BACHELOR OF SCIENCE HOSPITALITY MANAGEMENT

MODULE 2
Chapter 2 – Feasibility Analysis
Source: Entrepreneurship (6th Edition) by Barringer and Ireland, 2019

Course: GE-Elec:EM The Entrepreneurial Mind

Instructor: IVAN P. ANGELES
Contact #: 09053133810
Email Address: [email protected]

I. OVERVIEW:
The Content of this module will focus on the second chapter of the course GE-Elec:EM The
Entrepreneurial Mind. This chapter introduces feasibility analysis and makes the case for the
importance of feasibility analysis as a way of testing the potential viability of a business idea. The
chapter stresses that the proper time to complete a feasibility analysis is after opportunity recognition
but before the completion of a business plan. The value of completing a concept statement is
discussed. A concept statement is a one-page description of a business idea, which an entrepreneur
uses to solicit feedback about the potential viability of the idea. You will be given 3 weeks to complete
this module. There will be Performance Tasks, Pre-assessment and written output as a part of
assessment for this chapter. Instruction for Performance task will be given in this module and the link
for written output using google forms will be given by the instructor.

LEARNING OUTCOMES
At the end of this module, you are expected to:
• Explain feasibility analysis and its importance

II. CONTENT:
Pre-Assessment 2 (PA2): Answer this before you proceed. Link for the Pre-Assessment will be posted in
Google Classroom assigned in this Subject. Please reach out to me via my contact number or email
indicated above. If you won’t be able to answer the Pre-Assessment due to lack of internet connectivity
and other difficulties, I will provide you an alternative way to answer this Pre-Assessment.

CHAPTER OUTLINE

I. Feasibility Analysis
II. Product/Service Feasibility Analysis
A. Product/Service Desirability
B. Product/Service Demand
III. Industry/Target Market Feasibility Analysis
A. Industry Attractiveness
B. Target Market Attractiveness
IV. Organizational Feasibility Analysis
A. Management Prowess
B. Resource Sufficiency
V. Financial Feasibility Analysis
A. Total Start-Up Cash Needed
B. Financial Performance of Similar Businesses
C. Overall Financial Attractiveness of the Proposed Venture
VI. A Feasibility Analysis Template

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I. Feasibility Analysis

a. Feasibility analysis is the process of determining if a business idea is viable.

b. As a preliminary evaluation of a business idea, a feasibility analysis is completed to determine if
an idea is worth pursuing and to screen ideas before spending resources on them.
c. It follows the opportunity recognition stage but comes before the development of a business
plan, as illustrated in Figure 3.1 in the reference book.
d. Although the sequence pictured in Figure 3.1 makes perfect sense, statistics show that the
majority of entrepreneurs do not follow this pattern before launching their ventures. Several
studies have investigated why this is the case. The consensus of the research is that
entrepreneurs tend to underestimate the amount of competition there will be in the marketplace
and tend to overestimate their personal chances for success.
e. Completing a feasibility analysis requires both primary and secondary research. Primary
research is research that is collected by the person or persons completing the analysis.
Secondary research probes data that is already collected.

II. Product/Service Feasibility Analysis

• Product/service feasibility analysis is an assessment of the overall appeal of the product or

service being proposed.
• There are two components to product/service feasibility analysis: product/service desirability
and product/service demand.

A. Product/Service Desirability—The first component of product/service feasibility analysis is to affirm that

the proposed product or service is desirable and serves a need in the marketplace.

1. Concept Test

a. A concept test entails showing a preliminary description of a product or service idea, called a
concept statement, to industry experts and prospective customers to solicit their feedback. It is a
one-page document that normally includes
(1) a description of the product or service,
(2) the intended target market,
(3) the benefits of the product or service,
(4) a description of how the product or service will be positioned relative to competitors,
and
(5) a brief description of the company’s management team.
b. After the concept statement is developed, it should be shown to at least 25 people who are
familiar with the industry that the firm plans to enter and can provide informed feedback.
c. The concept statement for a fictitious company named New Venture Fitness Drinks is included
in Figure 3.2 in the Reference book

i. A description of the product or service being offered

ii. The intended target market
iii. The benefits of the product or service
iv. A description of how the product will be positioned relative to similar ones in the market
v. A brief description of the company’s management team

2. Online Tools Available for Completing Feasibility Analysis

a. Rather than developing a formal concept statement, some entrepreneurs conduct their initial
product/service feasibility analysis by simply talking through their ideas with prospective
customers. The ideal combination is to do both—distribute a concept statement and engage in
verbal give-and-take with as many industry experts and prospective customers as possible.
b. There are also a growing number of online tools that help entrepreneurs quickly and
inexpensively make contact with prospective customers and complete other steps in the
feasibility analysis process. A sample of the online tools that are available are provided in Table
3.2 in the reference book.

