When launching a startup, you need capital to get the business up and running. While most startup founders automatically look to bankers or investors for that capital, there are other ways to get it. Your customers, for example, are a great source of capital for your new business. Here are four ways you can use customer money to help launch your business.
Get Paying Customers Before You Officially Launch
With crowdfunding sites like Kickstarter and Indiegogo, you can ask an audience to fund and support your project before you ever launch your business. And the audience is huge. According to the Kickstarter website, 3.3 million people pledged a half-billion dollars in support of more than 22,000 projects last year. One such project was Bunch O Balloons, whose founder launched a Kickstarter campaign that raised almost $1 million in preorders in just 12 hours. Launching a crowdfunding campaign can not only help fund your startup without giving up equity or taking on debt, but it’s also a great way to judge your idea’s popularity before you launch your business.
Ask for a Deposit or Payment Upfront
If you sell products or services to consumers or other businesses, asking for a deposit or payment in advance is another way to use customer money to fund your business. For example, if you’re starting a window covering business or landscape business, you can ask customers to pay for up to half of their order upfront. And if your startup involves high-end or custom products or services, it isn’t unreasonable to ask for 100 percent payment at the time of order. Getting a partial deposit can allow you to use customer money to purchase the materials you need to complete the job, while asking for full payment upfront provides your business with a healthy cash flow as you won’t have to wait for payment after the product is delivered or job is complete.
Build a Subscriber Base
Another way to use customer money to fund your new startup is to build a subscriber base, and use the monthly payments to fund your operations. Two great examples of this are Harry’s and The Honest Company. Both businesses sell products that need to be replenished regularly — men’s shaving supplies in the case of Harry’s and safe, eco-friendly baby products at The Honest Company — and rely on consumer’s desire to get the products they need in a simple, convenient way. This subscription model can work for a business that sells consumable goods, service businesses, and software-as-a-service (SaaS) companies like DropBox.
Hold a Flash Sale
If you plan to sell luxury, collectible, or specialty, or niche products, you might consider holding a flash sale to build up your prepaid orders before you launch. Apple recently made the news when it announced a flash sale for its iPhone games, and Zulily, a members-only website that holds daily flash sales for clothing and accessories, had a 72 percent increase in sales last year. The key for startups is to get consumers excited about your sale and offer them a discount on the day of the sale. Do this by using word of mouth, local advertising, all of your social media channels, and, if you have one, your email marketing list.
If you’re about launch a startup, you already know how important it is to take on as little debt as possible to ensure your best chance for success. Using customer money to help launch your business is one way to accomplish that goal.
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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