Chapter 5

Feasibility Analysis:Testing an Opportunity

Developing A Business Concept

A Business Concept -is a clear and concise description of an opportunity. If you have an idea for a business you need to turn it into an opportunity. A business concept has four elements: the product or service, the customer, the benefit, and the distribution.

Business Concept

1. The Product/Service- what is the product or service you want to offer your customers.

2. The Customer- who will target as your customer base?

3. The Benefits- what will the features or distinctive aspects of the product have. What is the main benefit of the product.

Business Concept

Features- distinctive aspects, qualities, or characteristics of a product or service

Benefit- things that promote or enhance the value of a product or a service to the customer

Business Concept

4. Delivery of Benefits- How will the benefits be delivered to the customer. Will it be through a retail store, wholesaler, mail order, the internet, or door to door delivery.

Business Concept

Writing a Concept Statement- At this time, go to your computers and write a concept statement about the business you chose to run and the product or service. See page 95 for an example.

Testing the Concept in the Market

The process to test a business concept is called feasibility analysis. This analysis helps the entrepreneur decide whether a new business concept has potential. It helps you decide if you have enough demand for your product. It also determines whether business conditions are appropriate for you to go forward with the business. The following are seven key elements to a feasibility analysis:

Testing the Concept in the Market

1. Testing the Industry- the analysis will look at the industry in which the business will operate.

2. Talking to Customers- testing the customer may be the most important part of the analysis. Talk to customers to measure their interest in your product. Who are your target customers?

Testing the Concept in the Market

3. Testing product or service requirements-

What will it take to produce your product? A prototype or a test version of the product must be produced to see how it works. If you are going to run a hair salon, then a prototype of that service will be placed on blueprints to see how the store will be laid out.

Testing the Concept in the Market

4. Evaluate the Founding Team-A) Many successful businesses today are founded by teams-two or more people working together to launch a new venture.

B) Teams bring together the knowledge and skills of the people involved.

Testing the Concept in the Market

C) A founding team must gather the necessary resources to begin development. D) A successful team can get a new business off the ground. E) A strong team is also attractive to investors.

Testing the Concept in the Market

5. Studying the Competition An easy way to study the competition is to create a grid. A competitive grid is a tool for organizing important information about the competition. You can get information about your competition by reading about them, talking to them, and talking to their customers and suppliers. See page 98. Look over the grid.

Testing the Concept in the Market

6. Looking at the Start-Up Resource NeedsJeff Bezos, the owner of Amazon.com, was able to raise money for his business because he could show strong financial projections and a business model that could work. A business model describes how you intend to make money with your business concept.

Testing the Concept in the Market

For a feasibility study, you need to calculate how much money is needed to do the following

Purchase or lease equipment Buy starting inventory Pay employees Finish product development Cover the business expenses until the

sales can cover them.

Testing the Concept in the Market

7. Analyzing the Value Chainthere are many ways to deliver a benefit to your customers. A value chain is the distribution channel through which your product or service travels. The value chain includes the manufacturer, wholesaler, and retailer. The goal is to deliver maximum for the least possible cost. Entrepreneurs look at each step of the chain, and find ways to make each step as efficient as possible.