For this week’s show, we are excited to have a returning guest, Verne Harnish. He is a bestselling business author of Mastering the Rockefeller Habits and Scaling Up.
This time he’s here to discuss customer funding for start-ups and how the various incarnations of those models can be used. Customer funding is one of the best ways to fund your company without giving up equity. It also shows value to your marketplace.
There are a number of hugely successful companies that use membership and subscriptions to fund their businesses. Costco memberships bring in $3 billion dollars of profitability and that money is used to fund their business growth. Amazon collected $25 billion dollars in 2020 from Prime and other membership fees. Tesla collected a $1,000 deposit from 450,000 customers when it launched the Model 3. That provided the company with $450 million dollars in working capital to deliver on the company’s model 3 promises.
Memberships can also help a company through hard times. When Harley Davidson motorcycles were faltering in the late 1970s/early 1980s, they turned to their loyal customers and officially launched the Harley Davidson Group (H.O.G.). This membership program brought in millions of dollars to help revitalize the company and continue the close bond with their loyal customers.
In addition, the old software model was sometimes based on the idea that a large customer would fund the development of some new software, and then the developer could spin that off into a new product release.
Also modifying payment cycles can be a way to have customers fund your growth or improve your cash flow situation. If you are charging your customers a monthly fee, offer to have them prepay for the year with a discount or other incentives. This gives the customer a better deal and provides capital to your company.
Listen to the full session above!