Chapter 1 - The Foundations of Entrepreneurship - 1

CHAPTER 4
Conducting a Feasibility
Analysis and Designing a
Business Model
Copyright © 2011 Pearson Education

Feasibility Analysis
 Entrepreneurs do not lack creative ideas, but …
 Is a particular idea a viable foundation for creating a
successful business?
 Feasibility study addresses the question: “Should we
proceed with this business idea?”
4-2 Ch. 4: Feasibility Analysis & Business Plan

Feasibility Analysis
A feasibility study:
 Is not the same as a business plan.
 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.
 Is an investigative tool.
4-3 Ch. 4: Feasibility Analysis & Business Plan

Elements of a Feasibility Analysis
4-4
Industry and Product or Service
Market Feasibility Feasibility
Financial
Feasibility
Industry and
Market Feasibility
4-5
Product or Service
Feasibility
Financial
Feasibility
Field ( Industry )and Market Feasibility Analysis
Two areas of focus:

1. Determining how attractive a Field is overall as a
“home” for a new enterprise.
2. Identifying possible niches a small enterprises can
occupy profitably.
Environmental Forces and New Ventures
4-7 Copyright © 2016 Pearson Education, Inc

Industry and Market Feasibility Analysis
 Assess industry attractiveness using six macro forces:

1. Sociocultural
2. Technological
3. Demographic
4. Economic
5. Political and legal
6. Global
4-8 Copyright © 2016 Pearson

Education, Inc
Five Forces Model
Five forces interact with one another to determine the
setting in which Enterprises compete and, hence, the
attractiveness of the industry:
 Rivalry among Enterprises in the Field
 Bargaining power of suppliers
 Bargaining power of buyers
 Threat of new entrants
 Threat of substitute products or services
1.Rivalry Among other Enterprises
 Strongest of the five forces

 Enterprise is more attractive when:
 Number of competitors is large, or, at the other extreme, quite small
 Competitors are not similar in size or capacity
 Field is growing fast
 Opportunity to offer a differentiated product or service exists
2.Bargaining Power of Suppliers
 The greater the leverage of suppliers, the less

attractive the enterprise.
 Industry is more attractive when:
 Substitutes are available
 Switching risks are low
 Safe exit plans with no with low financial losses
 Public opinion is more aware by the problem
3.Bargaining Power of Buyers
 Buyers’ influence is high when number of customers is small and

cost of switching to a competitor’s low.
 A field is more attractive when:
 Beneficiary switching costs are high
 Number of potential beneficiaries is large
 Beneficiaries want differentiated products
 Beneficiaries find it difficult to collect information for
comparing suppliers
4.Threat of New Entrants
 The larger the pool of potential new entrants, the less
attractive an industry is.
 Industry is more attractive to new entrants when:
 Advantages of economies of scale are absent.
 Capital requirements to enter are low
 Beneficiaries are not loyal to existing enterprises
 Government does not restrict the entrance of new
entrants
5.Threat of Substitutes
 Substitute products or services can turn an industry
on its head.
 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
Five Forces Matrix
Product or Service
Feasibility
4 - 17
Industry and
Market Feasibility
Financial
Feasibility
Product or Service - Feasibility Analysis
 Determines the degree to which a product or service

idea appeals to potential Beneficiary and identifies the
resourced necessary to produce it.
 Two questions:
1. Are Beneficiaries willing to acquire our product or service?
2. Can we provide the product or service to customers at a
profit?
Product or Service Feasibility Analysis
 Primary research: Collect data firsthand and

analyze it.
 Customer surveys and questionnaires
 Focus groups
 Secondary research: Gather data that already has

been compiled and analyze it.
 Prototypes
 Small Network trials
4 - 19
Product or Service
Industry and Feasibility
Market Feasibility
4 - 20
Financial
Feasibility
Ch. 4: Feasibility Analysis & Business Plan

Financial Feasibility Analysis
 Capital requirements –an estimate of how much start-up

capital is required to launch the business.
4 - 21
 Estimated earnings – forecasted income statements
 Return on investment – Combining the previous two estimates

to determine how much investors can expect their
investments to return.

