I was fortunate to attend a course on Venture Capital at ISB Hyderabad a few years back. I enrolled in this course primarily because it was to be taught by Dr. John Mullins, an entrepreneurship guru and professor at London Business School. I had read one of his earlier books titled The New Business Road Test, which I found to be fascinatingly useful in the early-stage of my startup journey.
This edition’s cover story is targeted at startups with working capital challenges. Can one of the five ‘customer funded’ models suggested by Mullins help tackle your challenge?
As anticipated, the learning at the weeklong course was fabulous. Since then, I have interviewed Mullins a few times, primarily about newer research he continues to conduct in the area of entrepreneurship.
In one of our earlier stories with him, we spoke about how several startups move from Plan A to Plan B and beyond, till they arrive at a business model that works. The idea was to showcase to fledgling entrepreneurs that it’s okay for Plan A or Plan B to fail, as long as it leads you to your next step or help you identify the next model you want to try. The story showcased the examples of seven Indian, VC-backed startups including Snapdeal and Myntra (Mullins was a member of the Board of Directors at Myntra). Mind you, the Snapdeal and Myntra we know today are drastically different from what they were when we featured them in 2011. The Plan A and Plan B of both these ventures had failed, but their founders were nimble enough to keep changing and finally arrive at a model that worked.
While working on the Plan B book, Mullins had observed that businesses like Dow Jones and Costco had a unique customer-funded model, where customers contributed handsomely to cash needed for working capital. This led him to conduct research on the subject. In an entrepreneurship ecosystem that is obsessed with raising money, sometimes way too early, it was a topic that was very relevant. He researched over 40 companies from around the world including Airbnb, Zara, Tutor Vista, Microsoft, MapMyIndia, Threadless, Dow Jones and several others. He analyzed the failures too, drawing observations from the same.
For the cover story this edition, we’ve put together a snapshot of the insights gathered from our interviews with Mullins and the various anecdotes he narrated for us. To get a complete perspective, I’d recommend reading the book. But, in short, the key takeaway for us was that – irrespective of the stage your company is in – be it early-stage, growth-stage or large company, it is a good idea to see if there is any customer-funded business model that can be added to the revenue mix.
As is always the case with research on entrepreneurship, the findings are to be taken with a pinch of salt. Context matters, and your situation could be drastically different from what it was for someone else. But the point is – it should be explored. For example, if you run an online taxi business, you must explore the opportunity for a “members-only” privilege card, say, modeled along Amazon Prime. Or, if you’re running a services company, can you productize one of your offerings, just like Microsoft did back in the day, when the MS-DOS was actually a services project it was doing for IBM.
At a macro level, what is the value of entrepreneurship research? As Mullins writes in his book, the crazy world of entrepreneurship has no rules. Research may point in one direction but reality could be totally different. But entrepreneurship research is extremely valuable from one perspective; it gives practitioners a structured way to analyze certain issues.
This cover story is targeted at startups (or investors in startups) with working capital challenges. Can one of the five ‘customer funded’ models suggested by Mullins help tackle your challenge? Even if your business is challenge free, which is unlikely, chances are you’ll get a creative idea or two, to boost up your cash flow.
Read on. Hope you enjoy reading The Smart CEO.