PRODUCT/SERVICESS ASSESSMENT (FEASIBILITY STUDY) WEEK 4 PRODUCT/SERVICESS ASSESSMENT (FEASIBILITY STUDY)

TOPICS What is feasibility study The importance of feasibility study Feasibility study component and process

Innovation and commercialization process Discovery Opportunity recognition and evaluation (idea customer need=business concept) Protection intellectual property (pattern, trademark, copyright, etc) Product development (PROTOTYPE) Business development Developing the business Launching the business Critical decision Critical decision Source: Allen (2003, p. 16)

Feasibility analysis Every feasibility study begins with an idea. This idea can be for a product or service. A market analysis, which thoroughly investigates the industry, competitive economic environment and target markets, will help you decide if the idea can become a profitable business.

Feasibility Analysis A feasibility study is an analysis of the viability of an idea. The feasibility study focuses on helping answer the essential question of “should we proceed with the proposed project idea?” The process of determining whether a product/services is a viable foundation for creating a successful business

What Is Feasibility Analysis? Preliminary evaluation of idea to determining if it’s worth pursuing Provides more secure notion that a business idea or proposed  project  to determine if it is technically feasible, is feasible within the estimated cost will be  profitable

When To Conduct a Feasibility Analysis Timing of Feasibility Analysis After concept statement evaluation After opportunity recognition, before business plan Before a lot of resources are invested

The Importance of Feasibility Studies List in detail all the things you need to make the product/services/business work; Identify logistical and other related problems and solutions; Develop marketing strategies to convince a bank or investor that your product/services for a business is worth considering as an investment; and Serve as a solid foundation for developing your business plan.

Importance …. Even if you have a great idea you still have to find a cost-effective way to market and sell your products and services. This is especially important for store-front retail businesses where location could make or break your business.

Importance…. For example, most commercial space leases place restrictions on businesses that can have a dramatic impact on income. A lease may limit business hours/days, parking spaces, restrict the product or service you can offer, and in some cases, even limit the number of customers a business can receive each day.

Importance…. If the results show that the project is not a sound business idea, then the project should not be pursued. Although it is difficult to accept a feasibility study that shows these results, it is much better to find this out sooner rather than later, when more time and money would have been invested and lost.

Four Components of Full Feasibility Analysis Product/Service Feasibility Industry/Market Feasibility Organizational Feasibility Financial Feasibility Must pass all feasibility analyses to proceed to full business plan development

1. Product/Service Feasibility Analysis Studies

Product or Service Feasibility Analysis Are customers wiling to purchase our goods and services? Can we provide the product or service to our customers at a profit? Details how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, technology needed, etc.).

Research Primary research Customer surveys and questionnaires Focus groups Secondary research Trade associations and business directories Direct mail lists Demographic data Census data Forecasts Market research Articles Local data WWW Research

Trials Prototypes: an original, functional model of a new product that entrepreneurs can put into the hands of potential customers so they can see it, test it and use it In-home trials: a research technique that involves sending researchers into customers’ homes to observe them as they use the company’s product or service

1. Prepare a Concept Statement Preliminary description that includes Description of the product or service Description of target market Benefits of the product or service (value proposition) Description of product/service differentiators Description of how product/service sold/distributed Description of the founder(s) of the firm Purpose: Have relevant others (e.g., investors, target market members, suppliers, R&D experts, etc.) provide feedback as to their perceived potential of the business based on their area(s) of expertise Change components of the business model components prior to investing many resources into the concept

2. Conduct a Concept Test Traditionally entails showing a representation of the firm’s offering (e.g., sketch, website, computer-generated design) to prospective users in hopes of gaining feedback and insight as to their preferences, likelihood of purchase, etc. Ideally a random, representative, sample of the target market would provide feedback about the offerings Can show the representation and solicit feedback via survey, focus group, interviews (see next three slides)

Before After

Before After

Industry and Market Feasibility Analysis To determine how attractive an industry is overall as a ‘home for a new business To identify possible niches a small business can occupy profitably