Developing and Testing a
Business Model
 Key questions to address:
1. What value does the business offer customers?
2. Who is my target market?
3. What do they expect of me as my customers?
4. How do I get information to them, and how do they
want to get the product?
5. What are the key activities to make all this come
together, and what will they cost?
6. What resources do I need to make this happen,
including money?
7. Who are the key partners I will need to attract to be
successful?
4 - 22 Copyright © 2016 Pearson
Education, Inc
The Business Modeling Process

Education, Inc
(continued)

Education, Inc
The Business Model Canvas

Education, Inc
(continued from4-39)

Education, Inc
Test the Value Proposition
 Ask customers:
 Do we really understand the customer problem the business
model is trying to address?
 Do these customers care enough about this problem to spend

their hard-earned money on our product?
 Do these customers care enough about our product to help us

by telling others through word-of-mouth?

Education, Inc
(continued from 4-41)

Education, Inc
Enterprise Prototyping
 Entrepreneurs test their Enterprise models on a

small scale before committing serious resources to
launch a business that might not work.
 Recognizes that an Enterprise idea is a hypothesis
that needs to be tested before taking it full scale.
Business Prototyping
(continued)
 Test early versions of a product or service using

a lean start-up: a process of rapidly developing simple
prototypes to test key assumptions by engaging real
customers
 Begin the lean start-up process using a minimal

viable product: the simplest version of a product or
service with which an entrepreneur can create a
sustainable business

Education, Inc

Education, Inc
Pivots
 Pivots: the process of making changes and

adjustments in the business model on the basis
of the feedback a company receives from
customers.
1. Product pivot
2. Customer pivot
3. Revenue model pivot

Education, Inc
Conclusion
 There are no guarantees for success.

 Creating a business plan will be valuable primarily
because of the process itself.
 The business planning process may provide insight to
increase the chances for success.
 The business plan: Entrepreneurs benefit; lenders
and investors demand it!
Ch. 4: Feasibility Analysis & Business Plan 41 -- 33

CHAPTER 5
Crafting A Business Plan

and
Building a Solid Strategic Plan
Copyright © 2011 Pearson Education

A Major Shift . . .
From financial capital to intellectual capital:

 Human
 Customer
 Social
3 - 35 Ch. 3: Business Model and Strategic Plan

Strategic Management
 Is crucial to building a successful business.
 Involves developing a game plan to guide a company as it
strives to accomplish its mission, goals, and objectives, and to
keep it on its desired course.

Strategic Management
& Competitive Advantage
 Developing a strategic plan is crucial to creating a
sustainable competitive advantage, the aggregation of
factors that sets a company apart from its competitors
and gives it a unique position in the market that is
superior to its competition.
 Example:

Building a Competitive Advantage
 Consider four aspects of a small company:

1. Products they sell
2. Service they provide
3. Pricing they offer
4. Way they sell

Key: Core Competencies
 Unique set of capabilities a company develops in key areas,

such as superior quality, customer service, innovation, team-
building, flexibility, responsiveness, and others that allow it to
vault past competitors.
 They are what a company does best.

 Best to rely on a natural advantage (often linked to a company’s “smallness”).

Fawry sells major stake for $100M
 A consortium of international investors has taken an 85 percent stake in Egyptian
electronic bill presentment and payment platform Fawry for $100 million.
 The consortium - comprising of the Egyptian-American Enterprise Fund

(EAEF), Helios Investment Partners (Helios acting on behalf of funds it advises) and
the MENA Long-Term Value Fund (MENA LTV) - announced the acquisition
yesterday.
 http://www.wamda.com/2015/11/consortium-of-investors-acquires-major-stake-in-
fawry-for-100m
 12 Nov 2015
1 - 40 Ch. 1: The Foundations of

Entrepreneurship
Building a Sustainable Competitive Advantage
Capabilities
3 - 41
Lessons Sustainable Superior value
Core competitive
learned competencies for customers
advantage
Skills
Ch. 3: Business Model and Strategic Plan

