Customer-funded Business Models

Venture Capital
Knowledge Center

Best Practices
Paula Kokare
Project Manager, Switzerland

Customer-funded Business Models

In his research, Professor J. Mullins (2014) argues that customer-financed business models provide an alternative source of financing for start ups. These models bring great benefits for start-ups compared to sourcing through external funding, e.g. financing with venture capital or crowd-sourcing. Mullins distinguishes 5 categories of customer-funded business models:
  • MATCHMAKER MODELS: businesses that connect buyers and sellers in the marketplace without owning the goods and services exchanged between the participants (e.g. airbnb, DogVacay). Matchmakers earn their revenue as a commission on the transactions carried out between the parties that exchange the goods.
  • PAY-IN-ADVANCE MODELS: businesses that persuade their customers to pay in advance for the services or goods received from the company (e.g. The prepayment can be structured as a deposit in full or partial amount, but sufficient to get company sourcing the necessary good or service for the customer.
  • SUBSCRIPTION MODELS: customers have agreed to pay a regular fee for goods or services delivered on a periodic basis (e.g. 12manage Premium).
  • SCARCITY MODELS: due to scarcity of the product range offered, the company convinces its customers to obtain their goods as soon as they appear in market place. The suppliers of the business get paid much later than the customer cash is received (e.g. vente-privee).
  • SERVICE-TO-PRODUCT MODELS: the initial services offering reflects high level customization for its clients. Due to customer knowledge accumulated along the way, these services are offered as complete service packages at a later stage (e.g. goViral, MapmyIndia).
Besides the fact that they're all funded by customers, the 5 groups of business models described above also have in common that they tend to use the following practices: identifying products that customers would be ready to pay for, convincing customers to pre-pay for goods and services, lowering or eliminating inventory and delaying payments to suppliers.
Source: Mullins, J. (2014). The Customer-funded Business. Hoboken, NJ: John Wiley & Sons Inc.

Management Consultant, Albania

Limitations of Customer Funded Business Models

I agree with Paula in principle. However, there seem to be certain limitations to using them: they seem to be a temporar...

  jayesh, India

Mullins ( Design by Swiss )

How does this apply in a country controlled by very rich people and bureaucrats? Not all countries are the same neither ...

  Raj kumar

2 More Customer Funded Business Models

@ Paula, adding to your point we can have two more models wherein customer can help in new product launch: DISCOUNT...

  Sandy Szilage
United States

Customer-funded Business Models not for Traditional Businesses?

This concept although interesting, would be difficult to implement for tradional businesses, in my opinion. It might wor...

  Tom Lesnikowski
Business Consultant, Australia

Problems with Customer-funded Business Models

Whilst all five categories have their merits and applications in certain circumstances, they all have the risk that the ...

Business Consultant, India

When a Customer Funded Model Works

I am New to Finance, I wish to share my experience as a manufacturer who has outsourced some of the operations for produ...


More on Venture Capital:
Acquiring Venture Capital: Financing Preferences of Startups
Quotes on Venture Capital. Quotations
Crowdfunding Tips and Advice
🔥The Main Decision Criteria VC Firms Use to Pursue Deals
Misconceptions of Entrepreneurs About Venture Capitalists
Best Practices
👀Customer-funded Business Models
Bootstrapping Methods: Non-external Financing Strategies Applied by Start-ups
Special Interest Group

Do you have a keen interest in Venture Capital? Become our SIG Leader

Venture Capital
Knowledge Center

About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2022 12manage - The Executive Fast Track. V15.8 - Last updated: 17-8-2022. All names of their owners.