Difference between feasibility study and business plan.

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Difference between feasibility study and business plan. A feasibility study should provide a comprehensive analysis and evaluation of the market, operational, technical, managerial and financial aspects of your business concept or opportunity.

 

A feasibility study is carried out with the aim of finding out the workability and profitability of a business venture. Before anything is invested in a new business venture, a feasibility study is carried out to know if the business venture is worth the time, effort and resources.

On the other hand, a business plan is developed only after it has been established that a business opportunity exist and the venture is about to commence. This simply means that a business plan is prepared after a feasibility study has been conducted.

A feasibility study should provide a comprehensive analysis and evaluation of the market, operational, technical, managerial and financial aspects of your business concept or opportunity. A comprehensive study can then evolve into the market-driven strategic plan that is the road map for all subsequent decisions (Noko, 2015).

A feasibility study is not a business plan. Rather, it provides an assessment of the viability of the business under consideration

The business plan focuses on what steps are required to be completed if it is decided to go ahead with the proposed business launch. The feasibility study, however, identifies and analyzes several product or service alternatives and recommends the best business model.

A good outline for a feasibility study includes:

  • Introduction
  • Product or Service
  • Technology
  • Market Environment
  • Competition
  • Industry
  • Business Model
  • Market and Sales Strategy
  • Production Operations Requirements
  • Management and Personnel Requirements
  • Regulations and Environmental Issues
  • Critical Risk Factors
  • Financial Predictions Including:  Balance Sheet, Income Statement, Cash Flow Statement, Break Even Analysis, and Capital Requirements
  • Conclusion

THE LIFE CYCLE OF A BUSINESS

The life cycle of a business refers to the key stages (start up, growth, maturity and decline) that occur over the life of a business. Each stage has its own unique challenges and opportunities that must be taken into consideration. The business plan should describe a specific strategy for how to deal effectively with each stage.

The following provides a description of the four main stages of a business life cycle:

1. Start Up

In the start-up phase, the product and demand for it is under development. Sales are generally low, and earnings may even be negative. Competition may slowly encroach on earnings during this stage, as other businesses become aware of the market potential. At this stage, demand for the new product or service must be created, requiring intensive marketing campaigns and promotions. There is risk at this stage. Will consumers accept the product or service being offered at the price required?

2. Growth Stage

In the growth stage, there are increasing sales as the business grows into new markets, and costs fall due to economies of scale, allowing profitability to increase. Within this stage, marketing risk decreases as consumer acceptance and consumer brand loyalty increases. The risk in the growth stage is related to the inevitable increase in competition from new entrants.

3. Maturity

In this stage, businesses in the industry are becoming more efficient. Those who are more efficient earn a competitive advantage over those who are not. At this stage, however, competition and/or alternative product promotion can be aggressive. The risk in this stage is that increased competition may result in slowing growth rates

Decline

In the stage of decline, the market has become saturated, the technology changes or consumer tastes have moved on. Sales volume declines if the product or service has not kept up with those changes, or if the industry has moved on to the next thing.  Companies in this position may sell production assets that are no longer required, move to areas that offer reduced facility and/or labour costs, withdraw from that market, or merge with other companies.

IDEA ASSESSMENT

Great business ideas can come from many sources, but generally they are a result of creative thinking that reflects new insights into an existing product or service. Every great business idea provides an opportunity to create economic value for the business.

The idea must meet or create a customer need, provide a competitive advantage, allow for appropriate time-to-market, and provide a reasonable return to investors.

A useful tool to provide an assessment of a business idea is a SWOT analysis created by the Boston Consulting Group. A SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities and Threats that prevail at a particular time, for a project or business venture.

  • Internal factors – The strengths and weaknesses internal to the organization.
    • Strengths: attributes of the organization that is helpful to achieving the objective.
    • Weaknesses: attributes of the organization that is harmful to achieving the objective.
  • External factors – The opportunities and threats presented by the external environment to the organization
  • o Opportunities: external conditions those are helpful to achieving the objective.
    • Threats: external conditions which could do damage to the business’s performance or work against achieving the objective.

Within an organization, features that may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include personnel, finance, manufacturing capabilities, and so on.

External factors may include macroeconomic matters, technological change, legislation, and sociocultural changes, as well as changes in the marketplace or competitive position.

The results of a SWOT are often presented in the form of a matrix.

The next steps in planning for achievement of the selected objective can follow from whatever is revealed in the SWOT.

The plan needs to show how the business will use its strengths, mitigate or backfill its weaknesses, seize opportunities and defuse or dodge threats.

