The world soon became enamoured with writing business plans and raising venture capital. Today, the (sometimes) astronomical investor returns and massive companies that the system has generated are evidence of its success.
But let’s examine the facts: the vast majority of fast-growing companies never take any angel or venture funding.
John Mullins, bestselling author and Associate Professor of Management Practice at London Business School, says that automatically going down the venture capital route is risky and needless. “Sadly, VCs and the rest of the entrepreneurial ecosystem hijacked the financing limelight a couple of generations ago in Silicon Valley and Boston and now most everywhere else. They convinced entrepreneurs that writing business plans and raising start-up funding were the only ways to start a business. Dead wrong.”
Mullins says that almost all fledgling business should be looking to another source of funding first: their customers. His research has found numerous businesses – young and old alike – that have found inventive ways to get their customers to pay for their earliest stages of development. More importantly, there are patterns in what they’ve done. Five of them, to be exact.
The best time to start your customer funded business is now, according to Mullins. Why now? “Somebody down the street or around the world is probably working on pretty much the same idea as you are. If he or she is busy chasing investors and you’re focused on customers, my bet is on you to win the race. And I’m betting you’ll have more fun, too. Would you rather spend your time solving customer problems or pandering to investors?”