The Importance of Feasibility Studies to a Start-up Business - A Research Paper Example

A feasibility analysis is essential for any start up business to measure the capability of its idea before starting into a market. The Porters five forces model plays a significant role in evaluating a companys position in its industry and in determining its attractiveness and competitive intensity in a market (Scarborough & Cornwall, 2015). Similarly, conducting a product or service feasibility ensures the business provides the customers with the most appealing products. However, it is important to do a financial feasibility to identify the most efficient ways to fund the business. This discussion presents an industry analysis and a strategic development plan for a California-based firm seeking to operate in the food and beverage industry. It would operate business as an importer and distributor of fresh and healthy foods and beverages around California.

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Functions of the feasibility study to the business organization

Feasibility analysis is the study, determination, and evaluation of a proposed project to determine if it can be conducted within the set budget, time, and resources and still reach the targeted goals. For example, in this case, the feasibility study will be carried out to determine if the proposed business of importing and distributing food and beverages in California is profitable and can be done with the estimated cost and resources. In case the feasibility study indicates that it will be costly to conduct the business and the targeted revenue and growth objectives will not be achieved, the business idea and plan will be revised, or the whole business proposal is dropped (Scarborough, & Cornwall, 2015). Otherwise, if the feasibility study shows that the business will be profitable, then the company will invest in the business.

B. Porters Five Forces

Description and Function of Porters Five Forces

It is possible to use Porters analysis to assess the strengths and weaknesses of competitors within an industry. The results of such an analysis can also be a reliable indicator of the level of attractiveness to investors for particular industries. When an industry is perceived to have attained a level of pure competition, it becomes less attractive to investors. This is because investors would make a normal profit when they set up firms in such industries. Porters theory of industry attractiveness spells out a number of factors that influence the perception and decision of investors whenever they seek to invest in a particular industry. These factors include the perceived bargaining power of buyers, available product substitutes, barriers to industry entry, prior existing rivalry in the industry, and bargaining power of sellers. The barriers to industry entry is a critical factor that determines the threat levels posed by new market entrants. Such threat levels are shaped by factors such as brand equity, switching costs, access to distribution, barriers to exit or entry, economies of scale, government policy, financial capital requirements, customer brand loyalty, and industry profitability.

Porters second factor for analysis is the competitive threat for the business that comes through existing product substitutes in the industry. It is determined by aspects like product depreciation, available range of substitutes, propensity for substitution amongst buyers, price of substitutes, available substandard products, and ease of substitution amongst buyers.

Porters third factor for analysis is the bargaining power held by the buyers within a particular industry. Such power is shaped by factors like buyers price sensitivity, information held by buyers, product uniqueness in the industry, the ratio of buyers to available firms in the industry, existing dependency on product distribution channels, bargaining leverage, and available product substitutes.

Porters fourth factor for analysis is the bargaining power wielded by suppliers. Suppliers get more confident with the industrys prospects if they possess the ability to differentiate their inputs. Other factors that influence their bargaining power include the existing competition levels among suppliers, labor union action, costs that buyers incur by trying to change their suppliers, strength of distribution channels and available substitute inputs.

The extent of established industry rivalry plays a critical role in shaping the competitive levels within an industry. On the other hand, the intensity of firm competition is influenced by factor like industry transparency levels, competitive strategy for individual firms, advertising costs, firm concentration ratio, use of innovation to main competitive advantage, and new competition levels occasioned by online firms.

Application of Porters Five Forces to measure the company competitive advantage

Porters model enables a business come up with a methodical and structured examination of market formation and viable situations (Raheem et al,. 2014). The model can be utilized in a given business segment or region, since in a particular industry, all market participants face the same circumstances. However, the impact of the forces may differ depending on different processes, competencies, and strategies. However, various elements may not make it necessary to apply the five forces with the same level. However, application of the model cuts across given companies, regions, or segments within a particular industry.

II. Reasons for conducting the feasibility Study

The customer with the most appealing products

There are several compelling reasons that informed the need to conduct a feasibility study for the proposed fresh foods company in California. First, a feasibility study would ensure that the proposed business offers its customers the most appealing products. This would go a long way in ensuring successful market entry for the proposed fresh fruits firm.

