• Preliminary evaluation of business idea that conducted for the purpose of determining whether the idea is worth pursuing.
When to conduct feasibility analysis
• The proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business.
• It is to screen ideas before a lot of resources are spent on them.
Role of feasibility analysis in developing business ideas.
Forms of feasibility analysis
1) Product/service feasibility analysis
• An assessment of the overall appeal of the product or service before a prospective firm rushes a new product or service into development.
• It is important to make sure that the product or service is what prospective customers want.
• Components of product/service feasibility analysis:
i)Product/service desirability
* Think about the surroundings and conditions in order to determine the basic appeal of the product/service.
* Administer a concept test – feedbacks from the customers.
ii)Product/service demand
* Administer buying intentions survey.
* Conduct library, internet and Gumshoe research.
2) Industry/target market feasibility analysis
• An assessment of the overall appeal of the industry and the target market for the proposed business.
• Form by a group of firms that produce a similar product or service which their target market is the limited portion of the industry it plan to go after.
• Components of industry/target market feasibility analysis:
i) Industry attractiveness
ii) Target market attractiveness
* The challenge is to find a market that’s large enough for the proposed business but is yet small enough to avoid attracting larger competitors.
* Assessing the attractiveness of a target market is tougher than an entire industry.
* Therefore, considerably ingenuity must be employed to find information in order to assess the attractiveness of a specific target market.
3) Organizational feasibility analysis
• It is conducted to determine whether a proposed business has sufficient management expertise, organizational competence and resources to successfully launch a business.
• Components of organizational feasibility analysis:
i) Management prowess
* Evaluate the ability of the management team to satisfy itself that management has the requisite passion and expertise to launch the venture.
* Two important factors in this area are:
• The passion that the entrepreneur has for the business idea.
• The extent to which the entrepreneur or the founding team understands the markets in which the firm will participate.
i) Resource sufficiency
* To make sure the entrepreneur has sufficient resources to launch the proposed venture or not.
* To test, a firm should list the 6-12 most critical nonfinancial resources that will be needed to move the business idea forward successfully.
* Example of nonfinancial resources:
4) Financial feasibility analysis
• A preliminary financial assessment is sufficient.
• Components of financial feasibility analysis:
i) Total start-up cash needed
* To prepare the business to make the first sale.
* An actual budget should be prepared consists of anticipated capital purchases and operating expenses needed.
ii) Financial performance of similar businesses
* Estimate the proposed start-up’s financial performance by comparing it to similar, established businesses
iii) Overall financial attractiveness of the proposed investment
* A number of other financial factors are associated with promising business start-ups.
