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FIU - ENT - Class Notes - Week 2

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FIU - ENT - Class Notes - Week 2

School: Florida International University
Department: uncategorized
Course: Entrepreneurship
Term: Spring 2019
Tags: business, Entrepreneurship, Management, Feasibility, Product, service, demand, Industry, target, finance, businessmodel, resources, and operations
Name: ENT4113 - CHAPTERS 3 & 4
Description: These notes cover all the important information found in Chapter 3 & 4.
Uploaded: 02/09/2019
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background image CHAPTER 3: FEASIBILITY ANALYSIS  Feasibility analysis is the process of determining if a business idea is viable. If a 
business idea falls short on one or more of the four components of feasibility 
analysis. It should be dropped or rethought. A feasibility analysis is an assessment 
of a potential business rather than strictly a product or service idea. Feasibility 
analysis is investigating in nature and is designed to critique the merits of a 
proposed business.
 
Completing a feasibility analysis requires both primary and secondary research. 
Primary research is research that is collected by the person or persons 
completing the analysis. It normally includes talking to prospective customers, 
getting feedback from industry experts, conducting focus groups, and administering
surveys. Secondary research probes data that is already collected. The data 
generally includes industry studies, census bureau data, analyst forecasts, and 
other pertinent information gleaned through library and internet research. 
Feasibility Analysis allows for ample opportunity for the idea to be revised, altered, 
and changed as a result of the feedback that is obtained and the analysis that is 
conducted. The key objective behind feasibility analysis is to put an idea to the test-
by eliciting feedback from potential customers, talking to industry experts, studying 
industry trends, thinking though financials, and securitizing it in other ways. 
The Four Areas of Feasibility Analysis: 1. Product/Service Feasibility  – an assessment of the overall appeal of the  product or service being proposed. There are two components to 
product/service feasibility:
Product/Service Desirability : to affirm that the proposed product or  service is desirable and serves a need in the marketplace. A concept 
test
 involves showing a preliminary description of a product or service 
idea, called a concept statement, to prospective customers and 
industry experts to solicit their feedback. It is a one-page document 
that normally includes the following: (1) a description of the product or 
service, (2) the intended target market, (3) the benefits of the product 
or service, (4) a description of how the product or service will be 
positioned relative to competitors and (5) a brief description of the 
company’s management team. After the concept statement is 
developed, it should be shown to at least 25 people who are familiar 
with the industry that the firm plans to enter and who can provide 
informed feedback. The goal is to find a “product/market fit” 
between the benefits of your product or service offers and what your 
prospective customers need and require. The problem with not talking 
to potential customers prior to starting a business is that it is hard to 
know if a product is sufficiently desirable based simply on gut instinct 
or secondary research. 
Product/Service Demand : to determine if there is a demand for the  product or service. Three commonly utilized methods for doing this are 
background image (1) talking face to face with potential customers, (2) utilizing online 
tools, such as Google AdWords and landing pages, to assess demand, 
and (3) library, internet, and gumshoe research. One approach to 
assessing product demand is to use online tools, such as administering
surveys, utilizing Q&A sites, and conducting online marketing research.
Surveys are most effective in validating what you’ve learned from face-
to-face interviews, rather than collecting initial data. Be careful to 
avoid confirmation bias, which is a tendency to search for 
information that validates your preconceptions. A landing page is a 
single web page that typically provides direct sales copy, like “click 
here to buy a Hawaiian vacation.” 
2. Industry/Target Feasibility  – an assessment of the overall appeal of the  industry and the target market of the product or service being proposed. 
There is a distinct difference between a firm’s industry and its target market. 
An industry is a group of firms producing a similar product or service, such 
as computers, children’s toys, airplanes, or social networks. A firm’s target 
market
 is the portion of the industry that it goes after or to which it wants to 
appeal. There are two components to industry/target feasibility analysis: 
Industry Attractiveness : industries vary in terms of their overall  attractiveness. The top three factors are particularly important. 
Industries that are young rather than old, are early rather than late in 
their life cycle, and are fragmented rather than concentrated are more 
receptive to new entrants than industries with the opposite 