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B. Product/Service Demand—The second component of product/service feasibility analysis is to

determine if there is demand for the product or service. The commonly used methods for doing this are
shown below.

1. Talking Face-to-Face with Potential Customers

a. The only way to know if your product or service is what people want is by talking to them. The
idea is to gauge customer reaction to the general concept of what you want to sell.
Entrepreneurs are often surprised to find out that a product idea that they think solves a
compelling problem gets a lukewarm reception when they talk to actual customers.

2. Utilizing Online Tools, Such As Google AdWords and Landing Pages, to Assess Demand

a. Another common approach to assessing product demand is to use online tools, such as Google
AdWords and landing pages.
b. A landing page is a single Web page that typically provides direct sales copy, such as “click
here to buy a Hawaiian vacation.” The methodology for using Google AdWords and landing
pages to assess the demand for a new product or service is explained in the chapter.

3. Library, Internet, and Gumshoe Research

a. The third way to assess demand for a product or service idea is by conducting library, Internet,
and gumshoe research. Although talking to prospective customers is critical, collecting
secondary data on an industry or business idea is also helpful.
b. For your particular product or service, you need archival as well as primary forms of research to
assess likely demand. Your college or university library is a good place to start.
c. The Internet is also a valuable resource. The Internet Resource Table in Appendix 3.3 provides
specific recommendations of online resources to utilize.
d. Simple gumshoe research is also important for gaining a sense of the likely demand for a
product or service idea. A gumshoe is a detective or an investigator who scrounges around for
information or clues wherever they can be found.

III. Industry/Target Market Feasibility Analysis

• Industry/target market feasibility is an assessment of the overall appeal of the industry and
the target market for the product or service being proposed.
• An industry is a group of firms producing a similar product or service, such as airplanes,
fitness drinks, or children’s toys. A target market is the limited portion of the industry that a
particular business goes after. Most firms do not try to service an entire industry.

A. Industry Attractiveness—Industries vary in terms of their overall attractiveness. In general, the most
attractive industries have the following characteristics (Table 3.4):

1. Are young rather than old

2. Are early rather than late in their life cycle
3. Are fragmented rather than concentrated
4. Are growing rather than shrinking
5. Are selling products or services that customers “must have” rather than “want to have”
6. Are not crowded
7. Have high rather than low operating margins
8. Are not highly dependent on the historically low price of a key raw material, such as gasoline or
flour, to remain profitable

B. Target Market Attractiveness

1. A target market is a place within a larger market segment that represents a narrow group of customers
with similar needs.
2. The challenge in identifying an attractive target market is to find a market that’s large enough to avoid
attracting competitors at least until the entrepreneurial venture can get off to a successful start.
3. The sources of information to mine and tap are not as obvious when investigating target market
attractiveness opposed to industry attractiveness.
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IV. Organizational Feasibility Analysis

• Organizational feasibility analysis is conducted to determine whether a proposed venture

has sufficient management expertise, organizational competence, and resources to
successfully launch. There are two primary issues to consider in this area: management
prowess and resource sufficiency.

A. Management Prowess

1. A firm should candidly evaluate the prowess, or ability, of its management team.
2. Two of the most important factors in this area are the passion that the sole entrepreneur or
management team has for the business idea and the extent to which the management team or sole
entrepreneur understands the markets in which the firm will compete.

B. Resource Sufficiency

1. The second area of organizational feasibility analysis is to determine whether the potential new
venture has sufficient resources to move forward in order to successfully develop a product or
service.
2. The focus in organizational feasibility analysis should be on nonfinancial resources that are critical
to many start-ups’ success (Table 3.5).
3. Types of nonfinancial resources that are critical to many start-ups’ success:

a. Affordable office space

b. Lab space, manufacturing space, or space to launch a service business
c. Contract manufacturers or service providers
d. Key management employees (now and in the future)
e. Key support personnel (now and in the future)
f. Key equipment needed to operate the business (computers, machinery, delivery vehicles)
g. Ability to obtain intellectual property protection
h. Support of local governments and state government if applicable for business launch
i. Ability to form favorable business partnerships

V. Financial Feasibility Analysis

• Financial feasibility analysis is the final component of a comprehensive feasibility analysis.

