CONDUCTING A

FEASIBILITY ANALYSIS
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Learning Objectives

At the end of this module, you will:

• Explain what a feasibility analysis is and why it’s important;
• Discuss the proper time to complete a feasibility analysis when developing an entrepreneurial venture;
• Describe the purpose of a product/service feasibility analysis and the two primary issues that a proposed
business should consider in this area;
• Explain a concept statement and its components;
• Describe the purpose of a buying intentions survey and how it’s administered;
• Explain the importance of library, Internet, and gumshoe research;
• Describe the purpose of industry/market feasibility analysis and the two primary issues to consider in this
area;
• Discuss the characteristics of an attractive industry;
• Describe the purpose of organizational feasibility analysis and list the two primary issues to consider in this
area;
• Explain the importance of financial feasibility analysis and list the most critical issues to consider in this area.
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CONDUCTING A FEASIBILITY ANALYSIS

What is Feasibility Analysis?

• Feasibility analysis is the process of
determining whether a business idea is
viable.
• It is the preliminary evaluation of a
business idea, conducted for the
purpose of determining whether the
idea is worth pursuing.
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When To Conduct a Feasibility Analysis.

• Timing of Feasibility Analysis
• The proper time to conduct a feasibility analysis is early in thinking about a new
business’s prospects.
• The thought is to screen ideas before many resources are spent on them.
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Components of a Properly Conducted Feasibility Analysis

A properly conducted feasibility analysis includes four separate
components:
• Product/Service Feasibility
• Industry/Target Market Feasibility
• Organizational Feasibility Components
• Financial Feasibility of Feasibility
Analysis
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Figure 3.1 shows the role of feasibility analysis in developing business ideas.
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CONDUCTING A FEASIBILITY ANALYSIS

Product/Service Feasibility
Purpose
An assessment of the overall appeal of the product or service being proposed.
Before a prospective firm rushes a new product or service into development, it
should be sure that the product or service is what prospective customers want.
Components of Product/Service Feasibility Analysis
I. Product/Service Desirability
II. Product/Service Demand
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Product/Service Feasibility
Components of Product/Service Feasibility Analysis
I. Product/Service Desirability
First, ask the following questions to determine the basic appeal of the product or
service:
1. Does it make sense? Is it reasonable? Is it something consumers will get excited about?
2. Does it take advantage of an environmental trend, solve a problem, or exploit a market gap?
3. Is this a good time to introduce the product or service to the market?
4. Are there any fatal flaws in the product or service’s basic design or concept?
Second, Administer a Concept Test
1. A concept statement should be developed.
2. A concept statement is a one-page description of a business distributed to people who are asked
to provide feedback on the business idea’s potential.
3. The feedback will hopefully give the entrepreneur a sense of the viability of the product or
service idea and suggestions for how the idea can be strengthened or “tweaked” before
proceeding.
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Product/Service Feasibility
Components of Product/Service Feasibility Analysis
II. Product/Service Demand
There are two steps to assessing product/service demand:
a) Administer a Buying Intentions Survey
• Buying Intentions Survey is an instrument that is used to gauge customer interest in a product
or service.
• It consists of a concept statement or a similar description of a product or survey with a short
survey attached to gauge customer interest.
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Product/Service Feasibility
Components of Product/Service Feasibility Analysis
II. Product/Service Demand
There are two steps to assessing product/service demand:
b) Conduct library, Internet, and Gumshoe research
• The second way to assess the demand for a product or service is by conducting library, Internet, and
gumshoe research.
• Reference librarians can often point you toward resources to help you investigate a business idea,
such as industry-specific trade journals and industry reports.
• Internet searches can often yield important information about the potential viability of a product or
service idea.
• A gumshoe is a detective or an investigator who scrounges around for information or clues wherever
they can be found
• Be a gumshoe. Ask people what they think about your product or service idea. If your idea is to sell
educational toys, spend a week volunteering at a daycare center and watch how children interact
with toys
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Product/Service Feasibility
Components of Product/Service Feasibility Analysis

One of the most effective things an entrepreneur can do to conduct a

thorough product/service feasibility analysis is to hit the streets and talk to
potential customers. This potential entrepreneur is administering a survey
about a new product idea.
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Industry/Target Market Feasibility

Purpose
An assessment of the overall appeal of the industry and the target market for the
proposed business.
An industry is a group of firms producing a similar product or service.
A firm’s target market is the limited portion of the industry it plans to go after
Components of industry/target market feasibility analysis
I. Industry Attractiveness
II. Target Market Attractiveness
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Industry/Target Market Feasibility