Strategic Management Process
Step 1 Develop a vision and translate it into a mission statement
Step 2 Assess strengths and weaknesses
Step 3 Scan environment for opportunities and threats
Step 4 Identify key success factors
Step 5 Analyze competition
Step 6 Create goals & objectives
Step 7 Formulate strategies
Step 8 Translate plans into actions
Step 9 Establish accurate controls

Step 1:
Develop a Vision and Create a Mission Statement
 Vision – the result of an entrepreneur’s dream of

something that does not exist yet and the ability to paint
a compelling picture of that dream for everyone to see.
 A clearly defined vision:
 Provides direction
 Determines decisions
 Motivates people
 Allows for perseverance in the face of adversity

Step 1:
 Oxfam: A just world without poverty

Step 1:
 We believe that we are on the face of the earth to make great products and
that's not changing. We are constantly focusing on innovating.We believe in
the simple not the complex. We believe that we need to own and control the
primary technologies behind the products that we make, and participate only
in markets where we can make a significant contribution. We believe in saying
no to thousands of projects, so that we can really focus on the few that are
truly important and meaningful to us. We believe in deep collaboration and
cross-pollination of our groups, which allow us to innovate in a way that
others cannot. And frankly, we don't settle for anything less than excellence in
every group in the company, and we have the self-honesty to admit when
we're wrong and the courage to change. And I think regardless of who is in
what job those values are so embedded in this company that Apple will do
extremely well."- Tim Cook, CEO of Apple Computer

Step 1:
 Addresses question:“What business are we in?”
The mission is a written expression of how the company will reflect an

entrepreneur’s values, beliefs,
and vision – more than just
“making money.”
 Serves as a “strategic compass.”

Step 1:
 Elements of a mission statement:

 Purpose of the company: What are we in business to
accomplish?
 Business we are in: How are we going to accomplish that
purpose?
 Values of the company: What principles and beliefs form
the foundation of the way we do business?

Step 1:
 Apple Mission Statement :

“Apple designs Macs, the best personal computers in the world,
along with OS X, iLife, iWork and professional software. Apple
leads the digital music revolution with its iPods and iTunes
online store. Apple has reinvented the mobile phone with its
revolutionary iPhone and App Store, and is defining the future of
mobile media and computing devices with iPad.”

Step 1:
Coca Cola Mission statement :

“To refresh the world - in mind, body and spirit… To
inspire moments of optimism - through our brands and
actions… To create value and make a difference
everywhere we engage”

Step 2:
Assess Company Strengths and Weaknesses
 Strengths
 Positive internal factors a company can draw on to
accomplish its mission, goals, and objectives.
 Weaknesses
 Negative internal factors that inhibit a company’s ability
to accomplish its mission, goals, and objectives.

Step 2:
Assess Company Strengths and Weaknesses
 Opportunities
 Positive external factors the company can exploit to
 Threats
 Negative external factors that inhibit the firm's ability to

Entrepreneurship
Step 3 : Scan environment for opportunities and threats
PEST
The Power of External Market Forces
Technological
3 - 55
Competitive Economic
Strategic Plan
Ch. 3: Business Model and
Political and Social and
Regulatory Demographic
Step 4: Identify Key Success Factors
 Key success factors (KSFs): factors that determine the

relative success of market participants.
 The keys to unlocking the secrets of competing successfully
in a particular market segment.

Step 4: Identify Key Success Factors

Identifying Key Success Factors
List the skills, characteristics, and core competencies

that your business must possess
to be successful in its market segment.
Key Success How Your Company Rates
Factor
1. Low 1 2 3 4 5 6 7 8 9 10 High
2. Low 1 2 3 4 5 6 7 8 9 10 High
3. Low 1 2 3 4 5 6 7 8 9 10 High
4. Low 1 2 3 4 5 6 7 8 9 10 High
5. Low 1 2 3 4 5 6 7 8 9 10 High
Conclusions:

Step 5: Analyze Competitors
 NFIB study: Small business owners believe they operate in a

highly competitive environment and the level of competition
is increasing.
 Yet, 97 percent of all U.S. businesses do not systematically

track the progress of their key competitors.

