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Feasibility Study

Feasibility Study. Dr. Sandra S. Liu. Starting a Business. Come up with a good business idea Write a business plan Choose a business name Finance money Register your business and get a license Hire employees etc …. Idea Assessment Procedure. Formal & Detailed. Explore Ideas.

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Feasibility Study

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  1. Feasibility Study Dr. Sandra S. Liu

  2. Starting a Business • Come up with a good business idea • Write a business plan • Choose a business name • Finance money • Register your business and get a license • Hire employees • etc…

  3. Idea Assessment Procedure Formal & Detailed Explore Ideas Refine Ideas Prepare Business Plan Feasible? • Market trends • Your own competence • Invention • Add values • Market • Technology • Management • Finance (profit) • Action plan • Based on feasibility study • Secure funding Exit

  4. What is a Feasibility Study? • Investigation function - “Should we proceed with the proposed project idea?” • Exploratory journey to evaluate business alternatives • Assessment of trade-off between risks and rewards • Mainly for new-start up businesses by consultants

  5. Key Areas of a Feasibility Study Technical Feasibility Market Feasibility Financial Feasibility Managerial (Organizational) Feasibility

  6. Technical Feasibility • Assessing whether the product can be manufactured or service can be rendered efficiently • Specific functional design & required technology • Availability of raw materials • Required production facilities • Suitability of site • Other inputs (key labor)

  7. Market Feasibility • Assessing the viability of the product in the market (business opportunity) • Characteristics of the industry • Identification of your target market • Characteristics of your target customers • Analysis of competitiveness • Unique value of your product • Consumer demands for your product ► Requires a market survey

  8. Primary Data Collection Methods

  9. (1) Industry Analysis • The history & nature of the industry • Market size and fluctuation • Industry market trends • Product life cycle • Leading companies • Major consumer groups

  10. (2) Competition Analysis • The boundary of your competition • Your key competitors • What your competitors are currently offering • Where market opportunities exist • Consumer evaluation of current competitors • Barriers to entry into the market

  11. The components of a competitor analysis What drives the competitor? What the competitor is doing and can do? Future Goalsat all levels of management and in multiple directions Current Strategieshow the business is currently competing Competitor’s response profile is the competitor satisfied with its current position? what likely moves or strategy shifts will the competitor make?where is the competitor vulnerable? what will provide the greatest and most effective retaliation by the competitor? AssumptionsHeld about itself and the industry Capabilitiesboth strengths and weaknesses

  12. (3) Target Customer Analysis • Types (Individuals/ Businesses/ Government ) • Characteristics of target customers • Demographic • Behavioral • Psychological • Market size of your potential customers • Available sales strategies

  13. Demographic Information • Demographic profile of your target market • Traditional criteria for market segmentation • The most basic descriptive information • Age / Gender / Education level Profession / Household income level Marital status / Geographic location

  14. Behavioral Information • How your target customers use products or services in the same category • Purchasing Habits • Frequency & volume • Product selection criteria (e.g. price, quality) • Buying process & shopping channels

  15. An example of a typical customer profile • Company X, an upscale sporting goods company, targets American male executives between the ages of 25 and 35, with an average household income of greater than $100,000, who enjoy outdoor sports and purchase sporting goods at least twice per year for recreation and travel. • What is missing ??

  16. Psychographic Information • Personal traits, Cultural values, Life styles,Subjective perceptions, etc. • Tools for Measuring Psychological Traits • Value and Life Styles (VALS) • The Edwards Personal Preference Schedule (EPPS) • Rokeach Value Survey (RVS)

  17. Value and Life Styles (VALS) Innovators Thinkers Achievers Experiencers Believers Strivers Makers Survivors

  18. Value and Life Styles (VALS) • Personality traits are stable motivations that drive behaviors • Tool for segmenting consumers on the basis of personality traits • Product positioning / Finding an opportunity • Useful for marketing planning (media selection, distribution channel, advertisement etc.)

  19. Financial Feasibility • Assessing total required capital and its availability as well as estimating sales (profit analysis) • Estimate the total capital requirements • “Seed money” • Fixed costs & Variable costs • Capital sources &Credit availability • Expected sales

  20. Estimating Costs • Fixed Costs • Do not vary with the level of your sales • Variable Costs • Directly related to sales • Break-even • The point where your business has neither a profit nor a loss • Provides a rough idea of financial feasibility

  21. Calculating “Break-even” • Selling price for a bag: $6 • Variable costs per bag: $3 • Total fixed costs : $72,000 • Contribution margin = Price – Variable costs = ? • Break-even (units) = Total Fixed Costs Contribution Margin

  22. Estimating Potential Sales • Estimating Potential Sales • Market Potential / Market Share • Customer Counts • Sales of Existing Competitors • etc…

  23. Managerial Feasibility • Analysis of organizational capabilities and personnel requirements • Legal structure of the business • Solo / Partnership / Corporation / Limited Liability Company • Availability of skillful business managers • Business founders - Characteristics and mindset - Rewards systems (e.g. stock option)

  24. Homework • Take a VALS test and know your type: http://www.sric-bi.com/VALS/presurvey.shtml

  25. Competitive analysis- Amy’s ice cream

  26. About Amy’s Ice cream… Austin, TX based private owned ice cream shop chain. Founded by Amy Miller (now Amy Simmons) at 1984 They have 10 stores in Texas now.

  27. Competitors Edy’s Marble Slab Creamery, Inc Haagaen-Dazs Ben & Jerry’s American Dairy Queen Ben & Jerry’s

  28. Location: But a experienced market which they don’t need to put too much effort in “educate” the consumers how to shop ice cream.

  29. Value assessment For a small business like Amy’s, distributing surveys costs them too much effort and time. Scoopers (employees)/ customers relationships Amy’s experience in ice cream industry

  30. Five forces analysis

  31. The mission— Product differentiating Memorable experience- for celebration Fun and tasty Feel the humanity But also the experience ! Not only selling the ice cream

  32. Product differentiating Product categories: • Standard ice creams • Fruit ice creams- with fruits on your ice cream! • Ice cream drinks- Coke cola, Guinness, Cocktails, Cappuccino with ice creams!! Making scooping a show! Scooping trick competition

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