How Should Entrepreneurs Research the Venture’s Feasibility?

It’s important for entrepreneurs to research a venture’s feasibility by generating and evaluating business ideas. EVs thrive on ideas. Generating ideas is an innovative, creative process. It’s also one that will take time—not only in the beginning stages of the EV, but throughout the life of the business. Where do ideas come from?

Where do entrepreneurs say their idea for a business came from?23

  • 34.3 percent said sudden insight/chance

  • 23.5 percent said following a passion

  • 11.8 percent said a suggestion or collaboration

  • 10.8 percent said market research

  • 7.8 percent said “other”

Generating Ideas

Entrepreneurs cite unique and varied sources for their ideas. In another survey, 60 percent of the respondents said that “working in the same industry” was the major source of an idea for an EV. Other respondents cited personal interests or hobbies, looking at familiar and unfamiliar products and services, and opportunities in external environmental sectors.24

Here’s what entrepreneurs should look for as they explore idea sources: limitations of what’s currently available, new and different approaches, advances and breakthroughs, unfilled niches, or trends and changes.

Evaluating Ideas

Evaluating entrepreneurial ideas revolves around personal and marketplace considerations. Each of these assessments will provide an entrepreneur with key information about the idea’s potential. Exhibit 7–2 describes some questions that entrepreneurs might ask as they evaluate potential ideas.

Exhibit 7–2

Evaluating Potential Ideas

Personal Considerations Marketplace Considerations

  • Do you have the capabilities to do what you’ve selected?

  • Are you ready to be an entrepreneur?

  • Are you prepared emotionally to deal with the stresses and challenges of being an entrepreneur?

  • Are you prepared to deal with rejection and failure?

  • Are you ready to work hard?

  • Do you have a realistic picture of the venture’s potential?

  • Have you educated yourself about financing issues?

  • Are you willing and prepared to do continual financial and other types of analyses?

  • Who are the potential customers for your idea: who, where, how many?

  • What similar or unique product features does your proposed idea have compared to what’s currently on the market?

  • How and where will potential customers purchase your product?

  • Have you considered pricing issues and whether the price you’ll be able to charge will allow your venture to survive and prosper?

  • Have you considered how you will need to promote and advertise your proposed entrepreneurial venture?

Source: Robbins, Stephen P., Coulter, Mary, Management (Subscription), 14th Ed., © 2018. Reprinted and electronically reproduced by permission of Pearson Education, Inc., New York, NY.

A more structured evaluation approach that an entrepreneur might want to use is a feasibility study, which is an analysis of the various aspects of a proposed entrepreneurial venture designed to determine its feasibility. Not only is a well-prepared feasibility study an effective evaluation tool to determine whether an entrepreneurial idea is a potentially successful one, it also can serve as a basis for the all-important business plan. Exhibit 7–3 provides an outline of a possible approach to a feasibility study. Yes, it covers a lot of territory and takes a significant amount of time, energy, and effort to prepare it. But, an entrepreneur’s potential future success is worth that investment.

Exhibit 7–3

Feasibility Study

  1. Introduction, historical background, description of product or service

    1. Brief description of proposed entrepreneurial venture

    2. Brief history of the industry

    3. Information about the economy and important trends

    4. Current status of the product or service

    5. How you intend to produce the product or service

    6. Complete list of goodsor services to be provided

    7. Strengths and weaknesses of the business

    8. Ease of entry into the industry, including competitor analysis

  2. Accounting considerations

    1. Pro forma balance sheet

    2. Pro forma profit and loss statement

    3. Projected cash flow analysis

  3. Management considerations

    1. Personal expertise–strenths and weaknesses

    2. Proposed organizational design

    3. Potential staffing requirements

    4. Inventory management methods

    5. Production and operations management issues

    6. Equipment needs

  4. Marketing considerations

    1. Detailed product description

    2. Identify target market (who, where, how many)

    3. Describe place product will be distributed (location, traffic, size, channels,etc.)

    4. Price determination (competition, price lists, etc.)

    5. Promotion plans (role of personal selling, advertising, sales promotion,etc.)

  5. Financial considerations

    1. Start-up costs

    2. Working capital requirements

    3. Equity requirements

    4. Loans–amounts, type, conditions

    5. Breakeven analysis

    6. Collateral

    7. Credit references

    8. Equipment and building financing–costs and methods

  6. Legal considerations

    1. Proposed business structure (type; conditions, terms, liability, responsibility; insurance needs; buyout and succession issues)

    2. Contracts, licenses, and other legal documents

  7. Tax considerations: sales/property/employee; federal, state, and local

  8. Appendix: charts/graphs, diagrams, layouts, résumés, etc.

Source: Robbins, Stephen P., Coulter, Mary, Management (Subscription), 14th Ed., © 2018. Reprinted and electronically reproduced by permission of Pearson Education, Inc., New York, NY.

“Getting the Dirt” on Competitors

Part of researching an EV’s feasibility is looking at potential competitors. Here are some questions that might help entrepreneurs get information:

  • What types of products or services are competitors offering?

  • What are the major characteristics of these products or services?

  • What are their products’ strengths and weaknesses?

  • How do they handle marketing, pricing, and distribution?

  • What do they attempt to do differently from other competitors?

  • Do they appear to be successful at it? Why or why not?

  • What are they good at?

  • What competitive advantage(s) do they appear to have?

  • What are they not so good at?

  • What competitive disadvantage(s) do they appear to have?

  • How large and profitable are these competitors?

Once an entrepreneur has this information, he or she should assess how the proposed EV is going to “fit” into this competitive arena. Will the EV be able to compete successfully? This type of competitor analysis becomes an important part of the feasibility study and the business plan. If, after all this analysis, the situation looks promising, the final part of researching the venture’s feasibility is to look at the various financing options. This step isn’t the final determination of how much funding the venture will need or where this funding will come from but is simply gathering information about various financing alternatives.

Show me the Money

Getting financing isn’t easy, unless you have a rich relative who’s opened his or her pockets. Because funds likely will be needed to start the venture, an entrepreneur must research the various financing options. Possible financial options available to entrepreneurs are shown in Exhibit 7–4.

Exhibit 7–4

Possible Funding Sources

  • Entrepreneur’s personal resources (personal savings, home equity, personal loans, credit cards, etc.)

  • Financial institutions (banks, savings and loan institutions, government-guaranteed loan, credit unions, etc.)

  • Venture capitalists—external equity financing provided by professionally managed pools of investor money

  • Angel investors—a private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture

  • Initial public offering (IPO)—the first public registration and sale of a company’s stock

  • National, state, and local governmental business development programs

  • Other sources including television shows, judged competitions, crowdfunding, business accelerator programs, etc.

Source: Robbins, Stephen P., Coulter, Mary, Management (Subscription), 14th Ed., © 2018. Reprinted and electronically reproduced by permission of Pearson Education, Inc., New York, NY.

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset