Let’s face it: 4 in every 5 people nowadays hate what they do every single day and, as it turns out, 47% of the whole working population is looking to create a side hustle, whether to simply earn more income, or to actually do something they love, or even to have a shot at living their dream lifestyle.
Now, in spite all of the reasons that have led us to this transformational paradigm – that I’d love to discuss, but let’s save it for another article -, the fact is a lot of “wantrepreneurs” continue to get stopped by two major issues. One of them is quite practical, while the second one is way more related to a deep-seated fear that all human beings have.
Here they are:
– Lack of capital
– Fear of rejection
It’s interesting how the vast majority of people tend to believe that to start a business you really need some capital. In fact, the questions I see every day on Quora are typically around this:
- What business can I create with 5000$?
- What businesses can generate me at least 1000$ per week?
- What can I do with 500k$?
And I could be here all day. If you allow my humble opinion, I truly believe it’s ridiculous that, first of all, people believe that someone can actually come up with THE business idea that will lead these guys to riches – never going to happen because they wouldn’t move a needle even if I’d detail an entire business plan or a list of 10 great ideas right there – and secondly, because they typically associate the capital to the type of business you can create.
Now, when it comes to the fear or rejection, we all have been here multiple times in our lives. You know what I’m talking about, for sure:
- The fear of creating something that people actually don’t want to buy
- The fear of being rejected by someone you like
- The fear of presenting something in your job that you’re afraid your boss will tear apart
All these scenarios are more or less common to all of us, but one thing I can guarantee you: when it comes to businesses, I’m absolutely sure that we would find a lot more entrepreneurs if only we had the chance to make sure that what we’re creating would be openly received by the market.
You see, the truth is that not everyone is fearless and determined to succeeding. The fact is there are many guys out there that would love to have their own gig but are simply afraid to get started as they don’t trust:
- They’re good enough to do it
- The things they like cannot be monetized
- Their ideas won’t have traction
And this fear of being rejected, the fear of failing, wasting time, the fear of feeling ashamed when you imagine that you’d then have to tell to your friends, colleagues and family relatives that your big undertaking was a damn flop, after all, that fear is stopping and will continue stopping people for as long as there’s mankind.
It’s the big dilemma of the whole human being essence: we’re able to accomplish anything we want because we live in society and our strength comes from other people, but we’re also stopped by the fear of being seen as “a failure” or a “fraud” by this same society.
So, we typically decide just to live by the minimum common denominator rule: playing it safe.
Now, if there’s someone I truly want to help are definitely those guys who are humble and hard working, that aren’t looking for getting-rich-quick schemes, that understand the importance of consistency and momentum, that just want to feel accomplished and fulfilled with what they do. And that somehow feel sort of empty with the life they take as they’ve to tolerate all the idiocies of so many bad “leaders” that at the first chance will always choose themselves instead of defending their teams, of all the colleagues and friends that seem to want nothing more from life than to be sleep-walking during their 9 to 5, and from all the political and tactical manoeuvres that we can find within the game of life.
This is why in this article I’m writing you to tell you that there’s a way to not only create a business without money but also, to validate your idea so you can be sure – or close – that you’re not wasting your time.
I hope that these tactics show you that you do not need to feel blocked anymore, that there are simple processes that you can use to disproportionally increase your odds of success.
And here’s the key:
To create a business you don’t need money; you need customers.
So, it is time to overcome those two major fears of launching a company.
The ultimate way to creating any business is definitely having the customers funding your own product because that way you’ll have the money to get it done and you’ll be sure that there’s a market eager to pay for your product.
- Lack of capital: SOLVED
- Fear of rejection: SOLVED
Makes sense? I’m not saying that this is enough to be successful, but it’s a damn good way to get started.
Let’s jump right in.
HOW TO HAVE CUSTOMERS FUNDING YOUR BUSINESS?
Candidly, I won’t lie to you: if you want to build an oil refinery or to create the Titanic 2.0, I’m not seeing how you can do it cheap.
But, am I wrong if I say that we don’t tend to ask for such things? I mean, most of us just want to have our own project that is perfect for my current status and personal ambitions, that is aligned with what I love to do, that understands what I’m good at and the lifestyle I’m interested in pursuing.
