Entrepreneurship: Successfully Launching New Ventures, 2/e Bruce R. Barringer R. Duane Ireland Chapter 3

Case Study FAD incorporated on 14 February 2005 authorized capital of RM5 millions and paid-up capital of RM1,172,000. A rationalization exercise involving two Chief Executive Officers of public listed and property consultancy companies respectively, with the vision to become part of Muslim group of companies to be public listed in the Main Board of Bursa Malaysia. Aims to specialize in land development around prime locations such as Kajang, Putrajaya and Kuala Lumpur International Airport.

A residential land (4.05 acres) located in Bandar Sungai Long, Kajang The residential land’s development plan has been approved - individual titles have been received. Divided into 20 bungalow lots (ranging from 6000 to 11248 square feet), offering quiet and private surroundings, within walking distance to a school and commercial conveniences - ready to be sold for interested individuals.

The Residential Land and Its Surroundings

Strengths Very good in bootstrapping methods Very good in selling skills Challenges Doesn’t have a sufficient fund to develop infrastructure Doesn’t have a competent management team to complete the infrastructure work Board of Directors have different values

1. What Is Feasibility Analysis? Process of determining whether a business idea is viable (4 = P I F O) Preliminary evaluation of a business idea – to determine whether idea is worth pursuing. Systematic and analytical thinking skills…

Takes guesswork (to a certain degree) out of a business launch A more secure view - a business idea is feasible and viable. FACTS ? FACTS ? FACTS ?

2. When To Conduct a Feasibility Analysis Timing Proper time to conduct a feasibility analysis is early stage - potentials. Why? To screen ideas before a lot of resources are spent on them.

3. FOUR Forms of Feasibility Analysis Product/Service Industry/Target Market Financial Organisational

a. Product/Service Feasibility Analysis An assessment of overall appeal of product or service Before a prospective company rushes a product or service into development - it should be confident - product or service is what its prospective customers’ needs, preferences and WANTS. Test ? Test ? Test ?

Two Components Product/Service Desirability Product/Service Demand

Product/Service Desirability: 3 Ways List of Important Questions Concept Statement Usability Test

a. Product/Service Desirability Ask QUESTIONS to determine basic appeal: Does it make sense? Is it reasonable? Is it something consumers will get excited (e.g WOW) about?

Does it take advantage of an environmental trend, solve a problem, or take advantage of 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?

Use Concept Statement: A one page description of a business - used by a startup entrepreneur – ask people to provide feedback - potential of business idea. Why? a sense of viability of the business idea suggestions for how the idea can be strengthened or adjusted before proceeding further.

Information to Include A description of the product or service being offered. Intended target market. Special benefits of the product or service. Unique position relative to similar ones in the market. How the product or service will be sold and distributed. Information about founder or founders of the company.

Use Usability Test: Method by asking users to perform certain tasks - to measure product’s ease-of-use and user’s perception of experience. Also called – sample, user tests, beta tests or field trials

Why important? It’s tempting to rush a new product or service to market - conducting a usability test is a good investment. If brought to market too quickly, consumers find it frustrating with the functions of the product.

Prototype and Virtual Prototype P- First physical depiction of a new product, which is usually in a rough or tentative mode. Or V - A computer-generated 2 or 3D image of an idea – 3D got an advantage – all sides can be viewed

b. Product/Service Demand Two steps: Step 1: Administer a Buying Intentions Survey Step 2: Conduct library, Internet (google/youtube) and Gumshoe research

Buying Intentions Survey An instrument used to gauge customer interest in a product or service. Consists of a concept statement with a short survey attached to gauge customer interest. Online or offline… Internet sites e.g SurveyMonkey - make administering a buying intentions survey easy and affordable.

Library, Internet, and Gumshoe Research 2nd way to assess the demand for a product or service - by conducting library, Internet, and gumshoe research. Reference librarians - resources to help you investigate a business idea - industry-specific trade journal and industry reports. Internet searches can yield important information – potential viability of a product or service idea - youtube

Gumshoe Research is a detective or an investigator - asked around for information or clues wherever they can be found. Ask people what they think about your product or service idea. Idea = to sell educational toys - spend a week volunteering at a day care center and watch how children interact with toys.

b. Industry/Market Feasibility Analysis An assessment of the overall appeal of market for product or service. Three primary issues - should consider: Industry attractiveness? Market timeliness? Identification of a niche market?

a. Industry Attractiveness Vary in terms of their overall attractiveness. In general - most attractive industries have certain characteristics. Important to note—the degree to which environmental and business trends are moving in favor - rather than against it.

