsthand
• Customer surveys and
questionnaires
• Focus groups
• Secondary research: Gather
data that already has been
compiled and analyze it.
• Online Research
• Small Network trials

Product or Service Feasibility

Analysis
4 - 25
How to build a Customer Survey ?
• Consumer Segmentation
What are your assumptions ?
• Consumer Behavior
Don’t forget the Knock out question !
• Product or Service Validation
Offer the maximum and analyze the results
Elements of a Feasibility Analysis

4 - 28
Product or Service
Industry and Feasibility
Market Feasibility

Financial
Feasibility

Ch. 4: Feasibility Analysis & Business Plan

Financial Feasibility Analysis

• Capital requirements –an estimate of how much

start-up capital is required to launch the business.

• Estimated earnings – forecasted income statements

• Return on investment – Combining the previous two

estimates to determine how much investors can
expect their investments to return.

Ch. 4: Feasibility Analysis & Business Plan 4 - 29

 • Key questions to address:
1. What value does the business offer customers?
2. Who is my target market?
3. What do they expect of me as my customers?
4. How do I get information to them, and how do
Developing and they want to get the product?

Testing a 5. What are the key activities to make all this come
together, and what will they cost?
Business Model 6. What resources do I need to make this happen,
including money?
7. Who are the key partners I will need to attract to
be successful?
The Business
Modeling
Process

Copyright © 2016 Pearson Education, Inc 4 - 31

The Business Modeling Process
(continued)
The Business Model Canvas

Copyright © 2016 Pearson Education, Inc 4 - 33

The Business Modeling Process
(continued from4-39)

4 - 34 Copyright © 2016 Pearson

Education, Inc
 4 - 35

• Ask your potential customers:

• Do we really understand the customer problem the
business model is trying to address?
Test the Value • Do these customers care enough about this problem to
spend their hard-earned money on our product?
Proposition • Do these customers care enough about our product to
help us by telling others through word-of-mouth?

Copyright © 2016 Pearson Education, Inc

The Business Modeling Process
(continued from 4-41)

4 - 36 Copyright © 2016 Pearson

Education, Inc
Enterprise Prototyping

• Entrepreneurs test their

Enterprise models on a small
scale before committing serious
resources to launch a business
that might not work.
• Recognizes that an Enterprise
idea is a hypothesis that needs
to be tested before taking it full
scale.
Enterprise Prototyping
• Test early versions of a product or service using a lean
start-up: a process of rapidly developing simple
prototypes to test key assumptions by engaging real
customers

• Begin the lean start-up process using a minimal viable

product: the simplest version of a product or service
with which an entrepreneur can create a sustainable
business
The Business Modeling Process
(continued from 4-43)

4 - 40 Copyright © 2016 Pearson

Education, Inc
Pivots

• Pivots: the process of making changes and

adjustments in the business model on the
basis of the feedback a company receives
from customers.
1. Product pivot
2. Customer pivot
3. Revenue model pivot

Copyright © 2016 Pearson Education, Inc 4 - 41

Conclusion • There are no guarantees for success.
• Creating a feasibility analsis will be valuable primarily because
of the process itself.
• The feasibility analysis process may provide insight to increase
the chances for success.
• The feasibility analysis: Entrepreneurs benefit; lenders and
investors demand it!