A SWOT analysis is just one method of analysis, and has its own weaknesses. For example, it may tend to persuade companies to compile lists, rather than think about what is actually important in achieving objectives. It may also present the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to prematurely eliminate any candidate SWOT entry. The importance of each item generated will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Guidelines for of completing a SWOT Analysis

  • Be as specific as possible. Avoid any grey areas or generalities.
  • Describe internal factors in terms of the competition: as superior, better than, equal to or worse than your competition.
  • Be as realistic as possible regarding your strengths and weaknesses.
  • Always be Objective and
  • Keep the SWOT analysis as simple as possible, but include any and all relevant issues.
  • One of the points of doing a SWOT analysis is that it helps to generate an appropriate and open conversation among the group, about the reality of the situation. A realistic assessment increases the opportunity to create an effective plan. Try to use the SWOT to generate that conversation.

SWOT Analysis for Initial Business Idea or Feasibility of the Business Idea

Components of Feasibility Study

The components of feasibility are outlined in this section to provide a cooperative with a guide when developing a study or have received a completed study from a consultant. In order for a business to succeed the feasibility study is the first step to creating a viable business entity.  

MARKET FEASIBILITY

Market feasibility identifies whether the product or service is viable within the competitive environment of the industry or marketplace. The study needs to identify and assess individual opportunities, and provide rationalization to proceed with that opportunity, or assess other alternatives. The study needs to include the total market potential and incorporate customer opinions regarding the particular service or product.

The Industry Description

The industry description examines the industry or market segment and provides an assessment of its potential size and scope. The industry description should determine if the industry or market segment is stable, expanding or contracting, and what part of the industry life cycle it occupies. The description should also discuss the industry’s primary purpose, market served, scope in terms of annual sales, range of products and services, customer groups and major competitors. The history of the industry, how it changed and grown (or contracted) over time is also helpful. Changes in consumer demand, products and services, delivery and distribution models should be considered.

Here are some of the concepts that an industry description will help with:

1. Industry Competitiveness

Traditionally, competition between two or more businesses drives profits lower. A highly concentrated industry or market segment is one in which market share is held by the few largest companies. When a very few companies hold, the vast majority of market share, there may be very little actual competition and the market may appear closer to a monopoly. An industry or market segment is considered to have low concentration when many companies own a small share of the market. An industry with very low concentration industry is considered to be fragmented, and as such can be highly competitive.

The amount of competition within an industry or market segment is influenced by the following:

  • Large number of businesses – This increases competition as many companies compete for a limited number of consumers and inputs.
  • Low market growth – This result in firms having to struggle for a slowly growing market share.
  • High fixed costs – When an industry has high fixed costs (the cost of getting into and staying in the business), then players need to look for efficiencies in the size of their operation to achieve economies of scale and increase their potential profit.
  • Perishable goods – These are required to be sold quickly, and cannot be inventoried for long. This may lead to price cutting and other competitive dynamics, as businesses may need to unload large volumes of the same product around the same time.
  • Limited exchange costs – This has to do with the cost to the customer of exchanging or switching products or services.
  • Industry or market segment consolidation cycles – If competition increases to a point where there are so many suppliers that supply starts to exceed demand, some businesses will fail and the industry will consolidate to the point where the supply meets demand.

2. Barriers to Entry

In theory, given a supply of capital, businesses should be able to enter an industry or market segment without barriers. In reality, this is seldom the case. There are a number of factors that restrict the ability of new businesses to enter and start operating in a particular industry.

The ease with which someone else can enter a market determines the likelihood that a business will face new competitors. The easier it is to enter the industry or market, the faster profits will be eroded by competition. On the other hand, the harder it is for new entrants to appear, the longer the competitive advantage lasts. Mature businesses have often developed greater operational efficiencies because they faced the pressure of competition and found ways to dig in and remain viable.

The ease of entry into an industry or market segment depends upon two factors: how high are the barriers to entry in that industry, and how existing players react to new entrants. Existing competitors are most likely to react strongly against new entrants when there is a history of such behaviour, when the existing competitors have invested substantial resources, and when the industry is characterized by slow growth. In other words, the more that existing businesses have invested in the game, and the less there is to go around, the more likely they are to react strongly against newer players.

Research Process

Businesses may conduct market research at varying degrees of complexity or frequency. For example, a business might use a simple questionnaire to determine the demand in a small market, or may hire a professional market research firm to conduct research to assist them in developing a marketing strategy to launch a new product. Larger firms may have their own specialists on staff.

Regardless of the simplicity or complexity of your market research project, the Small Business Association of America believes that the following seven market research steps must be completed to provide accurate information:

 

Step One: Define Marketing Problems and Opportunities 

The market research process begins with identifying and defining the problems and opportunities that exist for your business, such as:

  • Launching a new product or service
  • Low awareness of your company and its products or services
  • Low uptake of your company’s products or services (the market is familiar with your company, but still is not doing business with you)
  • A poor company image and reputation
  • Problems with distribution; your goods and services are not reaching the buying public in a timely manner

 

Step Two: Set Objectives, Budget, and Timetables 

Objective: With a marketing problem or opportunity defined, the next step is to set objectives for your market research operations.

