Chapter 4: Conducting a Feasibility Analysis And Designing A Business Model
Chapter 4: Conducting a Feasibility Analysis And Designing A Business Model MGMT 3850
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This 6 page Class Notes was uploaded by Alora Lornklang on Wednesday February 10, 2016. The Class Notes belongs to MGMT 3850 at University of North Texas taught by Brandi Everett in Spring 2016. Since its upload, it has received 155 views. For similar materials see Foundations of Entrepreneurship in Entrepreneurship at University of North Texas.
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MGMT 3850 Foundations of Entrepreneurship Chapter 4: Conducting a Feasibility Analysis and Designing a Business Model LO-1: Describe the process of conducting an idea assessment. Idea assessment: o The process of examining a need in the market, developing a solution for that need, and determining the entrepreneur’s ability to successfully turn the idea into a business. 1. Customers o Start with a group of customers who have a clear need that is not being addressed. o The entrepreneur assesses the customers by answering basic questions about the potential users of the product or service and the potential buyers if they are different than the users. 2. Offering: o Describe your idea for a product/service to offer the customers o Are you offering a product, a service, an experience, or a combination of one or more of these? o What are its key features? o Describe it in detail and sketch out an image if you can. 3. Value proposition: o Explain why your product or service will be important to the customers. Why would your offering be valuable to the user and/or buyer? o How does it address the need these customers currently have that is not being met? 4. Core competencies: o Does your offering include any technologies or unique features that will help differentiate it from competitors? o Is it based on intellectual property that you can protect? 5. People: o Identify the key people on the team who will launch this business. o Who are the founding entrepreneurs of this venture? o Do they have the skills and knowledge needed to successfully turn the idea into a startup venture? o Can they attract key team members who will fill in any gaps in knowledge, skills, and expertise? LO-2: Explain the elements of a feasibility analysis. Feasibility analysis: o An analysis of the viability of a business idea that includes four interrelated components: an industry and market analysis, the product or service analysis, a financial analysis, and an entrepreneur analysis. The focus in this phase is twofold: To determine how attractive an industry is overall is a “home” for a new business and to evaluate possible niches a small business can occupy profitably. LO-3: Describe the six forces in the macro environment of an industry. 1. Sociocultural a. Social and cultural change can lead to dramatic changes that can create whole new industries and fundamentally transform existing industries. 2. Technological a. Technological breakthroughs lead to the development of new products and entirely new industries 3. Demographic a. Changing demographics create opportunities for entrepreneurs. 4. Economic a. Although many companies struggle during economic downturns, some businesses are able to grow. 5. Political and legal a. The enactment of new legislation creates opportunities for entrepreneurs. 6. Global a. Global trends create opportunities for even the smallest of companies LO-4: Understand how Porter’s Five Forces Model assesses the competitive environment. 1. Rivalry among companies competing in the industry a. Generally, an industry is more attractive when: i. The number of competitors is large or, at the other extreme, quite small (fewer than 5) ii. Competitors are not similar in size or capability. iii. The industry is growing at a fast pace. iv. The opportunity to sell a differentiated product or service is present 2. Bargaining power of suppliers to the industry a. Generally, an industry is more attractive when: i. Many suppliers sell a commodity product to the companies in it. ii. Substitute products are available for the items suppliers provide. iii. Companies in the industry find it easy to switch from one supplier to another or to substitute products. iv. The items suppliers provide the industry account for a relatively small portion of the cost of the industry’s finished products 3. Bargaining power of buyers a. Generally, an industry is more attractive when: i. Industry customers’ “switching costs” to competitors’ products or to substitutes are relatively high ii. The number of buyers in the industry is large iii. Customers demand products that are differentiated rather than purchase commodity products they can obtain from any supplier (and subsequently can pit one company against another to drive down price) iv. Customers find it difficult to gather information on suppliers’ costs, prices, and product features—something that is becoming much easier for customers in many industries to do by using the Internet. v. The items companies sell to the industry account for a relatively small portion of the cost of their customers’ finished products. 