done no change W3-Chapter 4

done no change W3-Chapter 4 - TR2201 Entrepreneurial...

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Unformatted text preview: TR2201 Entrepreneurial Marketing KWOK Ying Yao [email protected] CHAPTER 4 Conducting a Feasibility Analysis and Crafting a Winning Business Plan 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?" 4-3 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. Ch. 4: Feasibility Analysis & Business Plan 4-4 Elements of a Feasibility Analysis Industry and Market Feasibility Product or Service Feasibility Financial Feasibility Ch. 4: Feasibility Analysis & Business Plan 4-5 Elements of a Feasibility Analysis Industry and Market Feasibility Product or Service Feasibility Financial Feasibility Ch. 4: Feasibility Analysis & Business Plan 4-6 Industry and Market Feasibility Analysis Two areas of focus: 1. 2. Determining how attractive an industry is overall as a "home" for a new business. Identifying possible niches a small business can occupy profitably. Ch. 4: Feasibility Analysis & Business Plan 4-7 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 Ch. 4: Feasibility Analysis & Business Plan 4-8 Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Bargaining Power of Buyers Buyers Threat of Substitute Products or Services Substitutes Ch. 4: Feasibility Analysis & Business Plan 4-9 Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Bargaining Power of Buyers Buyers Threat of Substitute Products or Services Substitutes Ch. 4: Feasibility Analysis & Business Plan 4 - 10 Rivalry Among Companies Strongest of the five forces 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 Ch. 4: Feasibility Analysis & Business Plan 4 - 11 Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Threat of Substitute Products or Services Bargaining Power of Buyers Buyers Substitutes Ch. 4: Feasibility Analysis & Business Plan 4 - 12 Bargaining Power of Suppliers The greater the leverage of suppliers, the less attractive the industry. 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 Ch. 4: Feasibility Analysis & Business Plan 4 - 13 Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Threat of Substitute Products or Services Bargaining Power of Buyers Buyers Substitutes Ch. 4: Feasibility Analysis & Business Plan 4 - 14 Bargaining Power of Buyers Buyers' influence is high when number of customers is small and cost of switching to a competitor's product is low. 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 ...Asymmetry of Information Items account for a small portion of customers' finished products 4 - 15 Ch. 4: Feasibility Analysis & Business Plan Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Threat of Substitute Products or Services Bargaining Power of Buyers Buyers Substitutes Ch. 4: Feasibility Analysis & Business Plan 4 - 16 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 Cost advantages are not related to company size Buyers are not loyal to existing brands Government does not restrict the entrance of new companies Ch. 4: Feasibility Analysis & Business Plan 4 - 17 Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power of Suppliers Industry Competitors Suppliers Rivalry among existing firms Threat of Substitute Products or Services Bargaining Power of Buyers Buyers Substitutes Ch. 4: Feasibility Analysis & Business Plan 4 - 18 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 Ch. 4: Feasibility Analysis & Business Plan 4 - 19 Five Forces Matrix Ch. 4: Feasibility Analysis & Business Plan 4 - 20 Business Prototyping Entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work. Recognizes that a business idea is a hypothesis that needs to be tested before taking it full scale. Ch. 4: Feasibility Analysis & Business Plan 4 - 21 Elements of a Feasibility Analysis Industry and Market Feasibility Product or Service Feasibility Financial Feasibility Ch. 4: Feasibility Analysis & Business Plan 4 - 22 Product or Service Feasibility Analysis Determines the degree to which a product or service idea appeals to potential customers and identifies the resourced necessary to produce it. Two questions: 1. 2. Are customers willing to purchase our product or service? Can we provide the product or service to customers at a profit? 4 - 23 Ch. 4: Feasibility Analysis & Business Plan 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 In-home trials 4 - 24 Ch. 4: Feasibility Analysis & Business Plan Elements of a Feasibility Analysis Industry and Market Feasibility Product or Service Feasibility Financial Feasibility Ch. 4: Feasibility Analysis & Business Plan 4 - 25 Financial Feasibility Analysis Capital requirements an estimate of how much start-up capital is required to launch the business. Estimated earnings forecasted income statements Return on investment Combining the previous two estimates to determine how much investors can expect their investments to return. 4 - 26 Ch. 4: Feasibility Analysis & Business Plan The 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. Ch. 4: Feasibility Analysis & Business Plan 4 - 27 The Business Plan: Two Essential Functions 1. Guiding the company by charting its future course and defining its strategy for following it. Attracting lenders and investors who will provide needed capital. 4 - 28 2. Ch. 4: Feasibility Analysis & Business Plan 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: A company's position relative to its competitors. Management's ability to create a company 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. 4 - 29 Ch. 4: Feasibility Analysis & Business Plan Key Elements of a Business Plan Title Page and Table of Contents Executive Summary Vision and Mission Statement Company History Business and Industry Profile Our Business Plan Ch. 4: Feasibility Analysis & Business Plan 4 - 30 FIGURE 4.3 Mission, Goals and Objectives Ch. 4: Feasibility Analysis & Business Plan 4 - 31 Key Elements of a Business Plan Title Page and Table of Contents Executive Summary Mission Statement Company History Business and Industry Profile Business Strategy Description of Products/Services Ch. 4: Feasibility Analysis & Business Plan The Business Plan 4 - 32 Features vs. Benefits Feature a descriptive fact about a product or service: "an ergonomically designed, more comfortable handle" Benefit what a customer gains from the product or service feature: "fewer problems with carpal tunnel syndrome and increased productivity" Ch. 4: Feasibility Analysis & Business Plan 4 - 33 Key Elements of a Business Plan (continued) Marketing Strategy Document market claims Show customer interest The Business Plan Competitor Analysis Description of Management Team Plan of Operation Projected Financial Statements Loan or Investment Proposal 4 - 34 Our Business Plan Ch. 4: Feasibility Analysis & Business Plan 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. 4 - 35 Ch. 4: Feasibility Analysis & Business Plan Tips on Preparing a Business Plan Make sure your plan has an attractive cover. (First impressions are crucial.) Rid your plan of all spelling and grammatical errors. Make your plan visually appealing. Include a table of contents to allow readers to navigate your plan easily. Make it interesting. 4 - 36 Ch. 4: Feasibility Analysis & Business Plan Tips on Preparing a Business Plan Your plan must prove that the business will make money (not necessarily immediately, but eventually). Use spreadsheets to generate financial forecasts. Always include cash flow projections. Keep your plan "crisp" between 25 and 40 pages long. Tell the truth always. 4 - 37 (continued) Ch. 4: Feasibility Analysis & Business Plan The "5 Cs" of Credit Capital Capacity Collateral Character Conditions Ch. 4: Feasibility Analysis & Business Plan 4 - 38 Presenting the Plan Demonstrate enthusiasm, but don't be overemotional. Know your audience thoroughly. "Hook" investors quickly with an up-front explanation of the venture, its opportunities, and its benefits to them. Hit the highlights; focus on the details later. Keep your presentation simple 2 or 3 major points. 4 - 39 Ch. 4: Feasibility Analysis & Business Plan Presenting the Plan (continued) Avoid overloading your audience with technological jargon. Use visual aids. Close by reinforcing the nature of the opportunity. Be prepared (with details) for potential investors' questions. Follow up with every investor to whom you make your presentation. 4 - 40 Ch. 4: Feasibility Analysis & Business Plan 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 4 - 41 ...
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This note was uploaded on 01/18/2012 for the course TR 3001 taught by Professor Kok during the Spring '08 term at National University of Singapore.

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