An Alternative Way To Fund Your Startup

By Entrepreneurs 4-04-2014
All companies need capital to grow, just like all children need food, and all plants need sunlight. While there are many sources of money – investors, banks, lines of credit to name a few – they all require you to give something up in return. Equity is at stake, or dollars have to be repaid, which isn’t always ideal.
One often-overlooked source of funding is paid client work, even if it is slightly outside your big, long-term vision.  By leveraging your skills and experience, you can inject needed capital from the most delicious source: customers.

If you run a business-to-business startup and your ultimate goal is to work with enterprise clients, it would be easy to dismiss little customers. However, you’d be silly to ignore the multitudes of small and medium sized local businesses in your area that could be your customer. Not only are you able to beef up your cash balance by doing so, but you’re also learning a tremendous amount as a company, before going after the companies that will require a more seasoned, buttoned-up approach at the enterprise level. With a smaller scale client, your sales team has the chance to hone its pitch, your account managers keep your clients happy (and have a chance to practice the art of the upsell), and your PR team can navigate the waters of publicizing – or not – the work with a particular group, capitalizing on a relationship externally. By the time you’re ready to approach the enterprise clients, your team is ready, on all fronts, and you’ve saved enough to help grow the business to a point where you’re able to effectively take on that type of work.
Think of this approach as a two-phase game plan:  Phase I is doing work that pays the bills and allows you to build your team and experience as a specific means to an end.  Phase II, once you’ve secured needed momentum, is your long-term vision.  Too often, entrepreneurs become so snooty that they reject real opportunity just because it isn’t their exact endgame.   Arrogance kills companies while scrappiness and grit helps build them.
If your endgame is to build a software-as-a-service company, you’ll need a lot of code built and an engineering team capable of keeping up with the constant demands. That takes time – and that’s okay. In the interim, consider building custom software solutions for smaller clients, which essentially becomes client-funded research and development. If client A needs feature X, then feature X can ultimately be added into your needed code bank, but the client paid for it along the way, not an investor or bank. By the same token, your developers have a chance to see how long certain builds take, what you still will need additional help for, and which elements they’d like to scrap.
A word of caution: make sure that your Phase I is related to your end goal. If you want to be an actress, making extra money working at a library won’t lead to your ultimate vision. Yes, the money is important, but only effective when coupled with relevant experience.>>>