How to Get Your Customers to Fund Your Startup

How to fund a startup

How to fund a startup

Finding money for a new startup is one of the biggest problems entrepreneurs face. Even if you plan to start a side-hustle out of your house, chances are you’re going to need some money to start a business. For example, you might need to buy some internet advertising, printed materials to market your new business, equipment, government fees for licenses, and a myriad of other expenses, depending on what type of business you plan to open.

But not everyone wants to approach the SBA for a microloan, get alternative financing though a lender like Kabbage, or borrow startup costs from friends and family. So what’s the alternative?

Getting the cash from your customers—even if you haven’t opened your business yet.

Here are four ways to get your customers to finance your startup.

1. Ask People to Fund Your Startup on Crowdfunding Sites

Sites like Kickstarter and Indiegogo have made many an entrepreneur’s dreams come true before they ever open their doors. If your business is a creative venture, Kickstarter is the place to post it and ask for backers, and these backers will donate money to help get it off the ground. According to Kickstarter, almost 150,000 projects have been funded totaling about $3.8 billion by 15 million backers. Many projects are less than $10,000 while some reach 7 figures.

Fund a startup with crowdfunding

Fund a startup with crowdfunding

If your startup isn’t in the creative field, Indiegogo is another crowdfunding platform that will likely suit you. It specializes in entrepreneurial startups, and even allows backers the opportunity to give in return for equity in your business. It has a marketplace platform where you can begin to sell your product before it’s produced.

Keep in mind that if you use crowdfunding for your startup capital, you will have to put together a presentation that wow’s investors. You’ll find tips on putting together a successful campaign on KickStarter and Indiegogo.

In addition to helping you raise startup capital without debt or equity (in some cases), creating a campaign will also help you test your product before you launch.

2. Use Deposits to Fund Your Startup

If you plan to sell products or services, you can ask for deposits when making early sales. Depending on which type of business you’re starting, you should be able to secure at least half of the retail price. For example, if you’re selling custom draperies, customers expect to pay at least half up front, and if you’re creating a custom sofa or chair, it’s not unreasonable to ask for the entire payment up front.

Asking for deposits means you won’t have to come up with the cash to buy the materials needed to fund the job. In other words, the customers are funding your business.

3. Ask for Subscriptions

Another method of getting customers to fund your startup is to build a subscriber base and use that money to fuel your business. There have been numerous successful subscription businesses in the past few years. For example, The Honest Company and The Dollar Shave Club were both founded on that principle.

Ideally, you would sell sought-after consumer products while offering a novel way to get those goods to consumers. They would sign up for your subscription service, and you would use those funds to launch your business. This method also works well with SaaS products such as Dropbox.

4. Hold a Pre-Launch Sale

Finally, if you want to raise some capital before your official launch, start getting the word out about a one day sale for your products or services. Use every method you have for spreading the news—social media, local marketing channels, friends and family, radio spots—any way you can let people know about the event. The idea is to build momentum which will drive people to the sale.

Plan a pre-launch sale to fund your startup

Plan a pre-launch sale to fund your startup

The more sales you make at your pre-launch event, the more you’ll raise for your startup capital.

If you can stay out of debt when starting a small business, you’ll increase your chances of success. Think about using one of the methods mentioned above for raising your startup capital.

What about you? Have you use any other non-conventional methods to raise startup capital for your new business? If so, I’d love to hear about it below in the comments!