In fact, business feasibility analysis is a boring subject. But this is also the most critical component of your marketing and business plans that provides guidance on the potential market environment, market demand and supply, and to some extent guides 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 your domain business assessment models. 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 market demand supply as well as potential market perspectives.
1. Porter’s 5 competitive forces model
Porter’s 5 competitive forces model was developed by Michael E. Porter, a leading strategic analyst from a broad perspective of the market environment. It explores the top 5 factors, namely supplier bargaining power, customer power/buyer power, new entrant threats, substitution threats, and competitive rivalry.
These 5 forces are interdependent, influencing and interacting with each other at any given time. This is a model that should be reviewed on an ongoing basis, typically over a period of half a year to reassess the market trend.
2. PEST analysis
Doing your “PEST control” 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 subprime mortgage issue in the US became a global financial crisis that affected not only the housing market but almost every facet of the economy by virtue of its spillover effect. The interest rate at the time of writing this article 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 manage to get that business loan, you should incur a much lower interest repayment.
A social factor that is gaining importance is the environment. All major corporations today are involved in one way or another in reducing ozone carbon emissions and fighting 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 charting business strategies. The weakness analyzes the internal gaps in the current state. Likewise, Opportunities and Threats analyzes the external environment of your business that could generate opportunities or threats for your business. This is a flowing cheat sheet (not totally exhaustive and you should add to it to suit your own type of business) that should be reviewed annually as a real business 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. By the end, you’ll have a better gauge of the potential size of your target segments. You can adjust the segments to match your products, thus expanding your segments for more potential.
5. Competitive Advantage Model
Michael E. Porter’s competitive advantage model suggests 4 benchmarking approaches against your competitors, namely cost leadership, differentiation, or 2-variant approach.
Cost leadership strategy means leading a low cost pricing strategy within your industry. This is achieved through economies of scale. You need to almost exclusively dominate this competitive space, otherwise more than one company in this space will spark 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 aspires to be the best in a focused segment, with 2 variants of focus on cost and focus on differentiation
6. Analysis of the product life cycle
Product life cycle analysis helps you identify the stage of your product. All products go through four stages, namely the introduction, growth, maturity and decline stage. Every product has a life cycle. You need to have a thorough understanding of each of your product life cycles to plan for the phase of their life on the horizon.
This analysis is a fluid document that should be reviewed annually for planning purposes. If you believe your product has other potential uses that are not currently being maximized, you should proactively look to rejuvenate the life cycles of such products in their mature and declining stages.
7. Product growth directions
Product Growth Directions sheds light on potential growth approaches you can take to drive sales of your product. This is a matrix that maps your product growth strategies into 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 entering existing markets and products. Diversification indicates taking advantage of 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 to help you determine where to prioritize your product portfolio for a product. It essentially has 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 a high cash flow and requires a high cash inflow. Net cash flow is generally flat.
Cash Cows = Business Foundation (Old Time Stars) – Products with low growth rate and high market share. They generate high cash flow with low cash-in 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 high demand for cash and low returns. If you hold question marks, you need to guarantee an increase in market share and deliver cash.
Identifying your products in the various categories will enlighten you to apply the right growth and financing strategy. For example, a cash infusion could be provided to fund the question marks and/or stars to take them to the next level: cash cow positions.
The true application of all the feasibility analyzes mentioned above is a cumulative interaction of the different models, even though they are developed separately by separate strategists. I advocate a broad but conjugative approach to the application, since therein lies a great interdependence between them.