3 - 60
FIGURE 3.3 How Small Businesses Compete
Based on: William J. Dennis, Jr., National Small Business Poll: Competition (Washington, DC: National
Federation of Independent Businesses, 2003), Vol. 3, Issue 8, p. 1.

1 - 60
Competitor Analysis
 Direct competitors
 Offer the same products and services
 Customers often compare prices, features and deals among
these competitors when they shop
 Significant competitors
 Offer some of the same or similar products or services
 Product or service lines overlap but not completely
 Indirect competitors
 Offer same or similar products in only a small number of areas

Analyzing key competitors allows an entrepreneur to:

 Avoid surprises from existing competitors’ new strategies and
tactics.
 Identify potential new competitors and the threats they pose.
 Improve reaction time to competitors’ actions.
 Anticipate rivals’ next strategic moves.

Techniques do not require unethical behavior:
 Monitor industry and trade publications.
 Talk to customers and suppliers.
 Debrief employees, especially sales representatives and purchasing
agents.
 Attend trade shows and conferences and study competitors’ sales
literature.
 Watch for competitor’s employment ads.
 Conduct patent searches for patents competitors have filed.
 Learn about the kinds of equipment and raw materials competitors are
importing from joint connections
 Buy competitors’ products and “benchmark” them.
 Get competitors’ credit reports.
 Use the Internet to learn more about competitors.
 Visit competing businesses to observe their operations.

Competitive Profile Matrix

Is Setting Goals & Objectives Really Important?
“Would you tell me, please, which way I ought to go from

here?” said Alice.
“That depends a good deal on where you want to get to,” said
the Cheshire cat.
“I don’t much care where.…” said Alice.
‘Then it doesn’t matter which way you go,” said the cat.
- Lewis Carroll’s
Alice in Wonderland
Step 6: Create Company Goals and Objectives
 Goals: Broad, long-range attributes to be accomplished.
 Google: Organize the world's information and make it
universally accessible and useful
 Objectives: More detailed, specific targets of performance

that are S.M.A.R.T.
 Specific
 Measurable
 Assignable
 Realistic (yet challenging)
 Timely

Step 6: Create Company Goals and Objectives

Step 7: Formulate Strategies
Strategy - a road map of the actions an entrepreneur draws

up to achieve a company’s mission, goals, and objectives.
It is the company’s game plan for gaining a competitive

advantage.

Step 7: Formulate Strategies
Three basic strategies:

Cost
Leadership
Strategy? Differentiation
Focus

FIGURE 3.4 Three Strategic Options

Cost Leadership
 Goal:
To be the low-cost producer in the industry
(or market segment).
 Low-cost leaders have advantages:

 Reaching buyers who buy on the basis of price
 The power to set the industry’s price floor.
 Cost Leadership works well when:
 Buyers are sensitive to price changes.
 Competing firms sell the same commodity products.
 A company can benefit from economies of scale.

Differentiation
 Company seeks to build customer loyalty by positioning its goods or
services in a unique or different fashion.
 Idea is to be special at something customers value.
 Key: Build basis for differentiation on a distinctive competence, something
that the small company is uniquely good at doing in comparison to its
competitors.
 Examples: Siwa - Dahab

Focus
 Company selects one or more customer segments in a market, identifies
customers’ special needs, wants, or interests, and then targets them with a
product or service designed specifically for them.
 Strategy builds on the differences among market segments.
 Rather than try to serve the total market, the company focuses on serving
a niche (or several niches) within that market.

Step 8:
Translate Strategies into Action Plans
Survey of senior executives:

Companies achieved only 63% of the results in
their strategic plans.
 Create projects by defining:

 Purpose
 Scope
 Contribution
 Resource requirements
 Timing

Step 9: Establish Accurate Controls
 Plan establishes the standards against which actual

performance is measured.
 Entrepreneur must:
 Identify and track key performance
indicators.
 Take corrective action.

Balanced Scorecards
 A set of measurements unique to a company that includes
both financial and operational measures
 Gives managers a quick, yet comprehensive, picture of a
company’s overall performance.

Balanced Scorecards
Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue to
improve and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: Do we meet our
responsibility to society as a whole, the
environment, the community, and other external
stakeholders?

