Many start-ups spend too much time looking for financing—and invest too much money in prototypes or inventory. But some avoid those traps by adopting business models that give them advance access to customers’ cash as a means of funding early growth. If you go this route, it’s important to choose the right model for your business: http://bit.ly/19E69pj #startups #entrepreneurship
Use Customer Cash to Finance Your Start-Up
by John Mullins
Airbnb is one of the most celebrated start-ups of the past decade, and its creation story is well-known: In 2007 two design school graduates dusted off some air mattresses and rented out space in their San Francisco apartment to conference attendees who couldn't find hotel rooms, netting $1,000. A year later they made national headlines by helping people find lodging during the Democratic National Convention in Denver. By 2012 Airbnb had raised $120 million in venture funding and was valued at more than $1 billion. But familiar as this story may be, an often-overlooked fact is essential to understanding the company's success: The business model is structured so that advance customer cash helps finance growth, making Airbnb less dependent than many other start-ups on early outside funding.
It's a strategy more new businesses should consider: receiving cash from customers before having to lay out money for the product or service to be sold (in accounting terms, using 「negative working capital」). Relying on up-front payments as a financing mechanism isn't new, of course—indeed, it's the rule in many product and service categories. If you give a retainer to a law firm, for example, you』re paying a company for work it hasn't yet done—and your payment will help fund that work.
Still, it's striking just how many scalable, tech-oriented start-ups are finding ways to ensure advance access to customer cash. One of the biggest benefits of doing so is that it allows company founders to focus on creating, testing, refining, and proving their business models instead of on courting investors. In addition, companies that wait longer to accept outside funding usually receive higher valuations. And the customer-funding model is especially helpful when traditional forms of financing, such as bank loans, are tight, as is the case in many markets right now.
My research team and I have identified five customer-funded business models. The broad categories may be familiar, but new players in each have found innovative ways to source customer funding and turn it to their advantage.
The Matchmaker Model
Some companies』 entire business models consist of connecting buyers and sellers. This strategy can dramatically reduce the need for capital, because the companies have no inventory and the cost of goods sold is extremely low. Consignment stores and real estate brokers have operated on this basis for centuries. More-recent examples include eBay and Expedia.
Matchmaker models have become especially popular as companies have discovered the power of 「collaborative consumption」—the sharing of underutilized resources, a practice that's increasingly promoted and coordinated by web apps and social media. Airbnb, the peer-to-peer lending site Zopa, and even a company called DogVacay (a pet-sitting start-up) all profit from matching buyers and sellers and thus reduce their financing needs.
The Deposit Model
In the United States and other developed markets, travel agents have seen their traditional business model disrupted by B2C players such as Expedia, Travelocity, and Priceline. In India the travel start-up FlightRaja (now Via) has grown dramatically by playing in the B2B space.
In 2006, when it launched, FlightRaja capitalized on the fact that India had very few broadband lines; the scarcity limited consumers』 ability to find their own tickets and also limited travel agents』 ability to find and issue tickets in real time. So the company asked travel agents for a $5,000 deposit; in exchange, it provided a real-time connection and ticketing capacity. Within two months FlightRaja had signed up 180 agents and was booking 200 tickets a day. It reached profitability just three months later; by its first birthday, it had signed up 3,000 agents in 290 cities and was issuing 5,000 tickets a day. By 2012 it had annual revenue of nearly $500 million.
沒有留言:
張貼留言