Those who say that a good product raises funds based on its sheer novelty and brilliance are….SO WRONG!
But don’t worry, there are several helpful resources available to you and here are at least three effective tips for you to consider:
- Vendor Financing
Vendor Financing can be utilized much the barter system… an old method of exchange.
This system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return. The value of bartering especially for vendor financing can be negotiated providing the vendor has the essentials you need to work on your new product. Example, engineering, prototypes, tooling, packaging, and manufacturing. In this scenario, a vendor of your choosing may let you utilize their services in exchange for:
(1) a mutual understanding that you’ll repay them under specific repayment terms,
(2) they can get equity in your product line or company, or
(3) they get credit and/or discounts thus allowing them to be able to purchase your products in the future.
- Personal Financing
Some First-time entrepreneurs call this ‘bootstrapping’. In other words, doing it on your own meaning…using your own credit savings, cash, savings bonds, family and friends, credit cards with low interest, etc. In fact, I’ve had some clients provide their own personal financing in many cases from a few thousand dollars if that. It all depends on exactly what is needed to get to a MVP, minimum viable product.
Even more, to pique the interest of potential investors at this early stage, they may have to show some amount of progress and traction with their product in the marketplace, which will only be possible through self-funding. Using a part of your own funds, considering microloans, or asking your friends and family to pitch can be useful so you can ‘get market traction’ thus create interest early on the journey.
Note: Payback options and terms must be considered when reaching out to friends and family.
With crowdfunding websites like Kickstarter and Indiegogo, many startups have been able to launch their new products without having to reach out to other funding sources. Utilizing Crowdfunding resources can help you pique interest with your target market with the hopes of receiving funds from people who’d like to contribute to the making of the product successful in exchange for specific perks or services.
In fact, some startup entrepreneurs have experienced significant success utilizing Crowdfuning. For example, the now-famous Oculus Virtual Reality Headset was initially introduced on Kickstarter. People loved the idea so much that the campaign amassed a total of $2.4 million, comfortably surpassing its goal of $250,000!
- Purchase Order Financing
This is a unique option when you have customer orders yet you lack the cash flow to complete a customer order. You can either work directly with your vendor or consider purchase order financing companies that will pay the suppliers up front to manufacture the requisite goods. Such companies then collect the payment from you, the customer, and then deduct their own fees (usually around 5%) before handing over the rest to you.
- Product pre-sales
Product pre-sales purchasing behaviors are always changing and customers are now getting comfortable with paying upfront for products and services they’d like to receive in the future. As a startup entrepreneur, you can use this behavioral shift to your benefit by funding your initial needs and operations through product pre-sales!
Although this is an innovative way to gauge the market and to check whether people are really interested in your product before its launch, your marketing campaign should be exceptional to build anticipation around the pre-sales event.
These are just a few of the many creative financing options for you to consider on your new product journey.
Have an amazing product idea that you feel has great potential in the marketplace?
Do you have questions and need clarification about funding your idea? Take advantage today for a complimentary Funding Strategy Call.
Set up a call with bestselling author, Innovation – Entrepreneurship catalyst, and Business Coach – Jacqui Obeng!