An entrepreneur can determine a business venture’s success by performing a feasibility analysis. The purpose of a feasibility analysis is to make sure that the entrepreneur is moving in the right direction. The feasibility analysis is comprised of four major components including:
- A brief overview of what the business is about
- Overview of the market for the product or service and the results of the market analysis
- Competitive advantage of your product or service over the competitor, and the strengths and weaknesses of your competitors
- Proformas the expected income statement, which shows the expected level of profit over the next five years
There are two vital components of the analysis which are the competitive advantage section and the proforma. These two sections answer the important questions of:
1) Is there sufficient demand for the product or service?
2) Can the product or service be provided on a profitable basis?
We see the importance of these components when we look at real world products. There are certain products which failed because they were measured properly for competitive edge or had unrealistic proformas. For example, when Coca Cola decided to replace its original formula with a product called New Coke. The product was a failure because of faulty market research which showed that this formula would have competitive edge. It instead alienated many loyal customers and significantly dropped sales (Prendergast, 1994). Had a proper proforma and competitive edge study been committed the product would never have been placed in the market.
Prendergast, M. For God, Country and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company that Makes It, Basic Books, 1994