Feasibility Study of Venture

What is Feasibility Study of Venture?

A feasibility study of a venture, often referred to as a business feasibility study, is an analysis conducted to evaluate the potential success of a new business venture or project. It aims to determine whether the proposed venture is viable, practical, and achievable. The study typically covers various aspects of the venture, including market potential, financial feasibility, technical feasibility, legal and regulatory considerations, and operational feasibility.

Significance of Feasibility Study

Before starting a venture, an entrepreneur needs to look into various aspects. A feasibility study analyses the viability of an idea. In other words, it ensures whether a venture is legally and technically feasible as well as economically justifiable. A feasibility study provides an entrepreneur with insight into whether the venture is worth the investment.

For example, sometimes a venture requires too many resources, which not only prevents those resources from performing other tasks but also may cost more than what can be earned back if the venture is started.

An effective feasibility study takes into consideration various aspects, such as the description of the product or service, accounting statements, details of operations and management, marketing research and policies, financial data, legal requirements, and tax obligations. A feasibility study is usually advantageous since it gives an entrepreneur and other stakeholders a comprehensive image of the project they are considering.

Some key benefits of conducting a feasibility study:

• Identifies new opportunities
  
  
• Provides valuable information for a “go/no-go” decision
  
  
• Narrows the business alternatives
  
  
• Identifies a valid reason to undertake the project
  
  
• Enhances the success rate by evaluating multiple parameters
  
  
• Aids decision-making on the project
  
  
• Identifies reasons not to proceed

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Creating a Business Model Canvas

The Business Model Canvas is a useful tool that allows an entrepreneur to quickly and easily comprehend a company model. Through the use of the business model canvas, the entrepreneur can gain insight into the customers to be served, what value propositions are provided through which channels, and how the firm will earn revenues.

Through the use of Business Model Canvas, an entrepreneur can fathom his business model as well as that of his competitors. It is a one-page outline that delineates both what the firm does and how it functions. Business Model Canvas provides insight into important activities and challenges associated with the desired initiative and how they correlate.

The Business Model Canvas helps in:

• Drawing a picture of what the idea entails
  
  
• Getting an understanding of the business
  
  
• Going through the process of making connections between what an idea is and how to make it into the business
  
  
• Looking at what kinds of customer decisions influence the use of systems
  
  
• Getting a clear idea of what the business will likely be

Business Model Canvas

Business Model Canvas helps an organization in answering several questions in different areas, which are:

• Key Partners
  • Who are the key partners/suppliers?
    
  • What are the motivations for partnerships?
    
    
• Key Activities
  • What key activities are required by the organization’s value proposition?
    
  • What activities are the most important ones in distribution channels, customer relationships, and revenue streams?
    

• Value Proposition
  • What core value is being delivered to the customer?
    
  • Which customer needs are being satisfied?
    

• Customer Relationship
  • What level of relationship does the target customer expect to establish with the organization?
    
  • How can that relationship be integrated into business in terms of cost and format?
    

• Customer Segment
  • For which classes of customers are values created?
    
  • Who is the most important customer for an organization?
    

• Key Resource
  • What key resources does your value proposition require?
    
  • What resources are the most important ones in distribution channels, customer relationships, and revenue streams?
    

• Distribution Channel
  • Through which channels do customers want to be reached?
    
    
  • Which channels work best? How much do they cost? How can they be integrated into customers’ routines?

• Cost Structure
  • What are the biggest costs in the business?
    
  • Which key resources/activities are most expensive?
    

• Revenue Stream
  • How much are buyers willing to pay for a product or service?
    
  • How and what did they pay recently? What method of payment would they prefer?
    
  • What percentage of total income does each revenue source contribute?

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Value Chain Analysis

A value chain is a collection of business activities and processes that contribute to the creation of a product or the provision of a service. The concept was introduced by Harvard Business School Professor Michael Porter in his book The Competitive Advantage: Creating and Sustaining Superior Performance.

