Leverage Customer Capital First

If you're still dreaming about raising outside capital for your business before you have any paying customers, I've got a nice big bucket of ice water to throw on you. Wake up! The cold reality is that investors aren't interested in your business idea unless you can demonstrate that you've got customers who are actually willing to buy. Before you try raising outside capital, you should focus on building your Customer Capital.

Customer capital is the value you create for your company and your idea by getting real customers to buy your product or service. Let's take a look at why customer capital is so important in the early stages of a business.

Paying customers validate business models

Even the most cynical investor will agree that a paying customer is the most powerful way to validate a business model. Anyone can debate whether or not your business will make money when it's still a bunch of wild ideas on a piece of paper, but few people can contest a steady stream of paying customers. Finding a handful of paying customers early on will provide a firm foundation for the future value of your company.

In some cases it may be difficult to find a paying customer before a product or service is fully mature. In this case getting a formal commitment (a Letter of Intent) or a contingent purchase order based upon meeting a customer's conditions is a powerful first step. Either way, demonstrating that a customer is willing to say "yes" and write a check goes a long way toward validating your business idea.

The value of a dollar earned

A dollar earned from a customer is worth twenty raised from an investor. When raising capital you are really putting all that money to work so that in the end, the customer will pay for your product. A paying customer alleviates that risk and capital and gets straight to the foundation for why you are running a business to begin with ? to make money. Not only does this offer a more direct impact on the value of your business, it also keeps you from diluting your equity position in your company.

Netscape's $4 billion "blunder"

Netscape Communications found an effective way to use customer capital in their heyday. In a time when software companies were judged on the strength of their sales, Netscape did the unthinkable ? they actually gave away their software for free. While industry pundits laughed at their strategy Netscape ultimately had the last laugh. They quickly developed a market share in the Web browser market of over 90%, launched one of the most successful IPO's in history, and sold to AOL for nearly $4 billion, all based on the massive amounts of customer capital they raised.

While I'm not advocating giving your product away for free, it's important to understand how Netscape leveraged their customer capital in a most ingenious way. Consider how much it would have cost them to bring a paid version of their product to market and drive customer acquisition that way. Now consider the cost to Netscape if another company had offered it for less (or for free!) or if they had not achieved market dominance at all. In the end Netscape's customer capital was so valuable that even after losing the browser wars to Microsoft's Internet Explorer they were still able to sell the company to AOL for $4 billion.

Flip the script

As you're building your business, consider every alternative to raising investment capital. If you're worried that a customer won't buy your product for reasons that more money or a larger customer base would cure, consider offering them a discount or other incentive to do business with you. The relative cost to acquire early customers might be nothing compared to the amount of time and equity it could cost you to raise outside capital. Remember that, unlike customers, your outside investors will demand equity for their investment, and they don't plan on giving it back!

Send in the Investors

If you've truly exhausted all possibilities to leverage your customer capital, then maybe it's time to call in the outside capital. Be certain, though, that if there's any angle you've overlooked to drive the company without needing capital, your investors will be quick to point it out and question your resourcefulness in the process.

Forcing your attention toward acquiring customers will not only uncover ways to increase the value of your business in the short term, it can also generate the cash flow you need to alleviate your investment capital needs. Learn to leverage your customer capital and you can leave conversations with bankers and investors for your IPO!

- Wil

Wil Schroter is a serial entrepreneur, author, and public speaker. Wil has been recognized as U.S. Small Business Person of the Year, twice as the Ernst and Young Entrepreneur of the Year (1999 & 2004), and is a member of the Business First Top 40 under forty. Connect directly with Wil at wschroter@yahoo.com. Visit http://www.goBIGnetwork.com.

---

Hook Me Up With A Human

Oh, what has happened to the carbon-based organizational interface? Many... Read More

4 Easy Steps to Better Online Customer Support

Customer support is very important when you're running a business,... Read More

Under Promise & Over Perform: The Art of Managing Customer Expectations

I'll always feel warmly about Conrad's restaurant, in Glendale, California.On... Read More

What Every Employee Should Know About How to See Customers Problems from Their Creative Side

Customer Service is a blessing and a curse; a blessing... Read More

How To Build a Profitable Business

It's never too soon to start saying thanks to your... Read More

How Not to Get Stiffed, Improving Your Collection Procedures

Some businesses have slow paying customers or past due balances... Read More

How to Keep Customers

Who was it that said - "The customer is always... Read More

Ten Ways to Help You Improve Your Customer Service

1. Stay in contact with customers on a regular basis.... Read More

What Every Manager Should Know About How to Win the Loyalty of Customers

Dr. Michael LeBoeuf, in his cassette album entitled, Win Customers... Read More

Carpet Cleaning in Surrey

Like any business, carpet and upholstery cleaning requires excellent customer... Read More

Customer Service, the Internets Primary Neglected Business Concern

Customer service is everything to a business. Just look at... Read More

The Drawback of Hacking Off a Blogger Through Weak Process Gaps and Pathetic Customer Service

With all of the recent data theft in the financial... Read More

Say It With Humor

When you own a business, you may find yourself in... Read More

E-Business?s Best Friend: eCRM

From Ebay to the smallest home-operated start-up, e-businesses of all... Read More

Establishing Yourself as an Expert in the Eyes of Your Customers

The most important aspect of a successful business is developing... Read More

Absence Makes the Heart Grow Fonder

However, in the world of business, this cliché may not... Read More

Courting Customers - From First Date to Marriage

Landing a new client is like courting a potential spouse.... Read More

Make An Action Plan To Improve Customer Service

Customer Service is a critical factor for keeping your clients... Read More

Customer Service Has Moved Toward Customer Care

As I waited for an answer to my VCR inquiry... Read More

Dealing with People - Words to Avoid

You probably realise how the wrong tone of voice and... Read More

Adjustment DENIED

It's just a simple thing ? I bought a new... Read More

Develop Loyal Customers for a Lifetime ? part 2 (11 ? 20)

Traditional marketing strategies encourage business owners to continually grow their... Read More

Over Delivering Provides Big Results

Over promising is a problem only when you under deliver.... Read More

The Number 1 Rule for Businesses - Be Professional

Have you ever walked into a store and things looked... Read More

Sorry, No Customer Service After 4:00 P.M.

A few months ago, I wrote about ingenious styles of... Read More

Reducing Customer Resistance to Your Product or Service

Resistance has to do with putting up blocks that prevent... Read More

Over Deliver - The Key to Customer Satisfaction

Client satisfaction starts with meeting or beating the contractual obligations... Read More

Dealing with Disgruntled Customers

No matter how hard you try, in business you simply... Read More

Breaking the Ice and Winning Over the Client!

Wherever you turn these days you'll find articles covering every... Read More

Handling Angry Clients

What do you do when your client gets mad at... Read More

Mastering Challenging Service Situations

During the course of everyday business, many of you encounter... Read More

One of the Secrets of a Great Customer Experience

A few weeks ago we conducted our annual "Customer Experience... Read More

Customer Service and The Human Experience

Historically, customer service was delivered over the phone or in... Read More