Sample frameDay 261·Entrepreneurship · Cash

Morning. Your customers can fund this business. Five ways, none of which cost you a share.

Entrepreneurship.

The Customer-Funded Business

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The question

Of every dollar that came into your business last year, how much of it arrived before you'd finished the work it paid for — and if the answer is none of it, which customer do you genuinely believe would have refused to pay earlier, had anyone thought to ask?

The idea

John Mullins is associate professor of management practice at London Business School, and in 2014 he published The Customer-Funded Business against the sequence every founder is taught: raise the money, build the thing, then go and find someone to sell it to. He set out five models that run it the other way round. Matchmaker — you bring buyers and sellers together, take a cut, and never own the stock that changes hands. Pay-in-advance — the customer funds the work before you've done it, through a deposit, a milestone or a pre-order. Subscription — they pay for a period ahead of receiving it. Scarcity — you sell a limited run of what you haven't yet bought, and collect before your supplier collects from you. Service-to-product — a client pays you once to solve their problem, and you turn the solution into something you can sell many times over; Denmark's GoViral spent its early years seeding video campaigns for agencies, then sold the distribution network it had built along the way to AOL, in 2011, for the better part of a hundred million dollars. You've already counted the gap between paying out and getting paid — that was the cash conversion cycle — and this is the decision that set it. The trap sits one level below where most people go looking: chasing invoices, tightening terms and discounting for early payment are all worth doing, and none of them touches the model underneath, which is still there, and is still yours to change.

The framework

01
Which of the five are you already running, without having named it?
Before you design anything, place the business you have. Do you hold money between two parties, get paid before you do the work, collect for a period in advance, sell what you haven't yet bought, or sell repeatedly something one client already paid you to build? Most companies are running none of the five and have never noticed: they deliver, they invoice, they wait, and they pay their own staff long before the money lands. Naming the model you're on is the moment your cash position stops being weather and starts being a choice.
02
Put a price on paying early, and the ask stops being a favour.
Pay-in-advance almost always exists in smaller doses than founders imagine, and the reason it feels awkward to ask is that most people ask for nothing in return. Decide what the customer gets — a discount, priority in the queue, a locked price, extra scope — and cost it against what the early money is worth to you. Then say both halves out loud in the same sentence. The customers who still say no aren't being difficult; they're telling you something useful about their own cash, and it's usually worth knowing before you've committed to delivering anything.
03
The work you have already been paid to build once.
Most consultancies and agencies have built the same thing four or five times for different clients and never noticed. The first client paid for the first build, so that development cost is already recovered; what remains is the smaller job of making it stand alone — as a template, a tool, a licence or a course. That's the whole of service-to-product, and it's the one model open to a business with no capital and no inventory. Go through last year's delivered work line by line and mark everything you've now built more than twice.
04
A customer-funded model erodes one exception at a time.
A model built for money arriving early rarely gets abandoned. It gets bargained away — thirty days for an important customer, then sixty; a deposit waived for a prospect; a large account billed monthly rather than annually, just this once. This is normalised deviance (Day 141) wearing payment terms, and what makes it so hard to catch here is that every concession arrives dressed as good service: the person granting it is being helpful to a customer, not lowering a standard. So the terms have to be written down as terms rather than preferences, and written before the first person asks — because once you are deciding it case by case, in front of a customer who wants sixty days, you will give them sixty days.

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