Feasibility Analysis : Fundamental
What is the feasibility analysis? Why is it important before starting a business?
Feasibility is a process that determining which benefits can be obtained and an assessment of a potential business rather than strictly a product or service idea. The importance of feasibility study is for business development and how to address where and how will it operate, and also to know the risk of failure so it can be avoided in the future.
What is product/service desirability analysis?
Product/service feasibility analysis is an assessment of the overall appeal of the product or service being proposed. The first component of product/service feasibility is to affirm that the proposed product or service is desirable and serves a need in the marketplace. You should ask yourself, and others, the following questions to determine the basic appeal of the product or service:
-Does it make sense? Is it reasonable? Is it something real customers
will buy?
-Does it take advantage of an environmental trend, solve a problem, or fill
a gap in the marketplace?
-Is this a good time to introduce the product or service to the market?
-Are there any fatal flaws in the product or service’s basic design or concept?
Product/Service Demand
The second component of product/service feasibility analysis is to determine if there is demand for the product or service. Three commonly utilized methods for doing this include (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.
-Talking Face-to-Face with Potential Customers
The only way to know if your product or service is what people want is by talking to them. In some instances, you have to pause and think carefully about who the potential customer is. For example, in health care the “customer” is typically not the patient who will use the drugs or benefit from a medical procedure. Instead the actual customer, or the entity that will be paying the bill, is often an insurance company, hospital, or Medicare or Medicaid. You should also talk to as many of the relevant players in an industry as possible.
-Utilizing Online Tools
Such as google adWords and landing Pages, to assess Demand Another common approach to assessing product demand is to use online tools, such as Google AdWords and landing pages. The way this works is as follows. The beauty of using Google AdWords is that the people who click on the ad were either searching for the term “snowboarding” or “sunglasses” or they wouldn’t have seen the ad. So you’re eliciting responses from a self-selected group of potential buyers.
-Library, internet, and gumshoe research
The third way to assess demand for a product or service idea is by conducting library, Internet, and gumshoe research. While talking to prospective customers is critical, collecting secondary data on an industry is also helpful. The importance of library, Internet, and gumshoe research doesn’t wane once a firm is launched. It’s important to continually assess the strength of product or service ideas and learn from users.
Industry attractiveness & Porter’s 5 Forces model
Industry/target market feasibility is an assessment of the overall appeal of the industry and the target market for the product or service being proposed. There is a distinct difference between a firm’s industry and its target market; having a clear understanding of this difference is important. 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 limited portion of the industry that it goes after or to which it wants to appeal.
Porter’s 5 Forces model is a model created by Michael Porter, an expert and professor at Harvard University in 1979 which aims to describe the framework as an analysis of the development of a business. Porter’s 5 Forces model can be used for businesses large and small and businesses that are already running or just starting out.
-Bargaininng Power of Buyers / Buyers’ Power
On this side, the focus will be on buyer analysis. Buyers will certainly hold a big influence in buying and selling activities, but here it is more towards the choice of buyers for existing products. There are conditions where buyers can only buy products at this company (this describes High Buyers’ Power), The buyer has many options to buy the same product produced by another company because there are many types sold in the market (this describes High Buyers’ Power).
-Bargaininng Power of Suppliers / Suppliers’ Power
Almost similar to Buyers’ Power, on this side it will analyze on the supplier side. How much does this company need or dependence on its suppliers. There are raw materials that may be purchased from any supplier (this describes Low Supplier ‘Power). There are also raw materials that can only be purchased by certain suppliers, or in the context of large companies, of course, they already have cooperation with certain suppliers at prices that differ from the market due to large-scale production.
-Thread of New Entrants
On this side, we will analyze more to awareness, whether this business is easy to follow or not. New Entrants are individuals or groups that create businesses similar to these existing ones. There are conditions where a new business that is trending continues to grow in the market because it is quite easy to set up such a business (this illustrates the High Thread of New Entrants). In addition, there are also conditions where a business can only be carried out by certain companies.
-Threat of Substitute Product or Services
This side will analyze the substitutes or substitutes for products produced by the company. A product or service, is it possible to be replaced by another one or not. In this context, substitutes are goods or services that are different but can fill the absence of the main goods or services needed.
-Rivalry Among Existing Competitors
On this side, the analysis has been seen in a more limited scope, namely competitors in the same industry or market. Regarding a market, there must be several similar products or services that are competing for customers. The level of competition to be analyzed. Competition will certainly be high if there are many companies in the same industry, but there are also companies that control an industry
Organizational feasibility analysis
is conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to successfully launch. There are two primary issues to consider in this area: management prowess and resource sufficiency.
Management Prowess
A proposed business should candidly evaluate the prowess,or ability, of its management team to satisfy itself that management has the requisitepassion and expertise to launch the venture
Resource Sufficiency
An assessment of whether an entrepreneur has sufficientnon-financial resources to launch the proposed venture. (I.E: Required employeeswith specialized skills, lab/office space, key management employees, intellectualproperty protection
Financial Feasibility Analysis
is the final component of a comprehensive feasibility analysis. For feasibility analysis, a preliminary financial assessment is usually sufficient; indeed, additional rigor at this point is typically not required because the specifics of the business will inevitably evolve, making it impractical to spend a lot of time early on preparing detailed financial forecasts.
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.
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. Obviously, this effort will result in approximate rather than exact numbers.
Overall Financial Attractiveness
To gain perspective, a start-up’s projected rate of return should be weighed against the following factors to assess whether the venture is financially feasible:
■ The amount of capital invested
■ The risks assumed in launching the business
■ The existing alternatives for the money being invested
■ The existing alternatives for the entrepreneur’s time and efforts
In my opinion feasibility is the most important for starting a business, because it can prevent risk of failure and planning also a vision about how the business will operate where and how. Without it, the business could be a massive failure or even worse it can cause a lot of loss. To start a business we need to be well-prepared for anything that would happen.
preference :
Barringer, Bruce R., and R. Duane Ireland.
Entrepreneurship: Successfully Launching New Ventures,
Fifth Edition.