4. Threat of new entrants to the industry a. Generally, an industry is more attractive when: i. The advantages of economies of scale are absent. Economics of scale exist when companies in an industry achieve low average costs by producing huge volumes of items. ii. Capital requirements to enter the industry are low. iii. Cost advantages are not related to company size. iv. Buyers are not extremely brandloyal, making it easier for new entrants to the industry to draw customers away from existing businesses. v. Governments, through their regulatory and international trade policies, do not restrict new companies from entering the industry 5. Threat of substitute products or services. a. Generally, an industry is more attractive when: i. Quality substitute products are not readily available. ii. The prices of substitute products are not significantly lower than those of the industry’s products. iii. Buyers’ cost of switching to substitute products is high. 6. Market Niches a. Generally, an industry is more attractive when: i. Which niche in the market will we occupy? ii. How large is this market segment, and how fast is it growing? iii. What is the basis for differentiating our product or service from competitors? iv. Do we have a superior business model that will be difficult for competitors to reproduce? b. However, entrepreneurs should be aware of some cautions with a niche strategy: i. Entering a niche requires adaptability in your initial plan. ii. Niches change. iii. Niches can go away. iv. Niches can grow. LO-5: Describe the various methods of conducting primary and secondary market research. Primary research: o The process of collecting data firsthand and analyzing it. o Customer surveys and questionnaires Keep them short, use careful wording, and use a simple ranking system. o Focus groups Involves enlisting a small number of potential customers to give feedback on specific issues about your product or service o Prototypes An original, functional model of a new product that entrepreneurs can put into the hands of potential customers so that they can see it, test it, and use it o Inhome trials A market research technique that involves sending researchers technique that involves sending researchers into customers’ homes to observe them as they use a company’s product or service. o “Windshield” Research Secondary research: o The process of gathering data that has already been compiled and is available, often at a reasonable cost or sometimes even free. o Trade associations and business directories o Industry databases o Demographic data o Census data o Forecasts o Market research o Articles o Local data o The internet LO-6: Understand the four major elements of a financial feasibility analysis. Capital Requirements o Start up companies often need capital to purchase equipment, buildings, technology, and other tangible assets as well as to hire and train employees, promote their products and services, and establish presence in the market Estimated Earnings o Forecast the earning potential of the proposed business Time Out Of Cash o A common cause of business failure is running out of cash before the business breaks even and can support itself through the cash flow from operations Return on Investment o The final aspect of the financial feasibility analysis combines the estimated earnings and capital requirements to determine the rate of return the venture is expected to produce. LO-7: Describe the process of assessing entrepreneur feasibility. Figure out: o Personal aspirations and priorities o How do you measure success in your personal life? o What do you consider success in your business and career? o What are your specific goals for your personal lfie? o What are your goals for your business and career? o What do you want to be doing in the future? o What are your core values? o Your personal entrepreneurial readiness LO8: Describe the nine elements of a business model. 1. Customer segments: o Identify a segment of customers who have a clearly defined need. 2. Value proposition: o The collection of products and/or services the business will offer to meet the needs of the customers 3. Customer relationships o There is no one best approach to customer relationship for all businesses, but there usually is one best approach for each particular business model. 4. Channels: o Channels refer to both communication channels (promotion) and the distribution channels (product placement) 5. Key activities: o A basic checklist of what needs to be done to open the business and what activities are necessary to ensure its longterm success 6. Key resources: o Checklist to ensure that the entrepreneur has identified all key resources necessary to support a successful launch and to sustain the business as it grows 7. Key partners: o Includes key suppliers, key outsourcing partners, investors, industry partners, advisers, and all other external businesses or entities that are critical to make the business model work 8. Revenue streams o Serves as the framework for the more detailed revenue forecasts developed for the business plan 9. Cost structure o The key activities, key resources, and key partners components of the plan identify the basic types of costs and give some estimate of their scope. o Is the framework for developing more detailed costs that the entrepreneur will incorporate into the financial forecasts of the business plan. Minimal viable product o The simplest version of a product or service with which an entrepreneur can create a sustainable business Pivots: o The process of making changes and adjustments to a business model on the basis of the feedback a company receives from customers. o Customer pivot Change the customer segment or market o Revenue model pivot
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