3 - 78
Benefits of Creating a Business Plan
 Business plan:
 A written summary of:
 An entrepreneur’s proposed business venture
 The operational and financial details
 The marketing opportunities and strategy
 The managers’ skills and abilities
 A business plan is the best insurance against launching a business
destined to fail or mismanaging a potentially successful company.

Education Ltd
Guidelines for Preparing a Business Plan
 Remember: No one can create your plan for you.

 Potential lenders want to see financial projections, but they are
more interested in the strategies for reaching those
projections.
 Show how you plan to set your business apart from
competitors; don’t fall into the “me too” trap.
 Identify your target market and offer evidence that customers
for your product or service exist.
Essential Functions of a Business Plan
1. Guiding the company by charting its future

course and defining its strategy for following it.
2. Attracting lenders and investors who will
provide needed capital.

Education Ltd
A Plan Must Pass Three Tests
1.The Reality Test – proving that :
 A market really does exist for your product or service.
 You can actually build or provide it for the cost
estimates in the plan.
2.The Competitive Test – evaluates:
 An enterprise position relative to its competitors.
 Management’s ability to create an enterprise that will
gain an edge over its rivals.
3.The Value Test – proving that:
 A venture offers investors or lenders an attractive rate
of return or a high probability of repayment.
Why Take the Time to Build an
Entrepreneurship ( Business )Plan?
 Although building a plan does not guarantee success, it

does increase your chances of succeeding in business.
 A plan is like a road map that serves as a guide on a
journey through unfamiliar, harsh, and dangerous territory.
 Don’t attempt the trip without a map!

Key Elements of a Business Plan

 Title Page and Table of
Contents  Marketing Strategy
 Entrepreneurs’ and
 Executive Summary
Managers’ Resumes
 Mission and Vision  Plan of Operation
Statement  Pro Forma (Projected)
 Description of a Firm’s Financial Statements
Product or Service  The Loan or Investment
 Business and Industry Proposal
Profile
 Competitor Analysis

Education Ltd
Executive Summary
 The executive summary is a written version of “the

elevator pitch”
 A good elevator pitch provides:
 Context
 Benefit
 Target customers
 Point of differentiation
 Clincher

Education Ltd
Competitor Analysis
 Who are the company’s key competitors?

 What are there strengths and weaknesses?
 What are their strategies?
 How successful are they?
 What distinguishes the entrepreneur’s product or
service from others already in the market, and how
will these differences produce a competitive edge?

Education Ltd
Marketing Strategy
 Show customer interest

 Prove that target customers actually need or want the
product or service.
 Document market claims
 Support market size and growth rates with facts.

Education Ltd
Marketing Strategy
(continued)
 Address:
 Target market
 Advertising and promotion
 Market size and trends
 Location
 Pricing
 Distribution

Education Ltd
Product or Service Description
 Describe the benefits customers get from the

product or service
 A feature is a descriptive fact about a product or
service.
 A benefit is what the customer gains from the
product or service feature.

Education Ltd
Tips for a Good Business Plan
 First impressions count! Use an attractive cover.

 Checks for errors.
 Make it visually appealing.
 Include a table of contents with page numbers.
 Make it interesting!
 Show that it will make money.
 Use spreadsheets for realistic financial forecasts.
 Include cash flow projections.
 Keep the plan “crisp.”
 Tell the truth.
5 - 90 Copyright © 2016 Pearson Education Ltd

The Pitch: Presenting the Plan
 The time allotted for presenting is usually less than 20

minutes, so it’s important to rehearse and be prepared.
 A basic presentation should cover:
 Your company and its products and services.
 The problem to be solved.
 A description of your solution to the problem.
 Your company’s business model.
 Your company’s competitive edge.

Education Ltd
Tips for Making the Pitch
 Prepare
 Practice your delivery and then practice some more.
 Demonstrate enthusiasm about the business but don’t be
overly emotional.
 Focus on communicating the dynamic opportunity your
idea offers and how you plan to capitalize on it.
 Hook investors quickly with an up-front explanation of the
new venture, its opportunities, and the anticipated benefits
to them.

