Department of Business Administration - Chair for Entrepreneurship
AP Primer i in i Entrepreneurship E t hi
Prof.Dr.UlrichKaiser Ch i of Chair f Entrepreneurship E t hi UniversittZrich
Fall2012
Department of Business Administration - Chair for Entrepreneurship
Content
2008PrenticeHall HS12 A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3) Seite 2
Department of Business Administration - Chair for Entrepreneurship
AP Primer i in i Entrepreneurship E t hi
PartIIDevelopingSuccessfulBusinessIdeas Lecture3 FeasibilityAnalysis
Prof.Dr.UlrichKaiser Chair of Entrepreneurship UniversittZrich Fall2012
Department of Business Administration - Chair for Entrepreneurship
Agenda
1.FeasibilityAnalysis:AnOverview 1.1Timing g 1.2FourTypesofFeasibilityAnalysis 2.Product/ServiceFeasibilityAnalysis 2.1ConceptTesting 2.2UsabilityTesting 3.Industry/MarketFeasibilityAnalysis 4.OrganizationalFeasibilityAnalysis 5.FinancialFeasibilityAnalysis
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
Questions
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Whatisanfeasibility yanalysis y andwhatisitdesigned g toaccomplish p ingeneral? Whatarethefourareasthataproperlyexecutedfeasibilityanalysis explores? Whatarethe(primary)issuestoconsiderineachofthesefourareas?
tobeansweredintodayslecture.
A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
1FeasibilityAnalysis:AnOverview
Feasibilityanalysisistheprocessofdeterminingifabusinessideaisviable.
FeasibilityAnalysis... ... isthepreliminaryevaluationofabusinessidea idea,conductedfor thepurposeofdeterminingwhethertheideaisworthpursuing. launch and ... takestheguesswork(toacertaindegree)outofabusinesslaunch, providesanentrepreneurwithamoresecurenotionthatabusinessidea isfeasibleorviable. ... followstheopportunityrecognitionstagebutcomes beforethedevelopmentofabusinessplan.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
1FeasibilityAnalysis:AnOverview
1.1Timing Beforeacompanyundertakesafeasibilityanalysis,aconceptstatementshould bedeveloped.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
1FeasibilityAnalysis:AnOverview
1.1Timing
Thesequencepicturedmakesperfectsense.
BUT
Themajorityofentrepreneursdonotfollowthispatternbefore launchingtheirventures. Entrepreneurstendtounderestimatetheamountofcompetition therewillbeinthemarketplaceandtendtooverestimatetheir personalchanceforsuccess.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
1FeasibilityAnalysis:AnOverview
1.2FourTypesofFeasibilityAnalysis
Product/Service yAnalysis y Feasibility Feasibility A l i Analysis Organizational g FeasibilityAnalysis
Industry/Market Feasibility yAnalysis y
Financial FeasibilityAnalysis
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product/ServiceFeasibilityAnalysis
Theproduct /servicefeasibilityanalysisisanassessmentofthe overallappealoftheproductorservicebeingproposed.
idea
Beforeap prospective p firmrushesaproduct p orserviceinto development,itshouldbeconfidentthattheproductor serviceiswhatprospectivecustomerswant. ConceptTesting UsabilityTesting
components
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
2.1ConceptTesting Aconcept ttest t tentails t il showing h i arepresentation t ti of fth theproduct d torservice i t to prospectiveuserstogaugecostumerinterest,desirability,andpurchaseintent. ConceptStatement isaonepagedescriptionofabusinessthatis distributedbyastartupentrepreneurtopeoplewho areaskedtoprovidefeedbackonthepotentialofthe businessidea.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
2.1ConceptTesting
Purpose
1. evaluatetheunderlyingpremisesofaproductorservicethatan
entrepreneurthinksiscompelling
2. helpdevelopanidea 3. estimatethepotentialmarketsharetheproductorservicemight
command
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
2.1ConceptTesting i f information ti to t i include l d adescriptionoftheproductorservicebeingoffered theintendedtargetmarket thebenefitsoftheproductorservice adescriptionofhowtheproductwillbe positionedrelativetosimilaronesinthemarket adescriptionofhowtheproductorservicewillbesoldanddistributed informationaboutthefounderorfoundersofthefirm
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
2.1ConceptTesting(Example) NewVentureFitnessDrinksInc.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
Aconcepttestisusuallyfollowedbythedevelopmentofa prototypeormodeloftheproductorservice prototype isthefirstphysicaldepictionofanewproduct,whichisusuallystillinarough ortentativemode. virtualprototype isacomputergenerated3Dimageofanideaanddisplaysaninventionasa3D modelthatcanbeviewedfromallsidesandrotated360 . Forproducts, F d t lik likeanewb board dgame,aprototype t t i isneeded d d t toget tmore substantivefeedbackthancanbegleanedfromaconceptstatement. having h i aprototype t t available il bl permits it usability bilit testing t ti to t take t k place. l
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
2.2UsabilityTesting Usabilitytesting measuresaproductseaseofuseandtheusers perceptionoftheexperience. issometimescalledusertest,betatest,orfieldtrial. Theconduct Th d t of fausability bilit test t ti isagood d i investment t tof fan entrepreneursorfirmsresources,
!
