chapter 3

Question 1

feasibility analysis

Answer 1

the process of determining if a business idea is viable. if a business falls short on one or more of the four components it should be dropped or rethought. a mental transition must be made during feasibility analysis from thinking of a business idea as just an idea, to thinking of it as a business. it is an assessment of a potential business rather than strictly a product or service idea. it requires both primary and secondary research. it tests the merits of an idea, but there is opportunity to alter it as a result of feedback and the analysis. the key objective is to put an idea to the test by eliciting feedback from eg. potential customers, industry experts. this helps to shape and mould the idea.

Question 2

primary research

Answer 2

research that is collected by the person or persons completing the analysis.

Question 3

secondary research

Answer 3

probes data that is already collected.

Question 4

product/service feasibility analysis

Answer 4

an assessment of the overall appeal of the product or service being proposed. there are two components; (1) product/service desirability, and (2) product/service demand.

Question 5

product/service desirability

Answer 5

affirms that the proposed product or service is desirable and serves a need in the marketplace. for this a concept test can be used.

Question 6

concept test

Answer 6

a tool particularly useful in soliciting feedback and advice from prospective customers. it involves showing a concept statement to prospective customers and industry experts to solicit their feedback. the goal is to find a product/market fit between the benefits your product or service offers and what prospective customers need and require. the problem with not talking to potential customers prior to starting a business is that it is hard to know if a product is sufficiently desirable based on gut or secondary research.

Question 7

concept statement

Answer 7

a preliminary description of a product or service idea, including description of product, intended target market, benefits of product, position of product towards competitors, company management team description. it should be shown to at least 25 people who are familiar with the industry.

Question 8

product/service demand

Answer 8

determines if there is demand for the product or service. three common methods are (1) talking face-to-face with potential customers, (2) utilising online tools to assess demand (eg., Q&As, surveys), and (3) library, internet, and gumshoe research.

Question 9

talking face-to-face with potential customers method

Answer 9

the idea behind it is to gauge customer reaction to the general concept of what you want to sell. this is the only way to know if your product or service is what people want and need.

Question 10

utilising online tools to assess demand method

Answer 10

be careful to avoid confirmation bias and make sure to ask questions that allow for a wide range of responses. market research can also be completed online. you can purchase keywords through Google’s AdWords program. if someone clicks on the link provided when searching those keywords, they’ll be taken to a landing page.

Question 11

landing page

Answer 11

a single web page that typically provides direct sales copy, like ‘Click here to buy a Hawaiian vacation’. by buying those keywords, you are eliciting responses from a self-selected group of potential buyers.

Question 12

confirmation bias

Answer 12

a tendency to search for information that validates your preconceptions.

Question 13

library and internet research

Answer 13

the point is that you need archival as well as primary forms of research to assess likely demand.

Question 14

gumshoe research

Answer 14

also important for gaining a sense of the likely demand for a product or service idea.

Question 15

gumshoe

Answer 15

a detective or investigator that scrounges around for information or clues wherever they can be found.

Question 16

industry/target market feasibility

Answer 16

an assessment of the overall appeal of the industry and the target market of the product or service being proposed. there are two components; (1) industry attractiveness, and (2) target market attractiveness.

Question 17

industry

Answer 17

a group of firms producing a similar product or service.

Question 18

target market

Answer 18

the portion of the industry that it goes after or to which it wants to appeal. most firms, especially entrepreneurial start-ups, typically do not try to service an entire industry. instead, they select or carve out a specific target market and try to service that group of customers particularly well.

Question 19

industry attractiveness

Answer 19

industries vary in terms of attractiveness. the most important characteristics of an attractive industry are that the industry is young, early in its life cycle, and fragmented rather than concentrated. these industries are more receptive to new entrants. also, an industry should be structurally attractive, ie. start-ups can enter and compete effectively. other characteristics; growing, selling products customers “must have” rather than “want to have”, not crowded, high operating margins, not highly dependent on the historically low price of a key raw material.

Question 20

target market attractiveness

Answer 20

most start-ups either introduce a new product into an existing market or introduce a new market to an existing product. the challenge of identifying an attractive target market is to find a market large enough for proposed bsuiness but small enough to avoid attracting large competitors, at least until the entrepreneurial venture can get off to a successful start.

Question 21

organisational feasibility analysis

Answer 21

conducted to determine whether a proposed business has sufficient management expertise, organisational competence, and resources to successfully launch. two primary issues to consider are; (1) management prowess, and (2) resource sufficiency.

Question 22

management prowess

Answer 22

a proposed business should evaluate the prowess, or ability of its initial management team. most important factors; (1) passion the entrepreneurs have for the business idea, and (2) extent to which they understand the markets in which the firm will participate. apotential new venture should have an idea of the type of new-venture team that it can assemble.

Question 23

new-venture team

Answer 23

the group of founders, key employees, and advisers that either manage or help manage a new business in its start-up years.

Question 24

resource sufficiency

Answer 24

determine whether the proposed venture has or is capable of obtaining sufficient resources to move forward. here, the focus is on nonfinancial resources. the objective is to identify the most important nonfinancial resources and assess their availability. another issue is the ability to obtain intellectual property protection on key aspects of the business. to test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources that it needs and determine if those are available.

Question 25

financial feasibility analysis

Answer 25

the most important issues to consider at this stage are total start-up cash needed, financial performance of similar businesses, and the overall financial attractiveness of the proposed venture.