DESIGNING BUSINESS PLAN

Ngô Quý Nhâm Foreign Trade University

NGO QUY NHAM

Feasibility Analysis/Business Planning Process

Step 1

Identify a business Idea.

Favorable result / proceed

Favorable result / proceed

Step 2 Step 4

Prepare a written business plan

Step 3 Conduct full feasibility analysis

Screen/test the idea to determine its preliminary feasibility

Unfavorabl e result / stop or revaluate idea

Unfavorabl e result / stop or revaluate idea

Step 2

Present the business plan

NGO QUY NHAM

Unit 02

DEVELOPING, SCREENING BUSINESS IDEAS AND CONDUCTING FEASIBILITY ANALYSIS

NGO QUY NHAM

WHERE DOES NEW BUSINESS IDEA COME FROM?

NGO QUY NHAM

Three most common sources of business ideas

Unsolved Problems Gap in the marketplace Changing Environmental Trends

NGO QUY NHAM

Three most common sources of business ideas

•  Economic trends

•  Social trends

•  Technological Advances

•  Political and regulatory

changes

Changing Environmental Trends

NGO QUY NHAM

Three most common sources of business ideas

•  People who have

Changing Environmental Trends

experienced a problem in their lives and then realized that the solution to the problems represented a business opportunities

Unsolved Problems

NGO QUY NHAM

Three most common sources of business ideas

Changing Environmental Trends

•  There are products and

Unsolved Problems

services customers want but that aren’t available through larger firm or aren’t available at all.

Gap in the marketplace

NGO QUY NHAM

Feasibility Analysis

F  Entrepreneurs do not lack creative

ideas, but …

F  Is a particular idea a viable foundation for creating a successful business?

F  Feasibility study addresses the

question: “Should we proceed with this business idea?”

4 - 9

NGO QUY NHAM

Feasibility Analysis

A feasibility study:

F  Is not the same as a business plan.

F  Serves as a filter, screening out ideas that lack the potential for building a successful business before an entrepreneur commits the necessary resources to building a business plan.

F  Is an investigative tool.

4 - 10

NGO QUY NHAM

Which factors should be used to evaluate the feasibility of a business idea?

NGO QUY NHAM

Discussion

NGO QUY NHAM

Elements of a Feasibility Analysis

Industry and Market Feasibility

Product or Service Feasibility

Financial Feasibility

Organizational Feasibility

4 - 13

NGO QUY NHAM

Full Feasibility Analysis

Name the proposed business & name of the founder(s) Summary of the business

F

Introduction §  §

Product/service desirability Product/service demand

§  §

F  Part 1: Product/Service Feasibility

Industry attractiveness Target market attractiveness

§  §  §  Market timeliness

F  Part 2: Industry/Target market Feasibility

F  Part 3: Organizational Feasibility

F  Part 4:Financial Feasibility

§  Management prowess §  Resource sufficiency

Total start-up cash needed Financial performance of similar businesses

§  §  §  Overall financial attractiveness of proposed venture

NGO QUY NHAM

Product/Service Feasibility Analysis

F Determines the degree to which a

product or service idea appeals to potential customers and identifies the resources necessary to produce it.

4 - 15

NGO QUY NHAM

Ch. 4: Feasibility Analysis & Business Plan

Product/Service Feasibility Analysis

F Two questions:

1. Are customers willing to purchase

our product or service?

2. Can we provide the product or

service to customers at a profit?

4 - 16

NGO QUY NHAM

Ch. 4: Feasibility Analysis & Business Plan

Product concept

F  A description of the product or service F  The intended target market F  The benefit of the product or service F  A description of how the product or

service will be sold

F  A brief description of the company’s

management team (for the purposes of completeness

NGO QUY NHAM

Product/Service Feasibility Analysis

F  Primary research: Collect data firsthand and

analyze it. §  Customer surveys and questionnaires §  Focus groups

F  Secondary research: Gather data that already

has been compiled and analyze it.

