In fact, business feasibility analysis is a boring topic. But this is also the most critical component of your business and marketing plans, providing guidance on the potential market environment, market demand and supply, and to some extent guiding your potential market direction decisions. Please note that financial modeling is beyond the scope of this article.
I have segregated business feasibility analysis into two main categories, namely, general assessment models and business assessment models of your domain. The first includes Porter’s 5 Competitive Forces Model, PEST Analysis. The latter includes SWOT analysis matrix, target segment analysis, product life cycle analysis, competitive advantage model, product growth directions, BCG matrix. Both sets of models will help you qualify whether the business in question is viable from supply to market demand, as well as prospects for the potential market.
1. Porter’s 5 competitive forces model
Porter’s 5 Competitive Forces Model is developed by Michael E. Porter, an important strategic analysis from a broad perspective of the market environment. It explores the top 5 factors, namely supplier bargaining power, customer power / buyer power, new entry threats, substitution threats, and competitive rivalry.
These 5 forces are interdependent, influence and interact with each other at any given time. This is a model that needs to be constantly reviewed, usually over a semi-annual period of time to reevaluate the market trend.
2. PEST analysis
Doing your “PEST check” ensures good health and a strong pulse for your business. PEST analysis essentially means macro-environmental assessments such as political and legal, economic, social and cultural, as well as technological.
The economic environment could make or break your business. In 2008, the subject of subprime mortgages in the US turned into a global financial crisis that affected not only the housing market but almost every facet of the economy by virtue of its indirect effect. The interest rate at the time of writing is 2%, a far cry from 4% a year ago. Banks are tightening their lending belts and business loans are becoming more difficult to obtain. But if you do get that business loan, you should be incurring a much lower interest repayment.
A social factor that is gaining importance is the environment. Today, all major corporations are involved in one way or another in reducing carbon emissions to ozone and in dealing with climate change.
3. SWOT analysis matrix
SWOT Analysis, is the acronym for Strengths, Weaknesses, Opportunities and Threats that affect your business. The strengths component looks at internal capabilities across all business functions that could become unique propositions when outlining business strategies. Weaknesses analyzes the internal gaps in the current state. Likewise, Opportunities & Threats analyzes the external environment of your business that could generate opportunities or threats for your business. This is a fluent cheat sheet (not totally exhaustive and you should add it to cater to your own type of business) that should be reviewed annually as a business reality check.
4. Analysis of the target segment
This is a very critical section of the marketing plan that helps you with segmenting your market and defining your target markets. Define and segment your customer base into primary and secondary target market groups using demographic and psychographic information. Demographics include age, income group, geographic location, etc. Psychographic data includes life stage needs, lifestyle, consumer buying behavior, etc. Once completed, you will have a better indicator of the potential size of your target segments. You can adjust the segments to match your products, thus expanding your segments for greater potential.
5. Competitive advantage model
Michael E. Porter’s Competitive Advantage Model suggests 4 approaches to benchmarking with your competitors, namely, cost leadership, differentiation, or approach with 2 variants.
Cost leadership strategy means leading a low cost pricing strategy within your industry. This is achieved through economies of scale. It must dominate almost exclusively this competitive space, otherwise more than one company in this space will provoke a price war.
The differentiation strategy indicates a unique value proposition, that is, in areas such as product, service, image, distribution, marketing, etc. or a combination of them.
The focus strategy aims to be the best in a focused segment, with 2 variants of cost focus and differentiation focus
6. Product life cycle analysis
Product Life Cycle Analysis helps you identify the stage of your product. All products go through four stages, namely the stage of introduction, growth, maturity and decline. Each product has a life cycle. You need to have a deep understanding of each of the life cycles of your products to plan the phase of their life stage on the horizon.
This analysis is a fluid document that should be reviewed annually for planning purposes. If you believe that your product has other potential uses that are not currently maximized, you should proactively seek to rejuvenate the life cycles of those products in their maturity and decline stages.
7. Product growth directions
Product growth directions shed light on potential growth approaches you can take to drive sales of your products. This is a matrix that maps your product growth strategies in new versus existing markets and products. Potentially, the four segments are market penetration, market development, diversification, and product development. Market penetration essentially denotes tapping into new markets with existing products. Market development means making advances in existing markets and products. Diversification indicates tapping into existing markets with new products. And of course, product development is expanding into new markets with new products.
8. BCG matrix
Boston Consulting Group developed this BCG matrix that helps you determine what priorities should be in your portfolio of a product. It has essentially two dimensions: market share and market growth rate, with 4 categories that fit into these quadrants.
Stars = Business leaders – Products with high growth rate and high market share. It generates high cash flow and requires a large amount of cash. Net cash flow is generally flat.
Cash Cows = Foundation of the business (stars of yesteryear) – Products with low growth rate and high market share. They generate high cash flow with low cash inflow requirements.
Dogs = Drags of the Business – Products with low growth rate and low market share. They should be avoided whenever possible. Liquidate as many as possible.
Question marks = business ambiguity: products with high growth rate and low market share. They have a high demand for cash and low returns. If you keep question marks, you need to make sure you increase market share and deliver cash.
Identifying your products in the different categories will allow you to apply the correct growth and financing strategy. For example, a cash injection could be provided to fund question marks and / or stars to take them to the next level: cash cow positions.
The true application of all the aforementioned feasibility analyzes is a cumulative interaction of the different models, although they are developed separately by separate strategists. I advocate a broad but conjugative approach to the application, since there lies a great interdependence with each other.