Dr John Mullins, Author of: The New Business Road Test- What entrepreneurs and executives should do BEFORE launching a lean start-up – and Associate Professor of Management Practice in Marketing and Entrepreneurship at London Business School commented: “Today’s idea that a business idea plus venture capital equals instant riches might be misguided. While many start-ups overlook it, the customer is still king and in more ways than one”.
“Getting cash from customers to support a business is extremely helpful”. He said, and added that doing so helps eliminate the need for time-consuming tasks of attracting investment dollars which he says: “are hard to come by these days and investors often want control in exchange for their financial support which doesn’t always align with the founders’ vision for the company or their customers’ interests”.
In The New Business Road Test –last edition-, Dr Mullins proposes 5 customer-funded business models.
1. Pay-in-advance models: the customer pays for some part of the good or service to the supplier before receiving it (Cotsco, Via, Threadless).
2. Service-to-product models: cater a service for customers individually by developing a product from scratch, allowing the manufacturer to retain raw material for developing products later (MapmyIndia, GoViral)
3. Matchmaker models: Matchmaking sellers and buyers. Commissions or fees gained from customers makes cash available to launch businesses (Airbnb, Dog Vacay).
4. Scarcity-based models: empowered by scarcity principle of a good or service the customer should buy now and pay now. (Vente-privee, Gilt Groupe, Zara)
5. Subscription models: This models grants a steady income with new customers turning profitable almost immediately (TutorVisa, Yammer)
Customers represent the raison d’etre and key to the success of a business. Integrating the customer from the very start of an entrepreneurial undertaking can help work out strategy and plan best practises to pave the way for business growth in the future. John Mullins points this out by saying: ““In my analysis, the companies that had customer-funded businesses shared two attributes.