Although criteria shown is an ideal list - should satisfy these criteria and be taken seriously. Evaluating an industry’s growth potential - a new venture needs to know more about industry it plans to enter. Can be accomplished through both primary and secondary research.

Original and is collected by the entrepreneur Primary research Type of Research How It Is Conducted Original and is collected by the entrepreneur Primary research Secondary research Probes data that are already collected

b. Market Timeliness Nature of Product or Service Introduction Major Considerations Improvement on something already available Is the window of opportunity open or closed? Is now a good time for a new market entrant (i.e. are customers buying, are industry players making money?) Should we try to capture a first-mover advantage? e.g Halal industry, Biotech, shariah-compliant Breakthrough - should establish a new market segment

c. Identification of a Niche Market A place within a larger market segment - represents a narrower group of customers with similar interests. Selling to a niche market makes sense for at least two reasons: Without competing against major competitors. Focus on a specialized market very well instead of trying to be everything to everybody 0.1% approach

3. Financial Feasibility Analysis For feasibility analysis, a quick financial assessment is usually sufficient. The most important issues to consider at this stage are: Total start-up cash needed. Financial performance of similar businesses. Overall attractiveness

a. Total Start-Up Cash Needed An actual budget should be prepared - listing all anticipated capital purchases and operating expenses needed to generate the first RM1 in revenues. Better to overestimate rather than underestimate the costs involved. Note: Murphy’s Law is prevalent in the start-up world—things will go wrong. Very rare start-up that doesn’t have some setbacks in getting up and running.

b. Financial Performance of Similar Businesses Estimate proposed start-up’s financial performance by comparing it to similar, already established businesses. Several ways to doing this all of which involve a little ethical detective work.

simple observational research may be needed. E.g. Could estimate sales by tracking the number of people who buy similar products

c. Overall Attractiveness of the Investment A number of other financial factors are associated with promising business startups. Note: Based on an estimate rather than actual performance.

Financial Factors Associated With Promising Business Opportunities Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined market niche. High percentage of recurring revenue—meaning that once a company wins a client, the client will provide recurring sources of revenue. Ability to forecast income and expenses with a reasonable degree of certainty. Internally generated funds to finance and sustain growth. Availability of an exit opportunity for investors to convert equity to cash.

4. Organizational Feasibility Analysis Concerned with determining whether the business itself has sufficient skills and resources to bring a particular product or service idea to market successfully. Two primary issues to consider in this area: Management prowess. Resource sufficiency.

Management Prowess Should candidly evaluate the prowess or ability of its management team to satisfy that management has the requisite passion and expertise to launch the venture. Merit ? Merit ? Merit ? Relationship?

Other important factors: Passion - solo entrepreneur or founding team has for the business idea. The extent to which solo entrepreneur or the founding team understands the markets in which he or she will participate. Solo entrepreneurs or founding teams with established social and professional networks also have an advantage.

Resource Sufficiency This topic pertains to an assessment of whether an entrepreneur has sufficient resources to launch the proposed venture. The focus here should be on nonfinancial resources - financial feasibility is considered separately.

To test resource sufficiency, a company should list several most critical nonfinancial resources - needed to move business idea forward successfully. Note: If critical resources are not available in certain areas - impractical to proceed with the business idea.

Examples of nonfinancial resources - critical Availability of affordable office or lab space. Likelihood of local and state government support of the business. Quality of the labor pool available. Proximity to key suppliers and customers. Willingness of high quality employees to join the company. Likelihood of establishing favorable strategic partnerships. Proximity to similar companies for the purpose of sharing knowledge. Possibility of obtaining intellectual property protection in key areas.

***Full View of Feasibility Analysis Role of feasibility analysis in developing business ideas – analytical, systematic thinking

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