Components of industry/target market feasibility analysis
I. Industry Attractiveness
• Industries vary in terms of their overall attractiveness.
• In general, the most attractive industries have these characteristics:
1. Are young rather than old
2. Are early rather than late in their life cycle
3. Are fragmented rather than concentrated
4. Are growing rather than shrinking
5. Sell products or services that customers “must have” rather than “want to have”
6. Are not crowded
7. Have high rather than low operating margins
8. Are not highly depended on the historically low price of a key raw material, like gasoline or
flour to remain profitable
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Industry/Target Market Feasibility

Components of industry/target market feasibility analysis
II. Target Market Attractiveness
• The challenge in identifying an attractive target market is to find a market that’s large enough
for the proposed business but is yet small enough to avoid attracting larger competitors.
• Assessing the attractiveness of a target market is tougher than an entire industry.
• Often, considerably ingenuity must be employed to finding information to assess the
attractiveness of a specific target market.
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Organizational Feasibility
Purpose
Conducted to determine whether a proposed business has sufficient management
expertise, organizational competence, and resources to successfully launch a
business.
Focuses on non-financial resources.
Components of organizational feasibility analysis
I. Management Prowess
II. Resource Sufficiency
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Organizational Feasibility
Components of organizational feasibility analysis
I. Management Prowess
 A firm should candidly evaluate the prowess, or ability, of its management team to satisfy itself
that management has the requisite passion and expertise to launch the venture.
 Two of the most important factors in this area are:
1) The passion that the solo entrepreneur or the founding team has for the business idea.
2) The extent to which sole entrepreneur or the founding team understands the markets in which the
firm will participate.
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Organizational Feasibility
Components of organizational feasibility analysis
II. Resource Sufficiency
• This topic pertains to assessing whether an entrepreneur has sufficient resources to launch the
proposed venture.
• To test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources
needed to successfully move the business idea forward. If critical resources are not available in
certain areas, proceeding with the business idea may be impractical.
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Organizational Feasibility
Components of organizational feasibility analysis
II. Resource Sufficiency
• Examples of nonfinancial resources that may be critical to the successful launch of a new
business
1. Availability of affordable office or lab space.
2. Likelihood of local and state government support of the business.
3. Quality of the labor pool available.
4. Proximity to key suppliers and customers.
5. Willingness of high quality employees to join the firm.
6. Likelihood of establishing favorable strategic partnerships.
7. Proximity to similar firms for the purpose of sharing knowledge.
8. Possibility of obtaining intellectual property protection in key areas.
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Financial Feasibility
Purpose
The final component of a comprehensive feasibility analysis.
A preliminary financial assessment is sufficient.
Components of financial feasibility analysis
I. Total Start-Up Cash Needed
II. Financial Performance of Similar Businesses
III. Overall Financial Attractiveness of the Proposed Venture
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Financial Feasibility
Components of financial feasibility analysis
I. Total Start-Up Cash Needed
• The first issue refers to the total cash needed to prepare the business to make its first sale.
• This exercise aims to determine if the proposed venture is realistic given the total start-up cash
needed.
II. Financial Performance of Similar Businesses
• Estimate the proposed start-up’s financial performance by comparing it to similar, already
established businesses.
• There are several ways to do this, all involving a little ethical detective work. First, many reports
are available, some for free and some that require a fee, offering detailed industry trend
analysis and reports on thousands of individual firms. Second, simple observational research
may be needed.
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Financial Feasibility
Components of financial feasibility analysis
III. Overall Financial Attractiveness of the Proposed Venture
• A number of other financial factors are associated with promising business startups.
• In the feasibility analysis stage, the extent to which a business opportunity is positive relative to
each factor is based on an estimate rather than actual performance
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Financial Feasibility
Components of financial feasibility analysis
III. Overall Financial Attractiveness of the Proposed Venture
• Financial Factors Associated with Promising Business Opportunities:
1. Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined market niche.
2. High percentage of recurring revenue—meaning that once a firm wins a client, the client will
provide recurring sources of revenue.
3. Ability to forecast income and expenses with a reasonable degree of certainty.
4. Internally generated funds to finance and sustain growth.
5. Availability of an exit opportunity for investors to convert equity to cash.
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Learning Activity 3

Application Questions:
1. Michelle Smith is considering launching a website selling sports apparel
for petite women. She designed a website but isn’t sure if it’s user-
friendly enough to launch.
• Provide Michelle with some concrete suggestions for how she can receive feedback
on the usability of her site.
2. Suppose you’re interested in opening a musical instruments store near
the college or university you attend to sell guitars, drums, and other
types of musical instruments.
• What online resources would you draw on to conduct secondary research
regarding the feasibility of your business idea's industry/target market?
• How would you use the resources?