If this is your case – if you’re not trying to get people to Mars – I’d like to share with you 3 specific tactics that you can use to MAKE SURE people need your product and are willing to pay for it. Oh, and a tiny detail: they’ll also pay you in advance.
So, let’s go.
Alright, the first tactic you have at your disposal is CrowdFunding.
Now, for the ones who never heard of this before or are not familiar with what crowdfunding is, let me tell you, first of all, that crowdfunding stands for presenting a project to people and receiving small individual donations that when brought together will allow you to make your dream come true.
Obviously, this will only happen if you show people something that they really like and believe will bring tremendous value either to them or to a specific sector of the society.
You see, each donation equals to a customer that not only is willing to pay for your product but actually does it in advance! Out of curiosity, the average amount donated is also called “the average ticket”. And by knowing the distribution of the donations you’ll also be able to know how people value your product, which can ultimately lead you to have an idea of the pricing you could potentially charge. More details on this pricing methodology here.
Well, this can vary a lot, frankly. You have platforms in which you’re the one defining the tickets and steps of prices and there are others in which it’s a complete free donation; some people donate 1$ while others 1000$. It differs a lot. There are platforms that are better suited for artistic and creative work while others focus on high-tech or, for example, social causes.
Also, there are platforms that are all or nothing, which means that if you do not reach 100% of your funding goal, you won’t receive a dime – Kickstarter.com for example -, while others allow you to always keep what people gave you, even if you’ve only got 5 or 10% of your objective – IndieGoGo.com is a reference.
Crowdfunding is an outstanding way to fund your business without even having to address customers, without even having to develop a mere prototype of your product – even though it also doesn’t hurt -, but it mostly helps you validating your whole idea.
Let’s imagine you complete 40% or more of your objective. If you want to raise 10k$ and you only managed to get 4k$, what does it mean? Well, to be honest with you, it can mean a lot of stuff, but my gut feeling is that you simply didn’t have the resources to promote your crowdfunding campaign exhaustively because 40% of the target is already quite a decent amount of people interested in your product or idea; that already shows that it has traction, you see?
For many of us, the moment in which you see someone actually giving you money for your product or, in the case of crowdfunding, for a product that doesn’t even exist yet, is something absolutely amazing. For example, during my first startup – Walkamole – you cannot imagine my satisfaction when I saw people coming to our selling point when we weren’t even open to the public. It’s this great feeling of relief like you finally understand how the market works, that it doesn’t only happen to others; that you can actually put the finger in the society – input something – and generate an output.
Now, let me tell you when should you consider starting a crowdfunding campaign because not all business ideas are suited for this tactic:
Crowdfunding is perfect for everyone looking to creating something exciting, new, disruptive or highly artistic, something that can touch people’s emotions through a simple image, or, naturally, an idea that has a tremendous impact on the lives of many people.
It is also quite good when you don’t have much time, you see? Assuming you have a day job, for example, all you need to do is creating an outstanding campaign, preparing all the materials in advance with as much detail as possible, so the donators can perceive your seriousness, and then promote your campaign link through social media, or establishing connections in traditional media – which is not as hard as it typically seems – or guest blogging over the internet. But the idea here is: it won’t take you too much time to actually see if your idea / product has traction or not.
These are the most important things to have in consideration:
- Selecting your crowdfunding platform
- Opting for the amount you’re raising
Now, let us head into the second tactic.
#2 SUBSCRIPTION OR DROP-SHIPPING BASED MODELS
I really like this type of business models, I have to be honest.
Ok, so, while the first and the third tactic – that we’ll still detail below – are all about getting your business funded before you develop your product, this one is more of a business model that allows you to receive money before you actually cash-out, which mitigates a lot of the risk, as you might agree.
Makes sense? So, for example, before you have to buy a product to sell, you’re already receiving the money of the customer. There’s no upfront payment / cash-out.
Let’s imagine a traditional business, shall we?