characteristics. 
Target Market Attractiveness : most start-ups simply don’t have the  resources needed to participate in a broad market, at least initially. 
Instead, by focusing on a smaller target market, a firm can usually 
avoid head-to-head competition with industry leaders and can focus on
serving a specialized market very well. It is also not realistic, in most 
cases, for a startup to introduce a totally original product idea into a 
completely new market. Most successful startups either introduce a 
new product into an existing market or introduce a new market to an 
existing product. The challenge in identifying an attractive target 
market is to find a market that is large enough for the proposed 
business yet small enough to avoid attracting larger competitors. 
3. Organizational Feasibility  – conducted to determine whether a proposed  business has enough management expertise, organizational competence, 
and resources to successfully launch. There are two primary issues to 
consider in this area: 
Management Prowess : a proposed business should evaluate the  prowess, or ability, of its initial management team, whether it is a sole 
entrepreneur or a larger group. This task requires the individuals 
starting the firm to be honest and candid in their self-assessments. Two
of the most important factors in this area are the passion the solo 
entrepreneur or the management team has for the business idea and 
the extent to which the management team or solo entrepreneur 
understands the markets in which the firm will participate.  A new-
background image venture team is the group of founders, key employees, and advisers 
that either manage or help manage a new business in its start-up 
years. 
Resource Sufficiency : determine whether the proposed venture has  or can obtain enough resources to move forward. The focus in 
organizational feasibility analysis is on nonfinancial resources. The 
objective is to identify the most important nonfinancial resources and 
assess their availability. Another key resource sufficiency issue is the 
ability to obtain intellectual property protection on key aspects of the 
business. This issue doesn’t apply to all startups; but it is critical for 
companies that have invented a new product or are introducing a new 
business process that adds value to the way a product is 
manufactured, or a service is delivered. One quick test a startup can 
administer is to see if a patent has already been filed for its product or 
business process idea.  
4. Financial Feasibility  – the final component of a comprehensive feasibility  analysis. The most important issues to consider at this stage are: Total Start-Up Cash Needed : this first issue refers to the total cash  needed to prepare the business to make its first sale. An actual budget 
should be prepared that lists all the anticipated capital purchases and 
operating expenses needed to get the business up and running. After 
determining a total figure, an explanation of where the money will 
come from should be provided. Showing how a new venture’s startup 
costs will be covered and repaid is an important issue.
Financial Performance of Similar Businesses : the second  component of financial feasibility analysis is estimating a proposed 
start-up’s potential financial performance by comparing it to similar, 
already established businesses. There are several ways of doing this: 
Substantial archival data, which offers detailed financial reports on 
thousands of individual firms, is available online. The easiest set of 
data to obtain is on publicly traded firms. The challenge is to find the 
financial performance of small, more comparable firms. There are 
additional ways to obtain financial data on smaller firms. If a start-up 
entrepreneur identifies a business that is like the one to be started, 
and the business isn’t likely to be a direct competitor, it is perfectly 
acceptable to ask the owner or manager of the business to share sales 
and income data. Simple observation and legwork are a final way to 
obtain sales data for similar businesses. 
Overall Financial Attractiveness of the Proposed Venture Several other factors are associated with evaluating the financial 
attractiveness of a proposed venture. These evaluations are based 
primarily on a new venture’s projected sales and rate of return (or 
profitability). At the feasibility analysis stage, the projected return is a 
judgment call. A more precise estimation can be computed by 
preparing pro forma (or projected) financial statements, including one-
to-three-year pro forma statements of cash flow, income statements, 
and balance sheets. 

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School: Florida International University
Department: uncategorized
Course: Entrepreneurship
Term: Spring 2019
Tags: business, Entrepreneurship, Management, Feasibility, Product, service, demand, Industry, target, finance, businessmodel, resources, and operations
Name: ENT4113 - CHAPTERS 3 & 4
Description: These notes cover all the important information found in Chapter 3 & 4.
Uploaded: 02/09/2019
8 Pages 87 Views 69 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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