Chapter 8

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The easiest part of launching a new business is
coming up with the idea
But, the great idea is just the start
Planning for a new business requires:
1. Feasibility analysis: should we proceed with this
idea?
2. Business model: how should we proceed with this
idea?
3. Business plan: transforming the idea into a
successful business

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New Business Planning Process

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A feasibility analysis consists of four interrelated
components:
1. An industry and market feasibility analysis
2. A product or service feasibility analysis
3. A financial feasibility analysis
4. An entrepreneur feasibility analysis

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Elements of a Feasibility Analysis

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Industry and Market Feasibility Analysis
Two areas of focus:
1. Determining how attractive an industry is
overall as a home for a new business
2. Identifying possible niches a small
business can occupy profitably

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Begin with a broad look at the industry
Use Porters five forces model
Five forces interact with one another to determine the
setting in which companies compete and, hence, the
attractiveness of the industry:
1. Rivalry among competing firms
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services

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Porters Five Forces Model

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Five Forces Matrix

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A feasibility analysis consists of four interrelated
components:
1. An industry and market feasibility analysis
A product or service feasibility analysis

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2. Product or Service Feasibility Analysis: Is There a
Market?
Determines the degree to which a product or service
idea appeals to potential customers and identifies the
resources necessary to produce it
Two questions:
Are customers willing to purchase our good or
service?
Can we provide the product or service to customers
at a profit?

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Primary research: collect data firsthand and
analyze it
Customer surveys and questionnaires
Focus groups
Prototypes
In-home trials

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Secondary research: gather data that already
has been compiled and analyze it
Trade associations and business directories
Industry databases
Demographic data
Forecasts
Market research
Articles
Local data
The Internet

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A feasibility analysis consists of four interrelated
components:
1. An industry and market feasibility analysis
2. A product or service feasibility analysis
A financial feasibility analysis

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3. Financial Feasibility Analysis: Is There Enough Margin?
Capital requirements
Must have an estimate of how much start-up capital is
required to launch the business

Estimated earnings
Forecasted income statements
Time out of cash
Surviving at current rate of negative cash flow
Return on investment:
How much investors can expect their investments to
return
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A feasibility analysis consists of four interrelated
components:
1. An industry and market feasibility analysis
2. A product or service feasibility analysis
3. A financial feasibility analysis
An entrepreneur feasibility analysis

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4. Entrepreneur Feasibility: Is This Idea Right for
Me?
Entrepreneurial readiness: knowledge,
experiences, and skills necessary to have any
chance of being successful

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Most entrepreneurs use a visual process such
as whiteboarding when developing their
business models
Develop a business model canvas comprised
of nine segments

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 Business Model Canvas

Products
and/or
services
Suppliers, offered to
outsourcing meet the
specific
partners needs of
group of
the
Human, customers
customers
capital, communica
and tion
intellectual channels
resources and
distribution
channels

fixed and variable costs

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Business plan: a written summary of an
entrepreneurs proposed business venture, its
operational and financial details, its marketing
opportunities and strategy, and its managers skills
and abilities
Serves two functions:
1. Guides the companys growth and development
2. Attracts lenders and investors

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 Common elements of a business plan
Title page and table of contents
Executive summary
Mission statement
Company history
Business and industry profile
Business strategy
Description of products/services
Business and industry profile
Goals and objectives

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Business strategy
Competitor analysis
Marketing strategy
Showing customer interest
Documenting market claims
Target market
Advertising and promotion
Market size and trends
Location
Pricing
Distribution
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Description of the management team
Plan of operation
Pro forma (projected) financial statements
Forecasts should be realistic
Include a statement of assumptions
The loan or investment proposal
Funding sources
Repayment schedule
Implementation timetable

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