Assume that I want to start a business to sell razors and shaving cream. I’m creating a new brand called Gymllette to compete with Gillette, ok? What would I typically do? Well, 50 years ago I would need to build up all the infrastructure to produce the razors and the cream by myself, but fortunately nowadays that wouldn’t be necessary; I could reach out to one or two suppliers that were already producing the blades and the cream, and I would order an initial stock from them, so I could sell those products over the traditional distribution chains, right?
I mention that you’d need to order an initial stock because most of the suppliers – and nowadays it still happens a lot – only accept to sell you the products at a discount or a wholesale price if you buy in larger quantities.
Obviously, the problem with that is that it requires you to spend some money upfront. In fact, we could easily be talking from a few thousands to some dozens of thousands in initial stock. Not to mention that you’d also need to store all that stock for a given period.
Now, details apart – because I could be here all day explaining that business model -, the fact is this would be what we can call a “traditional business”. You’d pay for the stock upfront, and then you would work your ass off to sell it.
However, some years ago several companies started introducing a different type of business model supported by the internet: a subscription-based model or, even nowadays, a drop-shipping business model.
And this is what I’d like to recommend that you try. First, I’ll show you how it works, and secondly, I’ll tell you in which cases you should use these models.
Picking up the same idea – razors and shaving cream – the subscription model version is, for example, The Dollar Shave Club. Not sure if you know it, I believe it’s only working in the US for now. This company has started a business in which you can pay a monthly fee and having razors and shaving cream delivered to your home.
Seriously, this exists, and it’s an outstanding business, they were even bought by Procter and Gamble due to their tremendous success.
In this specific example, they choose to give a 1-month trial period – which makes a lot of sense, so you test the quality of the service. But you don’t have to give a trial if you’re just starting out. They can give a trial because it doesn’t matter to them anymore whether they’re paying for 5 million pieces or 5 million plus 2. But if you’re just starting out, it matters to you, especially if you have the luck of having a lot of customers wanting your product from the get-go.
So, this is the subscription-based business model. Instead of making people move to shopping malls or distribution chains to buy a specific product they need to buy recurrently, you actually charge them a monthly fixed fee adjustable to their needs and deliver the product to their homes. This way, they’ll pay you the value of the monthly fee in advance, so you, then, have the time to buy the products and ship them.
Secondly, the drop-shipping business model is a modern version of the “traditional business” I’ve just mentioned some words above. Instead of buying a huge stock upfront, some wholesalers started accepting drop-shipping type purchases, which ultimately means that you’ll buy piece by piece, one by one, as you sell.
Can you see how awesome this is? I mean, for sure you won’t be able to have such an attractive and competitive price as if you’d buy in bulk, but it can reduce a lot of the risk, really! Imagine you want to sell, I don’t know, batteries over Amazon.com, or mattresses through a website, or Portuguese wine, amongst infinite other options. If this is the case, instead of buying stock upfront and having to store it, you can look up for a supplier that sells the product you’re also looking to sell with your own brand, and agree with him that initially, you’ll only pay as you receive orders. Many suppliers are nowadays susceptible to this as they understand that it’s too big of a risk just to buy a larger amount of stock when you haven’t yet a clear picture whether there are customers willing to pay for this product or not.
Wrapping up this tactic, as you probably can imagine, it’s the perfect method for guys that are looking to sell physical goods that you can order from a supplier, either perishable or durable, in a recurring mode or through a single one-shot payment. This means that these are not patented goods, you won’t be creating something new and truly disruptive – which, by the way, is what I typically recommend to first-time entrepreneurs because I don’t want you to have to educate the market to use your disruptive product so you only have a profit in 5 years time.
Note: I’m not saying that doing something disruptive is not a good idea! But if that’s your case, there’s a chance you’ll need some venture capital to sustain your operation for those early years when the market isn’t yet prepared to embrace your concept. I can also help you with that, but it’s another type of scenario.
Alright, time to move on to the third tactic: in-person meetings.
#3: IN-PERSON MEETINGS
Now, there are two possible ways to have a customer agreeing on giving you money before you actually deliver the product:
- The customer accepts to buy only the product or one monthly fee, for example
- The customer accepts to fund the whole business in exchange for a free product in perpetuity
You see, the above cases differ a little bit. In the first, the customer won’t fund your product development, he will merely pay you for the product in advance – which is already awesome, right? – which ultimately means that you’ll need to reach out to more customers if you want to fund the project. The second means that one customer pays for the whole development, but in exchange, he will never pay you again for that product, for the rest of this company’s life.
