Sell something to someone

One of my past students called me yesterday. We had a wonderful conversation. I'll keep things anonymous for the moment but when she's ready I'll let you all know what she's up to. A few months ago we were discussing her plans for a business. She has a great idea in an under-served niche of a huge market. The biggest problem she had identified was the problem of raising enough capital to start buying the necessary equipment. We talked around the subject for a while as I tried to get a feel for how much she was looking for.

I suggested that, rather than trying to raise a few tens of thousands to purchase several machines and then go out and try and sell her product, she should go find a customer first... and try and get them to pay, if not up front then certainly on a lease.

She called me yesterday to say that her first customer was about to sign a contract and they wanted to pay monthly for the service. Now all she has to find is enough to buy the first machine (a few thousand), or do a lease deal with her supplier. Finding finance is a piece of cake when you have revenue coming in compared to pre-revenue!

So what's the point?

Sell something to someone first!

There is nothing quite as persuasive and empowering as a sale. If you can sell it once, you've demonstrated that there is a market. If there's a market there are other customers. If there are customers then people will back you much, much more easily than if you're pre-revenue.

If you go to a bank and ask for a loan for your business startup you're either going to get turned down immediately or completely stuffed on interest rates. If you turn up with a signed contract with a serious customer the response will be completely different. Of course banks are not the only places you can go for loans.

The same is true if you're looking at cash for equity rather than taking on debt. Go to an investor with a pre-revenue business and expect to get a very low valuation of your dream. Their money may be very useful but you just gave away a huge pile of equity for it. Turn around with even one customer and the value of your business just jumped massively. The money comes in but the equity you gave away for it is much less.

Get paid first

The ultimate example of this strategy is to ask the customer for the cash up front. A friend of mine pitched an idea to a potential customer. They liked it and now he faced the prospect of 4 months developing the product with no income. He asked them if they'd pay half up front. They did. Problem solved. Business started with no debt and no loss of equity.

Yes it takes chutzpah the size of a small planet to go and ask for payment first especially when you have no track record but it has got to be worth a try. What's the worst they can do?

Say "no"?

By not asking you've already said "no" for them so you're already prepared for the worst.Go on, get out there and sell something to someone."