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BUT itistemptingtorushanewproductorservicetomarket. Manyproductsthatconsumersfindfrustratingtoworkwith have beenbroughttomarkettooquickly!
A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
2Product /ServiceFeasibility Analysis
ConceptandUsabilityTestinginPractice ThegreenlightprocessatActivision
2008PrenticeHall HS12 A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3) Seite 17
Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
TheIndustry/MarketFeasibilityAnalysisisanassessmentoftheoverall appealofthemarketfortheproductorservicebeingproposed.
Therearethreeprimaryissuesthatshouldbeconsidered.
1. 2. 3.
industryattractiveness markettimeliness identificationofanichemarket
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
Aprimarydeterminantofanewventuresfeasibilityisthe attractivenessoftheindustryitchooses. Industriesvaryconsiderablyintermsoftheirgrowthrate. industryattractiv i veness Characteristicsofthemostattractiveindustries beinglargeandgrowing beingimportanttothecustomer beingfairlyyoungratherthanolderandmoremature havinghighratherthanlowoperatingmargins b crowded d d notbeing Inadditiontoevaluatinganindustrysgrowthpotential,anewventure will illwanttoknow k moreabout b the h industry i d it i plans l toenter.
HS12 A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3) Seite 19
Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
Gettingtoknowmoreabouttheindustrycanbeaccomplished throughbothprimaryandsecondaryresearch. industryattractiv i veness
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Roleofprimaryandsecondaryresearch ininvestigatingindustryattractiveness Originalresearchthatiscollectedbytheentrepreneurand Primary involvesanentrepreneurtalkingtopotentialcustomersand Research keyindustryparticipants. probesdatathatarealready ycollectedand Researchthatp Secondary haveitssourceinindustryrelatedpublications,government Research statistics,competitorswebsites,andindustryreportsfrom researchlikeForresterResearch. Research
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Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
Asecondconsiderationisthetimelinessoftheintroduction ofaparticularproductorservice. products/services being ganimprovement p ofthosealready availableinthe marketplace Windowofopportunity:Open?Closed? dtimefor f enteringthe h market: k Good Arecustomersbuying? Areindustryincumbentsmakingmoney?
market ttimelin ness
breakthroughproduct/ serviceestablishinga newmarketsegment
Shouldwetrytocaptureafirstmover advantage?
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
Anichemarketisaplacewithinalargermarketsegmentthat representsanarrowergroupofcustomerswithsimilarinterests. ident tificationofanich hemarke et
Sellingtoanichemarketmakessense,because itallowsafirmtoestablishitselfwithinanindustry withoutcompetingagainstmajorcompetitorsheadon. itallowsafirmtofocusonservingaspecializedmarket verywellinsteadoftryingtobeeverythingtoeverybodyin abroadmarketwhichisnearlyimpossiblefornewentrant.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
3Industry/MarketFeasibilityAnalysis
Anotherusefulwayofthinkingaboutthistopicistodistinguish betweenverticalandhorizontalmarkets. ident tificationofanich hemarke et
isanalogoustoanichemarketandfocusesonsimilar Vertical businessesthathavespecificneeds.Startupstypically Market startbysellingintoverticalmarkets.
Horizontal meetsthespecificneedsofawidevarietyofindustries, Market rather th than th aspecific ifi one.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
4Organizational Feasibility Analysis
Theaimistodeterminewhetherthebusinessitselfhassufficientexpertise, competenceandresourcestosuccessfullylaunchitsbusiness.
Therearetwoprimaryissuestoconsider.
1. 2.
ManagementProwess ResourceSufficiency
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
4Organizational Feasibility Analysis
Afirmshouldcandidlyevaluatetheprowess(ability)ofits managementteam. managem mentpro owess
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Managementshouldhave: q p passion. therequisite Thepassionthatthesoloentrepreneurorthefoundingteam hasforthebusinessidea. theexpertise tolaunchtheventure. Theextenttowhichthesoloentrepreneurorthefoundingteam understandsthemarketsinwhichthefirmwillparticipate. Soloentrepreneursorfoundingteamswithestablishedsocialand professionalnetworks alsohaveanadvantage advantage.
