GDP - Gross Domestic Product & Feasibility for Business

 GDP - Gross Domestic Product & Feasibility for Business 

We keep hearing about the word more often than before, that is because even if the GDP of any Nation is calculated at a macro level, it always has & will have profound micro level impact on every individual.

While trying to practice the "Observer" theory, along the journey I saw 100s of shops & business outlets that were into essentials, commodities, durables, luxury items, furniture & so on, and the thought of GDP flashed immediately. Because all those business outlets were filled & stacked with goods that might be in millions of USD.

What is the present day business model, that is making the said GDP keep ticking or grow?

From an individual view point:

One, they have some capital & understanding of any kind of business, they venture into it & start earning their bread, if they are lucky enough & have the courage to take calculated risk they will grow over the years.

Two, they have studied some subject, mostly of what they could have been able to afford or could get their admissions for & have since been working around the profile to meet their ends.

Three, their parents have already ventured into some business or profile & they too are following the same.

As long as any educated professional is contributing in earning & spending, it is termed as a successful model.

From the producers view point:

One, they have installed capacities for mass production, resources to get raw material & process the product, supply & distribution channels making the products available for the point to sale outlets.

Two, they have inherited some business ventures from immediate or close relatives & must have got involved in it at a very early age, they continue to make their own set of efforts to sustain, grow & expand with the same business.

Three, some unique idea about a product is conceptualized, years of research & development are deployed to bring out the product to serve the end users, like that of a flying car is a project undergoing for over 20 years with many Automobile manufacturer around the world, everyone is working independently to bring out their own prototypes. 

As long as the producer is able to continue with its cycle of sales after production, it is considered as a successful model.

All this is what keeps the GDP ticking, and now let us understand how to rethink about these successful models?

There is hardly any monopoly in any segment, utmost there can be patents, with detailed process, & changing them 20 to 25% is what it takes to make another similar product to serve the same purpose, so practically while iphone may have a patent for its products, but then Samsung is gladly brushing shoulders without feeling a pinch.

Individuals & corporate are venturing into business, with a projection to make considerable margins & profits out of it, but when they arrive at the center of the segment pyramid, they realize that unless they cut down their margins to run promotional schemes & try to remain invested in something different than how their competitors are doing compared to their own business in the segment, in such stiff competition growth becomes a myth, rather sustaining at that very center of the segment pyramid may become difficult.

So in other words, mostly all the business ventures are like jumping into the ocean & then learning how to swim, float & flow.

Because there is not enough data available on how any business venture may turn out to be over a period of time, there isn't enough information available on what is the demand & supply ratio with the life cycle of the product. And hence majority of the manufacturer's end up producing first & then try to figure out how to sell them & promote their products.

Let us try to understand the same with layman's feasibility study questions that can be considered before venturing into any kind of business:

A) Where is the nearest production center for the product that one is planning to do business with it?

B) How many such production centers are already existing in the market, where you are planning to set up your own business?

C) What has been the demand & supply ratio?

D) What has been the Year on Year growth ratio?

E) What has been the season of high as well as low sales?

F) What is the minimum investment & the period of ROI?

G) What is the cycle time of investment, i.e. if some is stocking goods worth a million, within what period of time it is likely to get sold out & they will be able to reorder the same?

H) What is the % margin on given investment after removing the operational cost & interest rate on the capital invested?
I) What is the lifespan of the product itself, i.e. shelf life before use?

J) What is the life cycle of the product, i.e. how frequently the product will be required to be purchased by a common man?

K) How has inflation played its role in the business over a period of time, where is it today & how is it going to be in next decade?

L) What are the tax & statutory compliance obligations to operate that very business, how frequently the Government policies related to that very business have been changing, against the business interest or in favor?

M) What are the territorial factors that have been affecting the business performances & how often?

N) What are the competitors strategies to sustain & grow, how is your supply partner responding to the same?

O) What has been the transportation cost, logistics challenges, will it be able to sustain growth prospects of the business?
P) What innovation initiates in the product are being carried out, how soon the products are upgraded or the existing ones are becoming irrelevant?

Q) What is the appreciation % of the property that is going to be used for the business, is it higher or lower than the ROI on the business?

R) Does the business require issuing out credits, if yes how many % of the capital investment is likely to remain blocked as credits?

S) What are the major risk factors, related to that very business or product?

T) What level of skilled manpower will be required to operate the business efficiently & is it available?

U) Does the business need any hi-tech equipment & systems to remain afloat? What will be the life span of that technology?

V) How many other investors are interested to start a similar business in the same territory where you are planning to start your own business?

W) How many business ventures of similar kinds had to fold up in the past & why?

X)  What are the Government Schemes coming up in the territory to develop the region that is likely going to support the expected growth of the business?

Y) How many man hours will the investor have to put himself in the business, when starting & then in making it grow?

Z) Are they any banks or other financial institutions supporting the business at reasonable interest rates?

Above all of these, is the financial capabilities, one must have patience to wait for 3 to 5 years before any business will ever be able to bring about any significant profits, they must have the courage to reinvest all the earnings back into the same business, while must be able to continue to live at home & with family without any compromises in their life style. So a roughly 36 to 48 months of monthly expenses for managing home with some provision for exigencies will have to be kept aside. 

While another 10 to 15% of total investment of entire business too have to be considered as an exigency funds to meet up any unexpected financial challenges in the business.

What can happen if a proper feasibility study is not done & the risk of going into any business is not evaluated

1) ROI, will be delayed, in fact it may even become impossible to predict when the business will arrive at a breakeven.

2) The resources, that is capital, man hours, risk of products getting expired/wastage & phycological dispersions cannot be ruled out.

3) The stagnant time in any business is the most crucial time, sitting down without working around various strategies to make a push may not yield any desirable results.

4) Competitors from other manufacturers supporting your own competitors around are going to keep making their efforts to keep up their own business & that may lead to stiff competitions and if you want to sustain the next thing you may have to do is to cut down on your own profits.

5) The lesser the sales, the slower will be the process of brand name penetration in the market, again breakeven year & ROI may get delayed.

6) Staffs & teams working alongside your business will remain marginalized as they cannot be appreciated or promoted, attritions will follow & investment on skills & capacity building will be lost to the competitors.

7) Measures to cut down operational cost to save peanuts will bring about unwarranted panic in the operations.

8) Opportunities to broker greater sales deals may be lost when the focus in on sustaining the business.

9) Daily fire fighting on various unpredictability running around the business due to the lack of initial study may turn the business into a war zone, that may change individuals attitude & personality at home as well.

10) Lack of time to focus on the core business may result into unaccounted losses.

11) When any understudied business initiative is learning to swim or remain afloat, every other well studied business will be growing & flourishing in folds.

12) Do not remain Cling to your idea of the business, if the feasibility study helped you to narrow it down to avoid the business & instead take up another available & better option than unfailingly do so.

Looking out on these critical feasibility study is least that one must do & against that what is likely to be the fate of any business if the feasibility study is not taken seriously is that they will enter into an era of unpredictability & daily fire fighting.

Every business, must have specific feasibility study criteria to meet with, while the skills & experience of the business developer or the investor must be vetted, any investment private or public must have satisfactorily answered all the critical questions, while information & data must be consistently updated to make them more real time, relevant & useful, it is then in true sense we can see the big data GDP growth that they publish may be actually working well at micro level for every individual, until than it may remain a myth, there will be continuous production of good & items using valuable resources only to later realize that it was not needed at that point in time.

GDP growth not matching the growth of per capita income is not heading in the right direction & the lack to these feasibility study in every small & large scale of business is going to remain key to sustain & growth of GDP as well as every business.