According to Porter’s definition, all of the activities that make up a firm’s value chain can be classified into two categories namely primary activities and support activities.

Let us discuss these two types of activities in detail.

Primary Activities

These activities are directly involved in the creation of a product or the execution of a service. Some of these activities include:

• Inbound logistics: These activities are related to receiving, warehousing, and management of materials and components.
  
  
• Operations: These are activities related to converting materials and components into a finished product.
  
  
• Outbound logistics: These activities are related to distribution, including packaging, sorting, and shipping.
  
  
• Marketing and sales: These are the activities related to the marketing and sale of a product or service, including promotion, advertising, and pricing strategy.
  
  
• After-sales services: These are the activities that take place after a sale has been finalized, including installation, training, quality assurance, repair, and customer service.

Secondary Activities

These activities help in bringing the efficiency of primary activities and creating a competitive advantage. The following are secondary activities:

• Procurement: These are activities related to the sourcing of raw materials, components, equipment, and services.
  
  
• Technological development: These are activities related to research and development, including product design, market research, and process development.
  
  
• Human resources management: Employee recruiting, hiring, training, development, retention, and remuneration are all actions that fall under this category.
  
  
• Infrastructure: These include operations such as funding and planning that are connected to the company’s overhead and management.

A value chain analysis allows a company to understand how it adds value to something and, as a consequence, how it may sell a product or service for more than the cost of adding value, resulting in a profit margin. In other words, if they are operated effectively, the value obtained should outweigh the expenses of operating them, i.e., clients should freely and voluntarily deal with the organization.

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Financial Plan

A financial plan, in basic words, assesses existing firm financials as well as growth estimates. In other words, it is a document that represents the current monetary situation of an organization and future expectations. The main objective behind making a financial plan is to determine the pattern of financing. A financial plan provides an organization with the following information:

• Capital requirements (short-term and long-term) of business
  
• Capital structure (composition of capital, i.e., debt-equity ratio)
  
• Financial policies related to cash control, lending, borrowings, etc.
  
• Availability of funds
  
• Status of outflow and inflow of funds
  
• Growth and expansion strategies

An effective financial plan helps in framing business objectives, policies and procedures, programs, and budgets concerned with financial activities.

The following are the characteristics of a sound financial plan:

• It is simple and can be easily understood even by a layman.
  
• It must cover the overall objectives of the organization.
  
• It should procure funds at the lowest cost.
  
• It must reduce dependence on outside sources.
  
• It is flexible as it gives scope for adjustments as per changes in the environment.
  
• It ensures the solvency and liquidity of the business.
  
• It should focus on reducing the cost burden.
  
• It ensures that the profitability of the enterprise is not adversely affected.

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Business Expansion Plan

A stage in which a corporation has reached a degree of growth and is seeking new methods to boost earnings is known as business expansion. Business expansion can take many forms, including adding a second location, increasing sales staff, increasing marketing, adding franchisees, forming an alliance, offering new products or services, entering new markets, merging with or acquiring another company, expanding globally, and expanding via the Internet.

Through growth, little firms grow into large corporations. A rise in demand, increased efficiency, additional production lines, more diversified or worldwide markets, and the necessity to bring some services in-house, such as logistics or manufacturing, are all factors that contribute to corporate development.

Expansion planning is a strategic effort that entails determining the precise necessity for expansion. After that, attention is given to generating more precise estimations of the time and money needed to carry out expansion plans.

Expansion for the sake of expansion might lead to inefficiencies. Therefore, a company needs to determine which aspects should be expanded. This can be done by formulating a business expansion plan.

A business expansion plan contains information on the following:

• What will be the impact of growth on employees?
  
• Whether full-time or part-time employees are required?
  
• What employee training programs are required?
  
• What should be the modes for expanding business?
  
• Whether the facility for business expansion be purchased or taken on rent?
  
• What will be the logistical routes and strategies?