In this tactic, I’d like to tell you right away that it is specifically thought for a scenario in which you’re creating a business to business product – you’re selling something to other companies and not to end-users / consumers – and a good example of such product can be a software application; a Software-as-a-Service (SaaS) product.
With enough creativity, I’m sure you can apply this tactic to other types of businesses and industries, but I just wanted to highlight this fact from the beginning because while we have the first and the second methods that are optimized to generating traction from the end customers (crowdfunding and the two other business models), this method is optimized to selling to companies, ideally, small sized businesses.
It can work either with a blank page or with a specific product in mind.
Let’s imagine that you want to develop a new Enterprise Resource Planning software or traditionally called ERP – the core brain software of businesses – to a specific type of companies, say, wine producers.
Because you have some family background related to wine – perhaps, an uncle had a production of wine or something similar – you managed to understand that this type of companies have a specific need that is not yet addressed with the regular ERP they use. Besides, not only you know the other software lack this feature, you also know that it is tremendously painful for the wine producers having to handle the lack of that feature; for example, imagine they have to do a manual process that consumes 10 hours and that could, instead, be done through 1 click and 2 minutes processing.
So, you see there’s a clear market opportunity for this specific piece of software that could be sold to all the wine producers, or at least to a specific niche. However, you don’t have the resources to develop the software, whether because it requires time or money, or you don’t even know how to write code. Both options are perfectly understandable and will be overcome through this tactic.
The first thing you want to do is listing 20 potential customers; 20 wine producing firms, ideally with a small size so you can talk directly with the owner – this is key.
Then, in parallel or even before the first step, you want to design a mockup or wireframe of the final version of your product because you want to be able to show specifically how’s it going to work and look. My advice here is that you use online tools such as Balsamiq or Mocking Bird to design the mockups or find a designer that can help you getting it done. In a worst case scenario, it can also work without the mockups, but it’s tougher as you won’t be able to perform the future pacing technique so convincingly.
When you have the mockups designed, you want to cold email the owners of these 20 firms, or, if possible, meet them personally at a wine event, for example. I won’t detail the email template you can use here, just keep it short and focused on the other person: ask him if he would have the time to talk with you a little bit about his ERP choice and some of the struggles he might be facing.
Hopefully, if you do the cold emailing well – I can help you with that if you need, just shoot me an email – you’ll be able to generate at least 4 to 6 meetings. And here’s where all the magic happens.
During these meetings, you want to focus as much as possible on the owner’s pains. You want to dig the in-depth pains that this guy has every single day when using that ERP. I’ve mentioned that he used to spend 10 hours per month doing something that could be done in 1 click. If that’s the case – efficiency and cost reducing – then focus that. If, for example, he’s losing sales because of the ERP, then focus on that issue. You want to make sure you start with open questions and dive in the frustrations as your interlocutor shares them until you find what I like to call:
THE burning pain.
This is a concept I’ve learned with Ramit Sethi. You see, you want to make sure you dig until you’re able to underline in a rigorous way the major problem this owner has with the ERP, and hopefully, that you happen to have the solution to that.
Please understand that it’s never 100% sure the conversation will be directed towards the features you’re developing. Sometimes the customer might have other struggles, or simply you need to develop some chat orientation capabilities; remember that you’re here to sell, at the end of the day.
Ultimately, if you’re able to come up with a specific burning pain that your software can solve, the customer will, then, be more than open to help you developing that product.
It can vary: depending on the level of the pain, you can have a customer paying you in advance for the product or the first monthly fee, or you can actually have the customer agreeing on paying some thousands of dollars to actually fund the whole development.
It all comes down to the way you speak and sell; the way you transition the conversation to the selling part is absolutely paramount. Typically, you’ll want to INVITE the owner for a brief presentation of the software you’re developing. Notice that I mention the word INVITE. As you talk with this person, it’s really important that you make him feel special. After all, if he gives you money to fund your business, he’ll be the one who made it possible for you to start the company in the first place.
