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Feasibility Analysis
Entrepreneurs
ideas, but
Is
Feasibility
study addresses the question: Should we proceed with this business idea?
Lennox Deane 2
Business Plan
Paradox of Attraction
The
concept that an attractive industry opportunity is likely to draw multiple new entrants, diminishing its attractiveness consumed with your ingenuity and brilliance you fail to see the futility of your idea!
Lennox Deane 3
Business Plan
Organisational Assessment
Lennox Deane 4
Feasibility Study
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 An investigative tool
Financial Feasibility
Lennox Deane
Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry:
1. 2. 3. 4. 5.
Rivalry among companies in the industry Bargaining power of suppliers Bargaining power of buyers Threat of new entrants Threat of substitute products or services
New Entrants
Suppli ers
Industry Bargaining Power Competito Bargaining Power rs of Suppliers of Buyers Rivalry among existing firms
Buyer s
tes
Lennox Deane
Threat of New Competitors Threat of Substitute Products or Services Intensity of Rivalry Among Existing Products Bargaining Power of Suppliers Bargaining Power of Buyers Attractiveness and Profitability of a Target Market
Business Plan
Lennox Deane
10
Number of competitors is large, or, at the other extreme, quite small Competitors are not similar in size or capacity Industry is growing fast Opportunity to sell a differentiated product or service exists
Lennox Deane 11
Business Plan
Many suppliers sell a commodity product Substitutes are available Switching costs are low Items account for a small portion of the cost of finished products
Lennox Deane 12
Business Plan
Lennox Deane
13
Business Prototyping
Entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work
Example: eBay
Recognizes that a business idea is a hypothesis that needs to be tested before taking it full scale
Lennox Deane 14
Business Plan
Are
customers willing to purchase our good or service? Can we provide the product or service to customers at a profit?
Business Plan Lennox Deane 15
Secondary research gather data that already has been compiled and analyze it Prototypes In-home trials
Lennox Deane 16
Business Plan
The New Business Road Test : What entrepreneurs and executives should do before writing a business plan (systematic framework to evaluate business opportunities)
John Mullins:
Professor, at London Business School and the University of Denver. MBA from the Stanford Graduate School of Business and a PhD in Marketing from the University of Minnesota Serial entrepreneur (three ventures)
Lennox Deane 19
Business Plan
Does the opportunity offer compelling customer benefits as well as sustainable advantage over other solutions to the customer needs? Can the team deliver the results they seek and promise to others?
Business Plan
Lennox Deane
20
Market domain macro level Market domain micro level Industry domain macro level Industry domain micro level Team domain aspirations Team domain execution capability Team domain connections or networks
Lennox Deane
Business Plan
21
Seven Domains
Seven domains are not equally important A simple scoring sheet will not work Wrong combination of domains can kill a venture Sufficient strength in some domains can mitigate weaknesses in others good opportunities can be found in not-so-attractive markets and industries
Business Plan
Lennox Deane
22
Overall market size (number of customers, aggregate money spent, number of usage occasions) (Secondary data from trade publications, business press) Where is the market on the S curve is it nascent, growing or saturating (infer from historical data) Trends in broad categories demographic, socio-cultural, economic, technological, regulatory
Lennox Deane 23
Business Plan
Target segment benefits and attractiveness customers buy benefits, not products or features. Large market of entertainment audio -- MP3 players, MP3 players in cars, home systems, memory sticks How large is the segment and how fast it is growing? combination of primary and secondary data Who you would like to be your FIRST customer can you name him/her? Clearly differentiated solution with value delivery unambiguously stated. What are you offering? Does an entry in a segment facilitate lateral entry in other segments? - Nike Shoes, Juici Beef
Lennox Deane 24
Business Plan
3. Industry Analysis Macro Level Standard Industry Classification (SIC codes) retailing,
Standard Industry Classification (SIC codes) retailing, food, software, logistics . Positioning is not obvious (MP3 player makers electronics or entertainment?) -- narrow industry definition ignores substitutes Michael Porter Competitive Strategy -- Five Force Framework Suppliers, Buyers, Incumbents, New Entrants, Substitutes Competitive rivalry, threat of entry and substitutes, bargaining power of buyers and suppliers Which of these forces are favourable and unfavourable? (SWOT analysis)
Lennox Deane 25
Business Plan
Is it an attractive industry certain industries are perpetually sick and others are cyclical Does the industry as a whole have entry barriers, economies of scale, technology lock-ins Every time an industry doubles its size, a new structure for it emerges consolidation or disaggregation (hospital basic and support services)
Business Plan
Lennox Deane
26
Sustainable competitive advantage How long will your edge last ? IP Protection patents, copyright, trade secrets Superior organizational processes that are difficult to replicate Economically viable business model availability of finance for long term and working capital, contract enforcement and revenue collection cycles
Business Plan
Lennox Deane
27
Aspirations, motivation and propensity for risk taking Financiers/investors give as much importance to team as ideas.
Lennox Deane 28
Business Plan
Accepted wisdom Ideas come dime a dozen... Who will execute? Ability to execute on critical success factors (CSFs) unique to each industry market segment better, cheaper, faster
Lennox Deane 29
Business Plan
Connectedness up, down and across the value chain Ability to move from Plan A to Plan B Identification of the CSFs of the industry
Lennox Deane 30
Business Plan
A Business Plan Is
Business Plan
a systematic evaluation of a ventures chances for success a way to determine the risks facing a venture a game plan for managing a business successfully a tool for comparing actual and target results an important tool for attracting capital
Lennox Deane 31
plan
Business Plan
Guiding the company by charting its future course and defining its strategy for following it Attracting lenders and investors who will provide needed capital
Lennox Deane 33
2.
Business Plan
A Business Plan
A plan is a reflection of its creator Sometimes the primary benefit of preparing a plan is the realization that a business idea just wont work! The real value in preparing a plan is not as much in the plan itself as it is in the process of creating it
Business Plan
Lennox Deane
36
Title page and table of contents Executive summary Mission statement Company history Business and industry profile Business strategy Description of products/services
Lennox Deane 37
Business Plan
Lennox Deane
Business Plan
38
Make sure your plan has an attractive cover. (First impressions are crucial.) Rid your plan of all spelling and grammatical errors Make your plan visually appealing Include a table of contents to allow readers to navigate your plan easily
Business Plan
Lennox Deane
39
(Continued)
Make it interesting! Use spreadsheets to generate financial forecasts Always include cash flow projections Keep your plan crisp between 25 and 50 pages long Tell the truth always
Business Plan
Lennox Deane
40
A market really does exist for your product or service You can actually build or provide it for the cost estimates in the plan The Competitive Test - evaluates: A companys position relative to its customers Managements ability to create a company that will gain an edge over its rivals The Value Test proving that: A venture offers investors or lenders an attractive rate of return or a high probability of repayment
Business Plan Lennox Deane
41