Increase Customer Loyalty

Conducting a feasibility study would also increase the levels of customer loyalty, as their needs would be predetermined before launching the business. Customer loyalty further rises as a result of having the best product and services in the market.

Identify the most efficient ways to fund the business

Conducting financial feasibility studies would also enable the business to identify the most efficient ways to fund the business. The outline will give how much and where and how capital will be utilized. For example, through the feasibility study, the business owner will know how much the business will require in terms of marketing strategies, how much to budget for production and the amount of capital to put aside for operations.

Determine the correct amount of money that can finance the business.

It would also be able to determine the correct amount of money that would finance the business by way of outlining the budget and operational costs. These amounts of money will go into ensuring the business focuses on meeting production costs, operational costs, and marketing strategys costs among other major financial activities.

III. Description of the Company

The proposed fresh foods company will be engaged in the business of importing fresh and healthy foods and beverages from other countries outside the U.S.A and distributing it to the local market in California. Buyers would also order directly from the stores.This would improve the overall health of persons living in the American society and help solve the problem of child obesity. This company would have a competitive advantage against

Many companies that rely on misleading advertisements to sell unhealthy foods, and consequently thrive in the US food industry. Most of the contemporary advertisements encourage intake of unhealthy foods, and this trend help to put kids off from making good food selections. Businesses that promote ready-made foodstuff concentrated with lots of salt, fat and sugar content often young adults in media commercial promotions to boost sales. In the US, the companies that make unhealthy foods tend to pay for more media advertisements as compared to those that sell healthy food. This proposed company would change the common approach and strategically market itself as a healthy food provider.

In California, young adults consume sugary beverages containing high calorie value, but with less nutritional value. The proposed fresh foods company in California would differentiate its service by importing highly nutritive foods that have enough calorie content, thereby helping consumers to live a healthy life and avoid obesity. The current food market is flooded with high-energy foods such as energy drinks, fries, creams, fast foods, and sweets. Fast food vendors, convenience stores and restaurants often offer unhealthy foodstuffs at low prices in many regions owing to their low nutrient levels. This proposed company would seek to fill the gap in provision of healthy foods in poor neighborhoods around California by selling wide-ranging, hale and hearty foods such as fruits and vegetables, which greatly minimize probability of nutrition-related illnesses.

Industry and Market Feasibility

The food and beverage industry is a profitable industry with very little or negligible fluctuation due to price changes. The food and beverage industry is a ready market that mean by offering competitive prices, I can drive growth and revenue in the California market the market is positive, and the demand for food and beverage is high making the market attractive for the selected business.

There is less industry competition for the supply of fresh fruits and beverages in California. The food and beverage industry in southern California, mainly the market for fresh foods and fruits, has few participants because there is insufficient land for agriculture. Secondly, the business faces a threat of new competitors. This industry is lucrative considering, that there are a few food and beverage importation and distribution companies in California. The industry is a perfectly competitive market, which allows entry of new businesses.

Thirdly, there is little threat of substitutes in this business venture. Moreover, fresh foods and fruits comprise a crucial part of every Americans diet, making them irreplaceable. Fourthly, the demand for raw foods and beverages is high in California. Therefore, the buyers find themselves lacking sufficient bargaining power. Nevertheless, setting competitive prices will certainly be important to prevent situations where customers switch to other similar businesses. Numerous suppliers of fresh foods and fruits exist in neighboring states around California, creating diverse market entry options available to the firm. The business will attempt to create long-term strategic partnerships with vendors, which will benefit both the supplier and the company.

Product or Service Feasibility

Products such as fresh fruits, vegetables and other farm products like Juice and packed products are in high demand in California. California is a state with mostly skyscrapers and modern building. Agricultural lands in California are limited because houses and other development projects cover over 70% of the land, and the remaining areas are bushy mountains and water bodies. Getting fresh fruits, vegetables, and good healthy beverages can be a problem, especially during dry summers and mild, moderately wet winter seasons. While fresh fruits and vegetables cannot be found in California during summer and winter, they can be imported from other states.

An essential aspect of the business that would ensure the proposed companys products remains appealing to customers is the need to maintain their freshness. To achieve this need, the business will have to invest in cooling systems, storage and just in time inventory system th...