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4Organizational Feasibility Analysis
Theassessmentofwhetheranentrepreneurhassufficientresourcesto launchtheproposedventurefocusesonnonfinancialresources.
resource esufficie ency
Afirmshouldlistthe6to12criticalnonfinancialresources thatwillbe neededtomoveforwardtosuccessfullydevelopthebusinessidea.
Ifcriticalresourcesarenotavailableincertain areas,itmaybeimpracticaltoproceedwiththe businessidea.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
4Organizational Feasibility Analysis
Nonfinancialresourcesthatmaybecriticaltothesuccessfullaunchofa newbusinessmaybe: availabilityofaffordableofficeorlabspace, business, likelihoodoflocalandstategovernmentsupportofthebusiness qualityofthelaborpoolavailable, proximity ytokey ysuppliers pp andcustomers, , p willingnessofhighqualityemployeestojointhefirm, likelihoodofestablishingfavorablestrategicpartnerships, proximitytosimilarformsforthepurposeofsharingknowledge, possibilityofobtainingintellectualpropertyprotectioninkeyareas.
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resource esufficie ency
A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
5FinancialFeasibility Analysis
Asthefinalstageofacomprehensivefeasibilityanalysis aquickfinancialassessmentisusuallysufficient.
Mostimportantissuestoconsider:
1. 2 2. 3.
totalstartupcashneeded fi financial i lperformance f of fsimilar i il businesses b i overallattractivenessoftheproposedventure
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
5FinancialFeasibility Analysis
Anactualbudgetshouldbepreparedthatlistsalltheanticipatedcapital purchasesandoperatingexpensesneededtogeneratethefirstCHF1in revenues. revenues
tot talstartupcashneeded
Murphys Murphy sLaw
Whatevercangowrong,willgowrong.
Itisararestartupthatdoesnothavesomesetbacks ingettingupandrunning.
Whenprojectingstartupexpenses,itisbetterto overestimateratherthanunderestimatethecostsinvolved.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
5FinancialFeasibility Analysis
financialp performan nceofsim milarbusin nesses Theproposedstartupsfinancialperformanceisestimatedbycomparing ittosimilar,alreadyestablishedbusinesses. Thereareseveralmethodstodothis,allofwhichinvolvealittleethical detectivework:
1 1. 2.
Availablereports,ofwhichsomeareforfreeandsomerequire afee:They yofferdetailedindustry ytrendanalysis y andreports p onthousandsofindividualfirms. Simpleobservationresearch:Forexample,theownersofNew VenturesFitnessDrinkscouldestimatetheirsalesbytracking thenumberofpeoplewhopatronizesimilarrestaurantsand estimatingtheaverageamounteachcustomerspends.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
Department of Business Administration - Chair for Entrepreneurship
5FinancialFeasibility Analysis
financialp performan nceofsim milarbusin nesses
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BusinessRatingAgencies http://www.creditreform.ch/ http://www.dnbswitzerland.ch BusinessSurveys htt // http://www.kof.ethz.ch/services/data/ k f th h/ i /d t / BusinessOrganizations http://www.zurichcci.ch/
A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
5FinancialFeasibility Analysis
ove erallattra activeness softheproposedv venture Theextenttowhichabusinessopportunityispositiverelativeto eachfinancialfactor,whichisassociatedwithpromisingstartups, i b is based donanestimate i rather h than h actual lperformance. f Factorsthatpertaintotheoverallfinancialfeasibility: steadyandrapidgrowthinsalesduringthefirst5to7years inaclearlydefinedmarketniche highpercentageofrecurringrevenue abilitytoforecastincomeandexpenses withareasonabledegreeofcertainty internallygeneratedfundstofinanceandsustaingrowth availabilityofanexitopportunityforinvestorstoconvertequityintocash
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Department of Business Administration - Chair for Entrepreneurship
Doyouknowtheanswer?
?! ?! ?!
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Whatisanfeasibility yanalysis y andwhatisitdesigned g toaccomplish p ingeneral? Whatarethefourareasthataproperlyexecutedfeasibilityanalysis explores? Whatarethe(primary)issuestoconsiderineachofthesefourareas?
testyourself.
A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
References
Barringer,B.andD.,Ireland(2008):Entrepreneurship SuccessfullyLaunching NewVentures,Pearsons PrenticeHall.
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A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3)
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Department of Business Administration - Chair for Entrepreneurship
Outlook
2008PrenticeHall HS12 A Primer in Entrepreneurship, Prof. Dr. Ulrich Kaiser, Fall 2012 (Lecture 3) Seite 35
