Bài giảng Designing Business Plan - Unit 02 Developing, screening business ideas and conducting feasibility analysis

NGO QUY NHAM DESIGNING BUSINESS PLAN Ngô Quý Nhâm Foreign Trade University NGO QUY NHAM Feasibility Analysis/Business Planning Process Identify a business Idea. Step 1 Screen/test the idea to determine its preliminary feasibility Step 2 Conduct full feasibility analysis Step 3 Prepare a written business plan Step 4 Present the business plan Step 2 Favorable result / proceed Unfavorabl e result / stop or revaluate idea Favorable result / proceed Unfavorabl e result / stop or revaluate idea NGO QUY NHAM DEVELOPING, SCREENING BUSINESS IDEAS AND CONDUCTING FEASIBILITY ANALYSIS Unit 02 NGO QUY NHAM WHERE DOES NEW BUSINESS IDEA COME FROM? NGO QUY NHAM Three most common sources of business ideas Changing Environmental Trends Unsolved Problems Gap in the marketplace 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 experienced a problem in their lives and then realized that the solution to the problems represented a business opportunities Unsolved Problems Changing Environmental Trends NGO QUY NHAM Three most common sources of business ideas Gap in the marketplace •  There are products and services customers want but that aren’t available through larger firm or aren’t available at all. Unsolved Problems Changing Environmental Trends NGO QUY NHAM 4 - 9 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?” NGO QUY NHAM 4 - 10 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. Feasibility Analysis NGO QUY NHAM Which factors should be used to evaluate the feasibility of a business idea? NGO QUY NHAM Discussion NGO QUY NHAM 4 - 13 Industry and Market Feasibility Product or Service Feasibility Financial Feasibility Elements of a Feasibility Analysis Organizational Feasibility NGO QUY NHAM Full Feasibility Analysis F  Introduction §  Name the proposed business & name of the founder(s) §  Summary of the business F  Part 1: Product/Service Feasibility §  Product/service desirability §  Product/service demand F  Part 2: Industry/Target market Feasibility §  Industry attractiveness §  Target market attractiveness §  Market timeliness F  Part 3: Organizational Feasibility §  Management prowess §  Resource sufficiency F  Part 4:Financial Feasibility §  Total start-up cash needed §  Financial performance of similar businesses §  Overall financial attractiveness of proposed venture NGO QUY NHAM 4 - 15 Ch. 4: Feasibility Analysis & Business Plan 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. NGO QUY NHAM 4 - 16 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? NGO QUY NHAM 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 4 - 18 Ch. 4: Feasibility Analysis & Business Plan 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 NGO QUY NHAM 4 - 19 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. NGO QUY NHAM Market Feasibility Analysis F  Market size and growth rate F  Profitability F  Competition intensity NGO QUY NHAM 4 - 21 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 NGO QUY NHAM 4 - 22 Five Forces Model Industry Competitors Rivalry among existing firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Substitutes Potential Entrants Threat of New Entrants Threat of Substitute Products or Services NGO QUY NHAM 4 - 23 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 NGO QUY NHAM 4 - 24 Five Forces Model Industry Competitors Rivalry among existing firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Substitutes Potential Entrants Threat of New Entrants Threat of Substitute Products or Services NGO QUY NHAM 4 - 25 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 NGO QUY NHAM 4 - 26 Five Forces Model Industry Competitors Rivalry among existing firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Substitutes Potential Entrants Threat of New Entrants Threat of Substitute Products or Services NGO QUY NHAM 4 - 27 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 NGO QUY NHAM 4 - 28 Five Forces Model Industry Competitors Rivalry among existing firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Substitutes Potential Entrants Threat of New Entrants Threat of Substitute Products or Services NGO QUY NHAM 4 - 29 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 new companies NGO QUY NHAM 4 - 30 Five Forces Model Industry Competitors Rivalry among existing firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Substitutes Potential Entrants Threat of New Entrants Threat of Substitute Products or Services NGO QUY NHAM 4 - 31 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 NGO QUY NHAM 4 - 32 Ch. 4: Feasibility Analysis & Business Plan Five Forces Matrix NGO QUY NHAM Organizational Feasibility F  Management team and capability F  Resource sufficiency NGO QUY NHAM 4 - 34 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. NGO QUY NHAM Full Feasibility Analysis