For feasibility analysis, a preliminary financial assessment is usually sufficient.
• The most important issues to consider at this state are total start-up cash needed, financial
performance of similar businesses, and the overall financial attractiveness of the proposed
venture.

A. Total Start-Up Cash Needed

1. The first issue refers to the total cash needed to prepare the business to make its first sale. An
actual budget should be prepared that lists all the anticipated capital purchases and operating
expenses needed to generate the first $1 in revenues.

a. The financial feasibility analysis should state specifically where the money will come from to
fund the venture’s start-up costs.

B. Financial Performance of Similar Businesses

1. The second component of financial feasibility analysis is estimating a proposed start-up’s potential
financial performance by comparing it to similar, already established, businesses. Obviously, this
number will result in approximate rather than exact numbers.
2. There are several ways of doing this, all of which involve a little ethical detective work.

C. Overall Financial Attractiveness of the Proposed Venture

1. A number of other factors are associated with evaluating the financial attractiveness of a proposed
venture.

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2. Typically, these evaluations are based primarily on a new venture’s projected financial rate of
return. At the macro level, the following factors should be considered to determine whether the
projected return is adequate to justify the launch of the business.

a. The amount of capital invested

b. The risks assumed in launching the business
c. The existing alternatives for the money being invested
d. The existing alternatives for the entrepreneur’s time and efforts

3. Opportunities demanding substantial capital, requiring long periods of time to mature, and having a
lot of risk involved make little sense unless they provide high rates of return.

D. Overall Attractiveness of the Investment

1. A number of other financial factors are associated with promising business opportunities. Examples
are reflected in Table 3.6 in the textbook.

VI. A Feasibility Analysis Template

A. First Screen, shown in Appendix 3.2, is a template entrepreneurial firms use to complete a
feasibility analysis.
B. It is called First Screen because a feasibility analysis is an entrepreneur’s (or group of
entrepreneurs’) initial pass at determining the feasibility of a business idea.
C. The mechanics for filling out the First Screen worksheet are straightforward. It maps the four areas
of feasibility analysis described in the chapter, accentuating the most important points in each area.
D. The final section of the worksheet, “Overall Potential,” includes a section that allows for suggested
revisions to the business idea to improve its potential or feasibility.

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III. Evaluation:
Application Type Activity: If possible, put your activity in a word document and send it to your instructor via
google classroom. If it’s not possible, write your activity in a one whole sheet of paper and take a picture of it
and send it to your instructor via google classroom or Facebook messenger.
Performance Task 3 (PT3)
Individual Activity - Students will be tasked to answer series of questions about Finding the Right Business
Partner
Partnering for Success
Finding the Right Business Partner

1. Think about your personality and work habits. What type of person (in terms of personality and work
habits) do you think you’d work well with and what type of person do you think you’d be in constant conflict
with?
2. Do you think it’s a good idea or a bad idea to form a business partnership with a close friend? How could
you go about discerning if a good friend would make for a good business partner.

3. Spend some time looking at LinkedIn. How could you use LinkedIn to help find a business partner?

TARGET ACCEPTABLE UNACCEPTABLE Score

HIGH LOW

17-20 15-16 13-14 8-12

Interesting
content and
Some interesting
presentation; Conventional ideas Cursory; gives the
content; points
ideas well- or clichés; little impression of writing
Content not sustained or
conceived and supporting detail just to complete the
not fully
developed with included. assignment.
developed.
sufficient
examples.
9-10 7-8 6 4-5
Logical
Logical Disorganized; appears
Structure, progression of
progression of Gaps in logic or no to have been written
Logic and ideas with well-
ideas but often transitions. as thoughts occurred
Transitions executed
lacks transitions. to the writer.
transitions.
5 4 3 2
Confined to
Message is largely
simpler Errors frequently
incomprehensible due
Appropriate sentences or affect
to inaccurate
level of structures with comprehensibility,
grammar, which alters
Grammatical complexity in very few errors or very basic types
or obscures it, OR
Accuracy syntax with OR shows variety of errors (subject-
reader must know
very few errors, and complexity in verb agreement;
English to
if any. syntax with errors noun-adjective
comprehend much of
that do not affect agreement, etc.)
the message.
comprehensibility.
5 4 3 2
Correct spelling
(including
accents) and English spelling and
Punctuation,
punctuation; Occasional punctuation: no
Spelling, Frequent
neatly typed mechanical accents; mechanical
and mechanical errors.
with correct errors. errors in most
Presentation
format as sentences.
specified
(MLA).
Total

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Performance Task 4 (PT4)

Group Activity - Students will be divided into groups and conduct a feasibility analysis of their chosen business
opportunity.

