Feasibility Analysis and Business Plan Intro

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Feasibility Analysis Entrepreneurs

ideas, but Is

do not lack creative

a particular idea a viable foundation for creating a successful business?

Feasibility

study addresses the question: Should we proceed with this business idea?Lennox Deane 2

Business Plan

Beware! Proceed with Caution!

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

The blind eye So

Business Plan

Model Competitive AdvantageProfits Market share Customer Satisfaction Survival RESULTS

STRATEGIES Cost Advantage Marketing Advantage

FOUNDATIONS Environmental AssessmentBusiness Plan

Organisational AssessmentLennox Deane 4

Feasibility StudyNot 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 toolBusiness Plan Lennox Deane 5

Elements of a Feasibility Analysis

Industry and Market Feasibility

Product or Service Feasibility

Financial Feasibility

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Industry and Market Feasibility AnalysisTwo 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 profitablyBusiness Plan Lennox Deane 7

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. 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

* Michael E. Porter. "The Five Competitive Forces that Shape Strategy",Business Plan Lennox Deane

Harvard Business Review, January, 2008,8

Five Forces ModelPotent ial Entran Threat of ts

New Entrants

Suppli ers

Industry Bargaining Power Competito Bargaining Power rs of Suppliers of Buyers Rivalry among existing firms

Buyer s

Threat of Substitute Products or Substitu Services

tes

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Major Factors Offsetting Market Attractiveness

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

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Rivalry Among CompaniesStrongest of the five forces Industry is more attractive when:

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 existsLennox Deane 11

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Bargaining Power of SuppliersThe greater the leverage of suppliers, the less attractive the industry Industry is more attractive when:

Many suppliers sell a commodity product Substitutes are available Switching costs are low Items account for a small portion of the cost of finished productsLennox Deane 12

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Five Forces Matrix

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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 scaleLennox Deane 14

Business Plan

Product or Service Feasibility AnalysisDetermines the degree to which a product or service idea appeals to potential customers and identifies the resourced 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?Business Plan Lennox Deane 15

Product or Service Feasibility Analysis

Primary research collect data firsthand and analyze it

Customer surveys and questionnaires Focus groups

Secondary research gather data that already has been compiled and analyze it Prototypes In-home trialsLennox Deane 16

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Financial Feasibility AnalysisCapital requirements must have an estimate of how much start-up capital is required to launch the business Estimated earnings forecasted income statements Return on investment combining the previous two estimates to determine how much investors can expect their investments to returnBusiness Plan Lennox Deane 17

Validation of a Business Idea(An alternative/complementary Feasibility Analysis John Mullins)

Seven Domains Model by John Mullins

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

Top Level Issues

Are both market and industry attractive?

(Be able to distinguish market from industry

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?

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What are these Seven Domains ?1. 2. 3. 4. 5. 6. 7.

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 networksLennox Deane

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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

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1. Market Analysis Macro Level

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, regulatoryLennox Deane 23

Business Plan

2. Market Analysis Micro Level

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 BeefLennox Deane 24

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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

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3. (cont) Industry Analysis Macro Level

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)

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4. Industry Analysis Micro Level

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

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5. Team Analysis - Aspiration

Aspirations, motivation and propensity for risk taking Financiers/investors give as much importance to team as ideas.Lennox Deane 28

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6. Team Analysis - Execution

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, fasterLennox Deane 29

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7. Team Analysis - Networks

Connectedness up, down and across the value chain Ability to move from Plan A to Plan B Identification of the CSFs of the industryLennox 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 capitalLennox Deane 31

Those who fail to plan, plan to fail!The smaller companies weathering the difficult economic times seem to be those following an idea call it a no frills, down-to-earth but clear

planBusiness Plan

- Harvard Business Review. September 2003. - p. 184Lennox Deane 32

A Business Plan: Two Essential Functions1.

Guiding the company by charting its future course and defining its strategy for following it Attracting lenders and investors who will provide needed capitalLennox Deane 33

2.

Business Plan

A Business PlanA 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 itBusiness Plan Lennox Deane 34

Why Take the Time to Build a Business Plan?Although building a plan does not guarantee success, it does increase your chances of succeeding in business A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Dont attempt the trip without a map!Business Plan Lennox Deane 35

Writing a Business PlanTypical plan is 25 to 50 pages long Like every business venture, every business plan is unique Use it to tell your companys story

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Key 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/servicesLennox Deane 37

Business Plan

Features vs. BenefitsFeature a descriptive fact about a product or service (an ergonomically designed, more comfortable handle) Benefit what a customer gains from the product or service feature (fewer problems with carpal tunnel syndrome and increased productivity)Lennox Deane

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Tips on Preparing a Business Plan

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

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Tips on Preparing a Business Plan

(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

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Your Plan Must Pass Three Tests

The Reality Test - proving that :

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 repaymentBusiness Plan Lennox Deane

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