LBS logo London experience. World impact.

The Customer Funded Business

22 Aug 2014


Start, Finance, or Grow Your Company with Your Customers' Cash

johnmullins2482x271

More than two generations ago, the venture capital community convinced the entrepreneurial world that writing business plans and raising venture capital.

But the vast majority of fast growing companies never take any angel or venture funding.

In his new book The Customer-Funded Business: Start, Finance, or Grow Your Company with Your Customers’ Cash (Wiley, September 2014), author John Mullins, Associate Professor of Management Practice in Marketing and Entrepreneurship, London Business School, argues that customer funding is an alternative, powerful approach that many businesses have simply forgotten or never understood.

Dr Mullins says: “For most companies, fast-growing or otherwise, the early funding comes from a much more agreeable and hospitable source, their customers. That’s exactly what Michael Dell, Bill Gates and Banana Republic’s Mel and Patricia Ziegler did to get their companies up and running and turn them into iconic brands.”

In The Customer-Funded Business, Dr Mullins identifies five novel approaches that innovative twenty-first century entrepreneurs have ingeniously adapted from their predecessors like Dell, Gates, and the Zieglers:

  • Matchmaker models (for example, the U.S. companies Airbnb and DogVacay)
  • Pay-in-advance models (the USA’s Threadless, India’s Via and Loot)
  • Subscription models (India’s TutorVista, the USA’s H.Bloom) 
  • Scarcity models (Spain’s Zara, France’s venteprivee, the USA’s Gilt Groupe)
  • Service-to-product models (Denmark’s GoViral, Puerto Rico’s Rock Solid Technologies).

Drawing on more than two years of in-depth research into the customer-funded phenomenon, and through the captivating stories of these and other companies from around the world, Dr Mullins brings to life the five models and identifies the questions that angel or other investors will and should ask.

He addresses the key implementation issues that characterise each of the models: when to apply them, how best to apply them, and the pitfalls to watch out for.

“Whether you’re an aspiring entrepreneur lacking the startup capital you need, an early-stage entrepreneur trying to get your cash-starved venture into take-off mode, a corporate leader seeking to grow an established company, an angel investor, mentor, business accelerator or incubator professional who supports high-potential entrepreneurial ventures, these models offer the most sure-footed path to starting, financing, or growing your business or those you support,” says Dr Mullins.