Bottom line, here are the key steps of the conversation that you want to guarantee:
- Dive in until you find the burning pain
- Transition smoothly and with special treatment to the selling part
- Choose your selling pitch wisely
Finally, when it comes to the selling pitch, the reason why I mention the words you choose are crucial is related to the fact that you don’t want to sound like you’re selling a product, you see?
Nope, you want to sound like you are someone who deeply understands the problem this potential customer’s facing, someone who is genuinely concerned and want to help, and as someone that is trying to add value to the whole niche of wine producers, if only you have a small kick start.
And here, as we’ve already mentioned, you have two possible avenues:
- Ask for a funding for the whole project in exchange for having the software for free in perpetuity, knowing that the customer will know that you haven’t yet developed the product.
- Sell the software as you’d already have it barely ready, but ask for some time to customize it for this customer, the enough time to get the code written.
Now, I’ve to be honest with you, I’m never an advocate of “lying” to people. I’m telling you this second tactic to get funded by your customer because I know it actually works, and a lot of people will gladly give you the money and wait 1 or 2 months until you have the software ready, even though they have no idea that it’s the first time you’re actually writing the code.
However, I would always prefer to position my pitch around the fact that I know I have the solution to that specific burning pain; I would show the mockups and invite this person to fund the project in exchange for having the software free for life; I wouldn’t try to convince him that I already have the software, and you know why?
Because in life everything rises and falls on people. If this is meant to be your first customer or any other customer for that matter, what kind of relationship will you create if from the beginning you’re already kind of deceiving the customer?
Anyway, it is up to you, and it’s not like the second option is any crime; this is business, right? At the end of the day, the important is that you’re able to create the company, so not only that customer benefits from your software, as all the others also do, and ultimately are able to improve their businesses, which drives economic growth.
Finally, for any of these 3 tactics, there’s one thing that is absolutely crucial to develop:
Future Pacing is a type of Mental Imagery in which you can barely grab the future with your hands. This is part of a worldwide famous culture created by a neurologist called Richard Bandler – The Neuro Linguistic Programming or NLP.
In marketing, this technique is constantly used.
We’re always telling people what they will obtain with a specific product, and it’s because of what they imagine in their minds, that they actually buy the product. It’s that vivid and realistic image of owning the product that you want to convey, either in crowdfunding, subscription or drop-shipping models or, naturally, when selling to other companies through the in-person meetings we’ve just discussed.
Without the ability to bringing your customer creativity level up, so he can see how it feels like to have the product, you cannot have a customer funding your business or paying you in advance.
So, ultimately, this is the core marketing technique that you want to master.
Alright, we’re at the end of this article, and I’d just like to mention one final point.
You see, I’m presenting you these three tactics to get your customers funding your business not uniquely to help you overcoming the two major bottlenecks when creating a business: money and fear of rejection.
Another reason why having a customer funding your business is so good is because you’re actually starting the business by what really matters! The customers.
In the vast majority of the cases, entrepreneurs develop 100% of the product even before they exchange one single word with customers. It’s amazing how we tend to ignore that the purpose of any business is to add value; solving someone’s need or problem.
I believe we’re all too used to listening to this same old marketing cliché stuff to realize how truth it is. You can create the best thing on earth, you can invest 500k$ or even more, you can think and start big, but if you’re creating something that people i) don’t like; ii) don’t need; iii) like and need, but won’t buy, then you’re doomed.
So, start with the basics: talk to customers. Even if you don’t need the cash and even if you’re humble enough to understand that your brilliant idea might not have the traction you’re looking for, get out there and ask people what they think, share your idea, don’t keep it in secrecy like it’s some sort of chemical formula that will turn water into wine.
Success is made through the relationships that you build with people, not by shutting yourself down for 6 months until you finally launch something that no one wants.
Hope this article helps you achieving your goals.
All the best
P.S. If you haven’t downloaded yet my 10-Step Quick Guide to Raising Money for the First Time, I’m sure it will help you a lot structuring your ideas and action steps to building a remarkable business and, who knows, the next tech giant.
Click on the image below, sign up, and I’ll send you the Quick-Guide immediately.