F  Prototypes F  In-home trials

4 - 18

NGO QUY NHAM

Ch. 4: Feasibility Analysis & Business Plan

Industry & Market Feasibility Analysis

Two areas of focus: 1.  Determining how attractive an

industry is overall as a “home” for a new business.

2.  Identifying possible niches a small business can occupy profitably.

4 - 19

NGO QUY NHAM

Market Feasibility Analysis

F  Market size and growth rate F  Profitability F  Competition intensity

NGO QUY NHAM

Five Forces Model

Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry:

1.  Rivalry among companies in the industry 2.  Bargaining power of suppliers 3.  Bargaining power of buyers 4.  Threat of new entrants 5.  Threat of substitute products or services

4 - 21

NGO QUY NHAM

Five Forces Model

Potential Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Industry Competitors

Bargaining Power of Buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of Substitute Products or Services

Substitutes

NGO QUY NHAM

4 - 22

Rivalry Among Companies

F Strongest of the five forces F Industry is more attractive when:

§  Number of competitors is large, or, at the

other extreme, quite small

§  Competitors are not similar in size or

capacity

§  Industry is growing fast §  Opportunity to sell a differentiated product

or service exists

4 - 23

NGO QUY NHAM

Five Forces Model

Potential Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Industry Competitors

Bargaining Power of Buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of Substitute Products or Services

Substitutes

4 - 24

NGO QUY NHAM

Bargaining Power of Suppliers

F The greater the leverage of suppliers,

the less attractive the industry. F Industry is more attractive when:

§  Many suppliers sell a commodity product §  Substitutes are available §  Switching costs are low §  Items account for a small portion of the

cost of finished products

4 - 25

NGO QUY NHAM

Five Forces Model

Potential Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Industry Competitors

Bargaining Power of Buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of Substitute Products or Services

Substitutes

4 - 26

NGO QUY NHAM

Bargaining Power of Buyers

F Buyers’ influence is high when number of

customers is small and cost of switching to a competitor’s product is low. F Industry is more attractive when: §  Customers’ switching costs are high §  Number of buyers is large §  Customers want differentiated products §  Customers find it difficult to collect information for comparing suppliers §  Items account for a small portion of

customers’ finished products

4 - 27

NGO QUY NHAM

Five Forces Model

Potential Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Industry Competitors

Bargaining Power of Buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of Substitute Products or Services

Substitutes

4 - 28

NGO QUY NHAM

Threat of New Entrants

F The larger the pool of potential new

entrants, the less attractive an industry is.

F Industry is more attractive to new

entrants when:

§  Advantages of economies of scale are

absent.

§  Capital requirements to enter are low

§  Cost advantages are not related to company

size

§  Buyers are not loyal to existing brands

§  Government does not restrict the entrance of

4 - 29

NGO QUY NHAM

new companies

Five Forces Model

Potential Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Industry Competitors

Bargaining Power of Buyers

Suppliers

Buyers

Rivalry among existing firms

Threat of Substitute Products or Services

Substitutes

4 - 30

NGO QUY NHAM

Threat of Substitutes

F Substitute products or services can

turn an industry on its head.

F Industry is more attractive to new

entrants when:

§  Quality substitutes are not readily

available

§  Prices of substitute products are not significantly lower than those of the industry’s products

§  Buyers’ switching costs are high

4 - 31

NGO QUY NHAM

Five Forces Matrix

4 - 32

NGO QUY NHAM

Ch. 4: Feasibility Analysis & Business Plan

Organizational Feasibility

F  Management team and capability

F  Resource sufficiency

NGO QUY NHAM

Financial Feasibility Analysis

F  Capital requirements –an estimate of how much start-up capital is required to launch the business.

F  Estimated earnings – forecasted income

statement

F  Return on investment – Combining the previous two estimates to determine how much investors can expect their investments to return.

4 - 34

NGO QUY NHAM

Full Feasibility Analysis

NGO QUY NHAM