Boostrapping v. Customer-Funding: How to launch a successful startup

Boostrapping v. Customer-Funding: How to launch a successful startup

January 26, 2020

Starting a successful startup venture requires a lot of time and risk-taking. It requires paying less attention to current predictable wealth building channels like a business or well-paying job hoping that the startup idea will take off to substitute or complement existing channels while allowing you to make a stronger impact in the world. Most entrepreneurs waste months and tens of thousands of dollars building products doomed to fail. This can be avoided.

Bootstrapping is about funding your startup with your own money whether it is savings or a portion of your stream of income. A startup is customer-funded when the product’s value proposition resonates with future buyers who decide to commit to it because they need to have it as soon as possible. This is as good as it can be for entrepreneurs launching a new startup. It comes down to your value proposition and marketing skills.

1. Compelling Value Proposition

A value proposition that is compelling enough to justify customers’ early commitment generally falls under one of these two categories:

  1. It addresses a critical problem that other companies don’t or, even better, can’t solve. Ideally, they’re the type of problems that make it impossible to accomplish an important goal or task. For example, imagine running an internet business without internet.
  2. It’s an impulse purchase that offers instant gratification. This usually happens for fashion products.

If your idea doesn’t fall under any of these two categories, you should not get discouraged. The point is, it’s much easier to pre-sell a must-have product than good-to-have solutions especially if you’re looking to raise a big enough sum to fund the early stages.

2. Effective Customer Acquisition Strategy

Your value proposition states how your idea (solution) will serve your ideal customers better than the competition. Startups that have successfully funded their businesses with customers’ money knew everything there is to know about the customer. This is the first rule of marketing.

The simplest pre-sale marketing strategy is when you use customer interviews as a sales channel. When you interview a future customer, you get to build a relationship with a human being. With a compelling value proposition, the only thing that is between you and a sale is customers’ trust. Interviews allow you to build this trust.

The problem is, it can take months to connect with and build a relationship with future buyers in order to raise the amount you need. If you are pre-selling a product, the customer will want to know when exactly they’ll be able to use it. This is where a scalable customer acquisition strategy plays a big role. If they don’t even ask or care, it’s usually because they’re just trying to help you pursue your venture. This is not a good sign as it means your product doesn’t really address an urgent need and may eventually fail.

Customer interviews will help you learn more about the customer and get the first sales. With the insights you gather from those meetings, it’s much easier to design a marketing campaign that doesn’t require from you to meet each lead in-person. Depending on your product and the customer, this could be running a Facebook ad campaign, launching an event, partnering with influencers in the space, or other customer acquisition channels.

Start with a target amount and work backwards. If your goal is to raise $10,000, figure out how many customers you need to acquire to reach this goal accounting for customer acquisition cost. Leveraging referrals and word of mouth is a huge plus.

To get over 100,000 leads in just one week, the founders of the men’s grooming startup, Harry’s, spent a few months talking to hundreds of people about their upcoming product. They wanted to make sure they had a group of people that can help them kick off their referral system which exceeded their expectations.

Harry’s is a company that introduced a must-have product. Even though their space is very competitive, their branding and positioning played a big role in tapping into men’s impulse buying decision. This goes to show the importance of marketing for customer-funded startups.

The strongest pre-launch idea validation signal is customers’ financial commitment. You’re onto something if you’re able to get customers to buy into your vision. With that in mind, generating enough pre-product revenue that allows you to fund the business entirely with customers’ money takes more than a good vision and sales skills. It comes down to a compelling value proposition and a scalable customer acquisition strategy.

Want to know more about or need assistance in funding a startup? Let LMC help you reach your business goals as we have the ability to help our clients raise both equity and debt financing by locating funding sources both in the U.S. and overseas, establishing connections and creating strong relationships between the funding sources, the entrepreneurs and their businesses. Click here to learn more.

(Sources: Forbes, Entrepreneur, Inc.)