If you are an entrepreneur looking to start a new business venture, there are many factors to take in consideration. The factor that seems the toughest for people to wrap their hands around is funding a new start-up. How does one go about getting the money to get their idea off the ground and running? There are many ways to acquire the funds needed to begin doing business; borrow from family and friends, angel investors, venture capital, bank loans, etc.
According to smallbiztrends.com, 33 percent of small businesses get started with less than $5,000, and 58 percent got started with less than $25,000. The three most popular small business financing methods in 2018 were: Personal funds 77 percent; Bank loan 34 percent; Borrowing from family/friends 16 percent.
A standard thought process in entrepreneurial circles is that the way to start and grow a thriving business is to come up with a great idea, write a great business plan, raise the needed capital from angels or VCs, and proceed to get rich.
In many cases, it doesn’t happen that way. Many fast-growing companies never raise venture capital. So, what alternative could an eager entrepreneur utilize to get their venture up and running? Perhaps customer funding is the answer.
Investor.com defines customer funding as a business arrangement between a vendor and its customer wherein the customer agrees to provide the vendor with some level of up-front funding in advance of delivery of the product or service. The intention of such arrangements is usually to partially or wholly fund a vendor’s product development.
A creative win-win solution could be partnering with a major customer. I have an idea of starting a small business building custom quality storage sheds for homeowners after I retire from the university where work. When I thought about how I could go to market, my initial thought was to sell to end-users by way of my website. Then I had an idea to sell them through a locally owned building supply store in addition to my website.
Since I would be doing business with this company to buy my supplies, why not ask them to buy some of my finished product and resell them to their customers for a profit if I limited my online sales not to include the local area where the two supply companies do business, we both could have a win-win scenario.
As I thought more about this opportunity, I had to address the need for funding my fledgling business, and that led me to the idea of asking the same supply company for help with my start-up costs. Since we would be in the same industry, have a good working relationship, and could both profit from a partnership, why not? The funding could be in different forms other than cash. It could be tools or a discount on building materials, or an extended line of store credit, all to be negotiated and contracted in an agreement that provided for a return on investment in a very reasonable timeframe.
Devon Nease is the Director of Event Services at Western Carolina University and is also enrolled in the Masters of Innovation Leadership and Entrepreneurship program at WCU. Devon successfully sold capital equipment to businesses of all types and sizes for 25 years before working at the university. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author’s information, and any links remain intact. Copyright 2019 by Devon Nease.