Crowdfunding

In my business, most of my clients are early stage companies.  They are great entrepreneurs who are learning to be great business people.  Often, these people have expended the bulk of their treasure and their family’s treasure, maxed out their credit cards, etc. investing in research and development and other startup costs.  Now they are finally ready to grow and need help building a scalable operation and finding ways to fund their growth.

The other common thread is passion.  To qualify as a potential client, the business person must have a passion both for their product, of course, and for turning that into a business (two very different things)

These companies can’t access bank financing as they have not been in business long enough nor do they have the necessary 3 years of profits to show.  Without the banks or more family members, the options are limited.

·        Angel Investors. 

These are people who have very deep pockets and are looking for places to invest and get returns greater than they can achieve in traditional financial markets.  The difficulty for the entrepreneur is that she will have to give up significant control and future profits to her “angel” which is often hard to do.

·        Factoring

A factoring company basically loans money against an invoice.  Although expensive, this option gives the business a chance to utilize the money to buy inventory to fill the order.  Particularly if the invoice is large, this is a very doable solution. 

·        Crowdfunding

This is a relatively new option and includes such sites as Kickstarter.com; gofundme.com; indiegogo.com; etc.

I am learning all about Kickstarter.  It’s an interesting concept.  In short, it’s people helping people which is the essence of humanity.  People turn to Kickstarter when they have a great idea and need some help getting it off the ground.  They post a video explaining how much money they are looking for and why it’s needed.  If you buy into the concept, and want to help, you simply make a pledge and complete the transaction on Amazon. 

There are a couple of catches however…

First of all, if the required total is not pledged, no transaction takes place at all.  For example, if you need $1,000 to buy parts to make your prototype and only get pledges of $999 then you get nothing at all.  Obviously, if you get that close on any project, call me and I will chip in $1 to make it go.

The other catch is that you must give people something for their donation.  Perhaps you might send them an autographed napkin or post their name on your website or even send them a sample.  You can imagine that the better the incentive, the more likely it is that someone will contribute.

Rob Thomas raised $5.7 million on Kickstarter in April of 2013 to make a Veronica Mars movie.  People who pledged $10 received the shooting script while the $10,000 backer got a speaking role in the movie.

Of course, the average project on Kickstarter has much more modest objectives.  Just today, John Chartier launched a project to raise $500 to help him figure out how to bake “a really good apple pie”.

Bibby’s Chocolates has launched a Kickstarter project to raise money to fund their huge potential growth.  Founded by chocolate expert Bridget Ludy, Bibby’s combines chocolates and flavored almonds creating a taste sensation that is out of this world.  Bridget is in talks with a large California supermarket chain as well as most of the large Silicon Valley campuses (Apple, Google, etc.) to sell her products.  As a woman owned business, she is being actively solicited by a number of municipalities looking to promote her products in their facilities.

Assuming Bibby’s can meet their project goals, it will take them a long way towards being able to fulfill these orders when they come to fruition.

Check out their Kickstarter video at: 

 https://www.kickstarter.com/projects/bibbyschocolate/bibbys-chocolates-inc-is-growing-and-we-need-your

I believe in Bridget and her products and know she will succeed.  I went on the site and pledged support.  I think it’s a worthwhile investment

Customer Relationships

I am a big believer in customer relationships.  At the end of the day (to use a much overused expression) I want to do business with people that I like and trust.  I preach to my students that they need to get to know their suppliers and customers.  It’s all about sharing information.  If I trust you, I am happy to share my plans and it’s easy to get my concerns addressed.

One example I use frequently is a customer planning a big promotion.  If he gives you sufficient notice, it will be much easier for you to ramp up production then if you suddenly receive an unexpectedly large purchase order.  Similarly, when the unexpected does happen, you want your supplier to care about your needs and help you to respond.  Try getting the attention of a supplier you know only through the internet.

An area that is notably lacking in the implementation of this concept is residential real estate.  My wife and I are in the process of purchasing a new home.  We have found this process difficult and relationships are prevented or discouraged.

Playing Telephone:

Everyone enjoys the kid’s game of ‘telephone’.  If you need a refresher, the point of the game is to find out how garbled a message gets as it travels from one player to the next.  The first player whispers something to the person next to her and that person repeats what he heard in a whisper to the next person.  The last person in the chain then says what she heard out loud.  Inevitably, especially if the chain has more than a couple of players, the message spoken out loud is very different from the one originally whispered!

Real estate transactions seem to be set up to work the same way but there is nothing fun about it.  Instead of being able to speak directly to the seller, my words have to travel through a chain that includes, my lawyer, my real estate agent, the sellers’ real estate agent, the sellers’ lawyer and of course the sellers themselves.  Questions that could be resolved in less than 5 minutes can take hours or even days to answer.  In the case of our transaction, the sellers’ real estate agent nearly scuttled the deal by making up an unfavorable response to our request for a later closing date.

One Time Hit:

Because of the infrequency of the transaction (my parents bought one house 62 years ago) the players fail to recognize the benefits of developing a relationship with their clients.  My lawyer does only real estate law (I think, I never actually met him).  We spoke on the phone once or twice and are conducting our business exclusively via email.  I will meet him only once at the closing and then probably never again. 

I cannot tell you the name of the lawyer I used to buy our first house in 1978 and he (or she) has made no effort to keep in touch.  For our second house, I remember where the lawyer’s office was but can’t recall his name, he has made no effort to keep in touch.  For our third house, we used a very large firm, I know the name of the firm but again not the name of the attorney who helped us.  For our fourth house, we used a close friend, who we know and love, to represent us.  Sadly she is no longer practicing law and referred us to someone else.

By the same token, I can’t remember the name of any real estate broker we used on any transaction, with the exception of the homes we sold and purchased in 2008.  I remember him only because he was also our painter and we had developed a relationship.  He let the relationship drop and I never even considered using him for this current transaction.

Moral:

The message should be clear.  These people, by failing to make the effort to develop and maintain a relationship with me, did not get my business the next time around.  Stay in touch with your customers and stay close with them.  Even if there is no business today, why would you let someone else supply them the next time?

Getting to the source of your supply chain, (in my case the sellers), can make a world of difference in making sure the transaction is completed smoothly.