2. Industry /market feasibility study Deals with the value proposition relative to the customer Discuss how the business offering either: Solves a problem/serves a need; Makes someone’s life/business more efficient; Makes someone’s life/business more effective Note: The offering may address more than one of these. If it does, discuss all applicable This step requires an understanding of the industry, competitor’s offerings, consumers’ wants/needs/trends. To find this information, study industry and firm publications and discuss these issues with potential users Hint: You will likely be able gather some of this information during the concept test Be sure to address if the business concept needs to be modified to more effectively address one or more of these customer-related value propositions based on what was learned in studying the marketability of the offering(s)

Study the Target Customer (TC) This is the point where 1) the profile of the target customer and/or 2) changes to the business offering should start to become solidified Determine and study who the venture’s customers are and what their needs are Based on your initial conceptions of who the TC are, construct a survey so you can develop a more detailed understanding of their profile (e.g., demographic data, socioeconomic data, etc.) Assess the TC’s perceptions of the offering, their purchase intentions, and any suggestions for changes to the offering(s) If the offering(s) need to be changed to address the TC’s needs, discuss modifications If your initial conception of who the TC are was off, determine a more appropriate TC and assess their perceptions of the offering(s). Where possible, use a random selection procedure to gain the most accurate and generalizable information regarding the TC and their preferences

OR, if you can’t do the above, Study the likelihood and Impact of First- and/or Second-mover Advantages Can you capture a first-mover advantage by 1) Being a technology leader (e.g., Microsoft), 2) Obtaining strategically valuable assets (e.g., favorable access to raw materials, favorable geographic locations, and/or valuable product/market positions), and/or 3) Creating customer switching costs? OR, if you can’t do the above, Will you suffer from a second-mover advantage? Second-mover advantages may occur where imitators can duplicate the first movers’ patents—research shows imitators can do this for 65% of the cost of the first-mover Example: IBM vs. Dell in personal computer retailing If you cannot gain a first- or second-mover advantage, will that hurt you? Is the window of opportunity open? Are customers buying? Are competitors making money?

Five Forces Model Potential Entrants Threat of new entrants Rivalry among existing firms Suppliers Bargaining Power of suppliers Bargaining Power of buyers Buyers Substitutes

Rivalry Number of competitors is large or few (less than 5) Competitors are not similar in size or capability The industry is growing at a fast pace The opportunity to sell a differentiated product or service is present

Suppliers Many suppliers sell a commodity product to the companies in it Substitute products are available for the items suppliers provide Companies in the industry find it eas to switch from one supplier to another The items suppliers provide account for a relatively small portion of the cost of finished products

Buyers Switching costs to competitors is high Number of buyers is large Customers demand differentiated products Customers find it difficult to gather info on suppliers costs etc The items account for a relatively small portion of the customers’ finished products

New Entrants Advantages of economic scale are not present Capital requirements to enter are low Cost advantages are not related to company size Buyers are brand-loyal Governments do not restrict entry

Substitute Products Quality substitute products are not readily available Prices of substitute products are not lower Buyers’ cost of switching to substitute products is high

3. Organizational Feasibility Analysis Defines the legal and corporate structure of the business (may also include professional background information about the founders and what skills they can contribute to the business).

Organizational Feasibility Analysis Purpose: determine if business has sufficient skills/resources to bring product/service to market successfully Non-financial factors are what is assessed here 2 primary issues to consider: Management prowess: must evaluate the ability of the management team to determine if the firm has or is able to recruit human resources with the required areas of expertise Resource sufficiency: must assess adequacy of other resources necessary for successfully venture launch, development, and competition Focus is on nonfinancial resources like: Availability of affordable office or lab space, Labor pool quality, Proximity to key suppliers, customers, and similar firms (clusters) Likelihood of strategic partnerships, Likelihood of attaining IP

4. Financial Feasibility Analysis Capital Requirements Estimated Earnings Return on Investment

Practice - Feasibility study checklist Based on the feasibility study notes and check list prepare your product/services feasibility. No Activity Comply Comments Yes 1 Product/services feasibility study 2 Industry/market feasibility study 3 Organizational feasibility study 4 Financial feasibility study a sample of feasibility study