How can I use a Customer-Funded business model successfully?
I want to avoid taking money from my savings accounts, or from family and friends. Applying for a business loan seems like it would be too time consuming and take the focus off of the actual business. Can a Customer-Funded business model work for a new business like mine? Three good friends and myself just launched our own fitness program.
I don't have experience in your market but for selling solutions the below will certainly work.
Find a customer with an important challenge or opportunity for which you have a solid solution. Don’t sell your solution but share risks and rewards with your customer and thus become real business partners. It is very important that you make the real value of the solution visible (this has no direct link with the costs and you do this in close cooperation with your customer). If the customer is convinced of the value that your solution brings, he will be happy to invest and let you share in the profit of this project. In the real world it is not easy to work in this way but it certainly pays off. I have a lot of positive field experience with this approach.
I have seen fitness programs run in locations like public parks these are normally during outside of normal working hours for busy professionals or students.
Having no facilities will considerably lower your overhead. Some locations also rent out space hourly which may also be suitable for your new business.
I think you can go for it only if you use the available resources in efficient way , with all the sircumstances you have , it can be done well ,I think if there is a well there is away .
The most typical sources for small business funding in order of frequency are personal savings, then family and friends, then loans. Since you have ruled these out, I would be concerned about why you don’t want any “skin in the game”. This would indicate that this is more of a hobby/lifestyle business than a business that an investment in would yield a return on invested capital. There is nothing wrong with that, just be honest with yourself regarding why you and your friends don’t want to invest your own money in this venture.
Make some financial projections using a customer funded model (both revenue and expenses) based on reasonable assumptions then have these projections vetted by a knowledgeable third party. If the numbers put you were you want to be financially based on the customer funding model, then go for it.
From my experience, fitness programs take time and coercion to form up members. It's always gonna cost you before these people pay whether its flyers or free membership for a month etc. Set up somewhere cheap - such as a posh home and buy a cheap printer to get those flyers out yourself.
"Customer funding" means "grow from cash flow." You do good work, you get paid, you make a profit. Your profit provides your future growth capital.
1. It's a red flag to me that you don't want to invest in your own business. Makes me question your self-confidence. Are you all in or not?
2. Relying on cash flow from your profit for growth capital limits your growth rate. "Organic growth" is slower than "capitalized growth." Maybe that's what you want. But if your aim is growth and scaling up, then you need to look at sources of outside capital. Otherwise you will miss opportunities, and others will beat you.
Yes it will work. Customer funded would be slow but it will give you good profit afterwards.
Bootstrapping as what Laura DiTomasso had mentioned. BTW, it is very hard to have a "Customer-Funded business". I had experienced in securing a project that rewarded me handsomely for 2 years on monthly payout basis even before I started the business.
However as time past, I still inevitability need to do some self funding for interim cash flow crisis due to timing different and increase marketing and product development activities in order to capture more sales and customers.
If solely rely on the project awarded, I would slow down my activities and business expansion will slow down. This eventually will make me dry out due to burn rate.
Thus, I suggest you to really plan your cash flow and you will realize more money is needed than expected.
In my experience it depends upon what your cash flow is and what you mean by "work". Think of cash as an accelerant for a smart business model. If you invest cash wisely in your business, it will grow faster. More investment (again smart) should equal more growth. Customer-funded cash flow will slow down growth because it limits investment in functions of the business that spur growth (think marketing or employees). I like the slow approach initially because it gives you time to understand the drivers and levers of your business -- it enables you to make those wise investments that will translate into growth. You understand your business now, but you will understand it even more in a year or two.
I agree with your other thought as well. Most business like your are started with owner investment and investment from the bank of "friends and family". MOST commercial avenues look for you to have a minimum of 2 years of positive financials before they would take you seriously. Focus on the business and not in filling out bank forms.