PART 1: STRENGTH OF THE BUSINESS IDEA

For each item, circle the most appropriate answer and make note of the (-1), (0), or (+1) score.

Low Potential Moderate High Potential

(-1) Potential (0) (+1)

1. Extent to which the idea: Weak Moderate Strong

• Takes advantage of an environmental
trend
• Solves a problem
• Addresses an unfilled gap in the
marketplace
2. Timeliness of entry to market Not timely Moderately timely Very timely
3. Extent to which the idea “adds value” for
its buyer or end user Low Medium High

4. Extent to which the customer is satisfied Very satisfied Moderately satisfied Not very satisfied or
by competing products that are already ambivalent
available

5. Degree to which the idea requires Substantial changes Moderate changes Small to no changes
customers to change their basic practices required required required
or behaviors

PART 2: INDUSTRY-RELATED ISSUES

Low Potential Moderate High Potential
(-1) Potential (0) (+1)

1. Number of competitors Many Few None

2. Stage of industry life cycle Maturity phase or Growth phase Emergence phase
decline phase

3. Growth rate of industry Little or no growth Moderate growth Strong growth

4. Importance of industry’s products “Ambivalent” “Would like to have” “Must have”

and/or services to customers

5. Industry operating margins Low Moderate High

PART 3: TARGET MARKET AND CUSTOMER-RELATED ISSUES

Low Potential Moderate High Potential
(-1) Potential (0) (+1)

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1. Identification of target market for the Difficult to identify May be able to Identified
proposed new venture identify
2. Ability to create “barriers to entry” for Unable to create
potential competitors May or may not be Can create
able to create
3. Purchasing power of customers Low
Moderate
4. Ease of making customers aware of the High
new product or service Low
Moderate
High

5. Growth potential of target market Low Moderate High

PART 4: FOUNDER- (OR FOUNDERS-) RELATED ISSUES

Low Potential Moderate High Potential
(-1) Potential (0) (+1)
1. Founder or founders experience in the No experience Moderate experience Experienced
industry
2. Founder or founders skills as they No skills Moderate skills Skilled
relate to the proposed new venture’s
product or service
3. Extent of the founder or founders None Moderate Extensive
professional and social networks in
the relevant industry
4. Extent to which the proposed new Weak Moderate Strong
venture meets the founder or
founders personal goals and
aspirations
5. Likelihood that a team can be put Unlikely Moderately likely Very likely
together to launch and grow the new
venture

PART 5: FINANCIAL ISSUES

Low Potential Moderate High Potential
(-1) Potential (0) (+1)
1. Initial capital investment High Moderate Low
2. Number of revenue drivers (ways in One Two to three More than three
which the company makes money)
3. Time to break even More than two One to two years Less than one year
years
4. Financial performance of similar Weak Modest Strong
businesses
5. Ability to fund initial product (or service) Low Moderate High
development and/or initial startup
expenses from personal funds or via
bootstrapping

OVERALL POTENTIAL
Each part has five items. Scores will range from -5 to +5 for each part. The score is a guide—there is no established rule-of-thumb for the
numerical score that equates to high potential, moderate potential, or low potential for each part. The ranking is a judgment call.
Overall Potential of the Suggestions for
Business Idea Based on Improving the
Score (-5 to +1) Each Part Potential

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High potential
Moderate potential
Part 1:
Strength of Business Idea Low potential

High potential
Part 2:
Industry-Related Issues Moderate potential
Low potential

Part 3:
High potential
Target Market and
Customer-Related Issues Moderate potential
Low potential

Part 4:
Founder- (or
Founders-) Related High potential
Issues Moderate potential

Low potential

Part 5: High potential

Financial Issues Moderate potential
Low potential
Overall Assessment High potential
Moderate potential
Low potential
Summary—briefly summarize your justification for your overall assessment:

Written Output 2 (WO2): Link for WO1 will be posted in Google Classroom assigned in this Subject a day
before the end of 3 weeks duration for this module. Please reach out to me via my contact number or email
indicated at the front page, if you won’t be able to answer the Written Output due to lack of Internet
Connectivity of other difficulties. I will provide you an alternative way to answer this Written output.

IV. References

Entrepreneurship (6th Edition) by Barringer and Ireland, 2019

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