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Chapter 4 Feasibility Analysis

Chapter 4 Feasibility Analysis. Entrepreneur of the Day. John Mackey Started Whole Foods from his garage in 1978 in Austin, TX – called Safer Way, on $45,000 Did $300,000 in sales the first year Opened a 3 story newer store w/ restaurant and his home

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Chapter 4 Feasibility Analysis

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  1. Chapter 4Feasibility Analysis

  2. Entrepreneur of the Day • John Mackey • Started Whole Foods from his garage in 1978 in Austin, TX – called Safer Way, on $45,000 • Did $300,000 in sales the first year • Opened a 3 story newer store w/ restaurant and his home • A surprising market libertarian who despises unions – used to be a democratic socialist in college • Named Entrepreneur of the Year in 2003 among competitors like Google, Adobe, and JetBlue • Started taking $1 salary in 2006, to pursue work for the good feeling work gives him • Made $33,831 in 2008 • Made $710,077 in 2009 (bonuses tied to performance)

  3. The Concept of Feasibility • To increase your chances of success, you need a well-thought out, data-driven plan. • Feasibility means that some venture is possible or viable. • Viability means that the business will survive • A feasibility analysis is a study you undertake to determine the probability of success of your business idea • Primarily an investigative tool • The info gained from this study goes into your business plan.

  4. Parts of a Feasibility Study • Industry and market feasibility • Product feasibility • Financial feasibility What is the value of performing a feasibility analysis?

  5. Industry and Market Feasibility • Porter’s Five Forces • Competitive Rivalry • Suppliers • Buyers • New Entrants • Substitutes • Rate the threat of each of these as high, medium, or low, and look at the industry overall to see how attractive it is to enter. • OR, would you rather invest in some other industry? What is each of these forces trying to do to you?

  6. Industry and Market Feasibility • Is the industry growing? • How profitable is it? • What trends and issues face the industry? • Who else is producing this? • Is there demand? • Take a look at the U.S. Census site on Business and Industry • Get name and NAICS code of the industry. • Find facts and statistics about the industry.

  7. Industry and Market Feasibility • You can also do business prototyping to help you reach a conclusion • Try the same business on a small scale, launch, and watch consumer reaction • Research to determine: • Are customers willing to purchase this at the price I’m willing to come to? • Can we sell enough to make a profit?

  8. Entrepreneur of the Day • Friends started selling them at “parties” • Eventually phased out wholesale business • Finds much more design freedom and free time in selling her own line direct vs. to retailers • LaineSou Weinberg – founder of Kokoon • Started in college along with then boyfriend • Took 7-piece line on tour across U.S. boutiques • Soon spread to Nordstrom, Macy’s, Saks, Bloomies, and 1400 other boutiques • 9/11 caused cancellations to most of their orders; entire warehouses were left full Kokoon Fall 2012 Collection

  9. The Basics of Feasibility • You want: • Many customers with money they are willing to part with, who are easy to find. • A product that meets a specific group of customers’ needs better than anything they can find • A business model with low startup expenses that is SCALABLE, so that you don’t spend your life working for less than minimum wage, once you realize what your return will be.

  10. Good or Service Feasibility • Does the product appeal to customers? • Are customers willing to purchase our goods and services? What is the market size? • Can we provide the good or service at a profit? • What is needed to make this? Who has it? How much do they want for it? • Are you dealing with a customer or a consumer? • Places to look: • Primary research – asking around • Google – look for trade or industry associations, reports done on the industry, or competitors • Articles - ABI/Inform, Lexis-Nexis(library)

  11. Examples of Primary Research Survey Questions • Which dress brands do you buy often? • What colors of clothing do you buy? • How would you describe your style? • What trends are you most interested in this season? • Do you like for a designer to bring trends to you? • How often do you use Pinterest for fashion ideas? • Do you look at other Internet sites for fashion ideas? • How much do you normally spend on a dress, a skirt, a shirt, a pair of pants, shoes? What prices are out of range? • What do you have trouble finding in fashion designs?

  12. Product/Service Feasibility • Types of research methods • Surveys • Be careful – customers don’t always behave in reality the way they say they would. Keep them on fact-based questions. • A good idea doesn’t always equal a good business idea! • Focus groups – 8 to 12 people – discussion over important questions • Prototypes of products – beta tests • In-home trials • Test markets

  13. Financial Feasibility • Capital Requirements (Start-up costs) • Itemize everything you will need to start your business and get a price estimate. Total this and add 25%. You will miss something. • Estimation of Earnings • Use product/service feasibility to gauge your monthly sales. • List your monthly expenses. • Subtract your monthly expenses from your monthly revenues to get monthly profit. • Return on Investment • Divide your profit by your investment you personally are putting in • If this is lower than the market – why are you putting so much effort in? • Can consult the Risk Management Association’s Annual Statement Studies or Google certain figures AND your industry name.

  14. Why Create a Business Plan? • For Investors and Creditors • Avoidance of risk • Knowing what they’re getting into • For yourself and management • Really thinking hard about what that company is • Very hard to find time once the business gets going • Figure out who should be on your team

  15. Let’s Go Through a Business Plan! • Executive Summary • What you do, why it matters • Mission and Vision • Company History • Business and Industry Profile • Management Team • Strategy and Business Model • Product Description • Marketing Strategy • Target Market • Competitive Analysis • Pro Forma Statements • Loan or Investment Request Details • Appendix • Lists of Assumptions • Resumes • Recommendation Letters

  16. Pitching Your Plan – What Not to Do • Go over allotted time - drone on and on • Try to throw in too much information: 10/20/30 rule • Come without critical info • Forget to talk about the nuts and bolts of everyday business • Allow too many people to talk • Forget to use visual aids

  17. What Lenders and Investors Are Looking For • The Five Cs: • Capital – plenty for startup and first year operations • Capacity – cold hard cash to meet regular financial obligations • Collateral – assets tied to a loan • Character – honesty, integrity, competence • Conditions – external market factors

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