Your Customers Can Be Your VCs

 

john-mullins_use-this-oneJohn Mullins is an award-winning teacher, author and scholar. John is an Associate Professor of Management Practice in Marketing and Entrepreneurship at the London Business School and is recognized as a thought leader in entrepreneurship.

On this episode, John and I discuss customer-funded businesses and some of the novel ways business owners can fund their businesses.

To begin the interview John and I discussed his most recent book, The Customer-Funded Business. the idea for this book began while writing a chapter in his first book, Getting to Plan B, about Costco’s innovative business model.

John knew there were a lot of interesting funding models like Costco’s out there that worked, but for most entrepreneurs it seemed as though their go-to method to acquire funding was to simply find a VC. There are other ways!

John discusses 5 different models so you can fund a business without using venture capital, family money, a bank, or an angel investor.

The first way is to be a matchmaker, where you just bring buyers and sellers together, but you never have your hands on the product itself.

The second is the pay-in-advance model, which is what Costco currently does.

The third way is a subscription model, like Netflix and the Wall Street journal, which many consumers are already familiar with.

The fourth is a scarcity model, which is what the clothing company Zara uses with its customers by only having a limited amount of each style. When it’s gone, it’s gone.

The fifth and final model is the service-to-product model like Bill Gates and Paul Allen did with Microsoft. When they first started out, they were designing custom programs for specific tasks. A lot of the code was the same, so they made it into a standard product that was scalable and affordable.

Of these five, which one is the best for you? It varies based on the product you’re selling. In order to successfully execute any one of these business models, you have to be really customer-focused.

Before you even attempt to pitch your product to a VC, you have to pitch your product to the actual customer first. What most people don’t think about is that the customer can also be your VC as well.

 

Interview Links:

John Mullins

The Customer-Funded Business by John Mullins

Getting to Plan B – John Mullins and Randy Komisar

John on London Business School

 

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Scaling Up is the best-selling book, by Verne Harnish and the team at Gazelles, on how the fastest growing companies succeed where so many others fail. My name is Bill Gallagher with Humanisteq Coaching and I’m one of the Gazelles business coaches. We help leadership teams to get the 4 Decisions around People, Strategy, Execution, and Cash right so that they can Scale Up successfully and beat the odds of business growth success. Our 4 Decisions are all part of the Rockefeller Habits 2.0 (from the original best-selling business book, Mastering the Rockefeller Habits).

 

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