By John Mullins, wsj.com
Everyone knows what the formula for entrepreneurial success is supposed to look like. Come up with a great idea. Write a great business plan. And then raise a boatload of money to make it all a reality.
That final step is where so many entrepreneursfalter—either they can’t get the cash they want, or the very thought of getting it is so daunting they just drop their dream entirely.
But it doesn’t have to be that way.
Small-business people can find the cash they need to grow without going hat in hand to reluctant bankers, pleading with relatives or pandering to venture investors. They can, in fact, launch a business with almost nothing but salesmanship and the willingness to take a risk.
How? By financing the company with their customers’ cash.
It isn’t a new idea—in fact, variations on the strategy have been used by many savvy businesses, from Microsoft to Banana Republic to eBay, as they grew from upstarts to household names. But many entrepreneurs who have gotten an earful of the conventional wisdom on financing may not realize that there are alternatives out there, and just how simple those alternatives can be to implement, especially when they can use the Internet to improve their reach and keep down overhead.
For instance, businesses can act as middlemen between buyers and sellers and avoid putting up cash themselves at the start. Or they might offer subscription models, where customers pay in advance and so provide the businesses with capital to make the products. Or they might offer deals for a limited time, so that customers snap up the merchandise before the business has to pay its suppliers.
Of course, entrepreneurs can’t finance every business with customers’ funds. Some, like brick-and-mortar stores, are just too capital-intensive. But for businesses that fit the model, this can be a perfect way to get under way without leaving the company staggering under debt or beholden to the demands of investors. And even if the companies end up needing lenders or investors later on to expand their reach, they can get deals on much better terms than they could at the start.
Here’s a closer look at these strategies, and how some entrepreneurs used them to build successful businesse >>>