Potential customers may be willing to purchase an early prototype or provide an advance for a business to build a product or service in which they see significant potential for their own business operation. This type of financing usually takes the form of a commercial business agreement, but may contain special provisions to provide equity ownership in the business or define an exclusive period of time during which the customer can use the product or service before your business sells to their competitors.
In certain types of businesses, such as software development, entrepreneurs can consider providing consulting services or support activities in the industry as a way to bring in cash for their business while the team continues to develop their own core product or service. In addition to early revenues, consulting and support activities may offer valuable insights into the technology problems that customers face and how they purchase and implement solutions.
Government agencies and companies frequently employ consultants as expert resources to advise them in emerging technology areas such as clean-tech. In life sciences, many providers of diagnostic testing equipment offer a fee-for-service model by partnering with an organization that purchases an early version of the equipment and then provides a service for lower-volume end-users, who may not have the budget or desire to purchase the equipment right away. In many cases, this model can lead to greater sales, as once the end-user has purchased a significant amount of tests, they may decide to buy the equipment for themselves.
Other areas where early customer revenues or advances may happen include businesses that develop applications for a product or platform. For example, consider BlackBerry, or Apple and the iPhone®—cases where the wireless service providers have been willing to work with young companies in order to create applications to increase the usability of their product and thus generate additional service revenues.
Pursuing early cash (or cash advances) from customers through consulting services or selling a prototype of your technology might provide a great way to finance the development of your idea. You need to determine whether or not your idea lends itself well to this model. Once you’ve identified some potential customers, prepare to sell your idea or expertise and to introduce yourself.
Canadian Bankers’ Association. Retrieved April 9, 2009, from http://www.cba.ca/lang.php.
Canada Business Services for Entrepreneurs. Retrieved April 7, 2009, from www.canadabusiness.ca.