Budget: How much money are you willing to invest in your market research? How much can you afford? Your market research budget is a portion of your overall marketing budget. If you are planning on launching a new product or business, market research should account for as much as 10 per cent of your expected gross sales. 

Timetables: Prepare a detailed, realistic timeframe to complete all steps of the market research process. If your business operates in cycles, establish target dates that will allow the best accessibility to your market.

Step Three: Select Research Types, Methods, and Techniques 

There are two types of research: primary research (original information gathered for a specific purpose) and secondary research (information that already exists somewhere but needs to be interpreted for your use).

Step Four: Design Research Instruments 

The most common research instrument is the questionnaire. Keep these tips in mind when designing your market research questionnaire.

  • Keep it simple.
  • Begin the survey with general questions and move towards more specific questions.
  • Design a questionnaire that is graphically pleasing and easy to read.
  • Remember to pre-test the questionnaire.    Mix the form of the questions.  

Step Five: Collect Data 

To help you obtain clear, unbiased and reliable results, collect the data under the direction of experienced researchers.

Step Six: Organize and Analyze the Data 

Once your data has been collected, it needs to be cleaned. Cleaning research data involves editing, coding, and tabulating results. To make this step easier, start with a simply designed research instrument or questionnaire.

Step Seven: Present and Use Market Research Findings

Once marketing information about your target market, competition and environment is collected and analyzed, present it in an organized manner for use by the business.

Marketing Concepts

1. Commodities and Differentiated products

Commodities and differentiated products are the two ends of the product spectrum. A product is a commodity when all units of production are identical, regardless of who produces them. A differentiated product can be easily distinguished from those of its competitors. On the continuum between commodities and differentiated products, there are many degrees and combinations.

Commodities

A commodity means that each unit of a commodity is exactly like every other unit. For example, every bushel of number 1 Canadian Red Spring Wheat 11.5 per cent protein can be substituted for every other bushel of number 1 Canadian Red Spring Wheat 11.5 per cent protein. Because the identity of each producer’s wheat does not have to be kept separate, the wheat from many farmers can be mixed together. This also means that the price for wheat on any given day, at any given location, is the same for all farmers.

Commodities tend to be raw materials like corn, wheat, copper, crude oil, etc. Only commodities can be traded on “futures” markets because every unit is the same. Commodities are often inputs to other (“finished”) products. These finished products may in turn be differentiated ones.

2. Price Takers

People that produce commodities are referred to as “price takers.” This means that an individual producer has no control over his/her price. On any day, the producer must take what the market offers.

3. Differentiated Products

A company’s product is a differentiated product if it is unique and cannot be substituted for a competitor’s product. If the product is different, the producer can make the case that it is better. If it is a better product, in the eyes of customers, and they are willing to pay more, then the company can charge a higher price for it. The customers can see a difference in value between it and a possible substitute.

4. Price Maker

The producer of a differentiated product is said to be a price maker rather than a price taker. A price maker has some influence over price, but not as much as most people believe. Essentially, a producer of a differentiated product creates a separate market for that product, to the extent that they are able to do so through marketing activities and demand.

5. Perceptions Are Everything

There is the false perception in agriculture that the emergence of niche markets provides for unlimited product differentiation. For example, the organic milk market niche offers you the opportunity to differentiate your milk from commodity milk. While it does allow you to differentiate your milk from commodity milk, your organic milk is not necessarily a differentiated product.

Producing organic milk puts you in a different (albeit smaller) commodity market. Your product is no different than any other organic producer’s milk.

6. The Value Added Differentiated Fallacy

Differentiation only takes place when the product you produce is seen as different. So you need to convince organic milk purchasers that your organic milk is better than that of your competitors. One way of doing this is to create a brand for your product (e.g. Johnson’s Better Organic Milk), and promote your brand to organic milk purchasers.

7. Target Marketing

Target Marketing is the practice of directing the marketing effort at a specific market segment. A target market, or segment, on which a business may focus, is a group of potential buyers that the business believes will want to or do want to buy that product.

  1. What is Branding?

Branding is one of the most important factors influencing an item’s success or failure in today’s marketplace. A brand is a combination of name, words, symbols, design, reputation and association. It identifies a product and/or its company and differentiates it from competition.

  1. Niche Marketing

Niche marketing is marketing a product or service in a small portion of a market that is not being readily served by the mainstream product or service providers. These “niches” can be geographic areas, a specialty industry, a specific demographic or ethnic group, one gender, a specific interest group, or other special group of people.

10. Ethnic Marketing

What is ethnicity? It is a multidimensional expression of identity that includes race, origin or ancestry, language and religion. It is influenced by immigration, blending and intermarriage, which very often influence the strength of ethnic identification. It is often associated with cultural practices, customs and beliefs and sometimes dress and eating habits. Ethnicity depends partly on self-identification. Everyone chooses whether they want to identify with a particular ethnic group or not.

Identifying with more than one group is more and more common, as cultural mixing is increasingly on the rise.

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