Education Ltd
(continued)
 Use visual aids.
 Follow the 10/20/30 rule for PowerPoint presentations.
 Explain how your company’s products or services solve
some problems and emphasize the factors that make your
company unique.
 Offer proof.
 Hit the highlights.
 Keep the presentation “crisp.”

Education Ltd
(continued)
 Avoid the use of technical terms that will be above most
of the audience.
 Remember to tell lenders and investors how they will
benefit.
 Be prepared for questions.
 Anticipate questions and prepare for them in advance.
 Focus your answers on what’s important to lenders and
investors.
 Follow up with every lender and investor to whom you
make a presentation.

Education Ltd
What Lenders and Investors
Look for in a Business Plan
 The “5 Cs” of Credit

1. Capital
2. Capacity
3. Collateral
4. Character
5. Conditions

Education Ltd
Conclusion
The strategic planning process:
 Begins with the nine steps.
 Becomes more efficient each time.
 Teaches entrepreneurial discipline for a higher
chance of survival.
 Business Plan steps and contents
Ch. 3: Business Model and Strategic Plan 31 -- 96

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CHAPTER 4

Copyright © 2011 Pearson Education

4-2 Ch. 4: Feasibility Analysis & Business Plan

4-3 Ch. 4: Feasibility Analysis & Business Plan

Two areas of focus:

4-7 Copyright © 2016 Pearson Education, Inc

 Assess industry attractiveness using six macro forces:

4-8 Copyright © 2016 Pearson

 Strongest of the five forces

 The greater the leverage of suppliers, the less

 Buyers’ influence is high when number of customers is small and

 Determines the degree to which a product or service

 Primary research: Collect data firsthand and

 Secondary research: Gather data that already has

Ch. 4: Feasibility Analysis & Business Plan

 Capital requirements –an estimate of how much start-up

 Return on investment – Combining the previous two estimates

Ch. 4: Feasibility Analysis & Business Plan

4 - 23 Copyright © 2016 Pearson

4 - 24 Copyright © 2016 Pearson

4 - 25 Copyright © 2016 Pearson

4 - 26 Copyright © 2016 Pearson

 Do these customers care enough about this problem to spend

 Do these customers care enough about our product to help us

4 - 27 Copyright © 2016 Pearson

(continued from 4-41)

4 - 28 Copyright © 2016 Pearson

 Entrepreneurs test their Enterprise models on a

 Test early versions of a product or service using

 Begin the lean start-up process using a minimal

4 - 30 Copyright © 2016 Pearson

4 - 31 Copyright © 2016 Pearson

 Pivots: the process of making changes and

4 - 32 Copyright © 2016 Pearson

 There are no guarantees for success.

Ch. 4: Feasibility Analysis & Business Plan 41 -- 33

Crafting A Business Plan

Copyright © 2011 Pearson Education

From financial capital to intellectual capital:

3 - 35 Ch. 3: Business Model and Strategic Plan

3 - 36 Ch. 3: Business Model and Strategic Plan

3 - 37 Ch. 3: Business Model and Strategic Plan

 Consider four aspects of a small company:

3 - 38 Ch. 3: Business Model and Strategic Plan

 Unique set of capabilities a company develops in key areas,

 They are what a company does best.

3 - 39 Ch. 3: Business Model and Strategic Plan

 The consortium - comprising of the Egyptian-American Enterprise Fund

1 - 40 Ch. 1: The Foundations of

Ch. 3: Business Model and Strategic Plan

3 - 42 Ch. 3: Business Model and Strategic Plan

 Vision – the result of an entrepreneur’s dream of

3 - 43 Ch. 3: Business Model and Strategic Plan

 Oxfam: A just world without poverty

3 - 44 Ch. 3: Business Model and Strategic Plan

3 - 45 Ch. 3: Business Model and Strategic Plan

 Addresses question:“What business are we in?”

The mission is a written expression of how the company will reflect an

 Serves as a “strategic compass.”

3 - 46 Ch. 3: Business Model and Strategic Plan

 Elements of a mission statement:

3 - 47 Ch. 3: Business Model and Strategic Plan

 Apple Mission Statement :