Did you Think about those #fundraising methods to #startup a #business

Overtime, in fact, is one of the critical considerations in determining how to pay your staff. Non-exempt employees typically those who get an hourly wage must be paid overtime when they work more than 40 hours per week. Exempt employees do not receive overtime. (We commonly call these salaried employees, but the kicker is that even some salaried employees may actually be considered non-exempt and subject to overtime pay.) To make matters even more confusing, each country has its own “wages and hours” laws, and they’re usually more stringent than the FLSA’s requirements.

Many start-ups spend too much time looking for financing and invest too much money in prototypes or inventory. Some entrepreneurs avoid those traps by adopting business models that give them advance access to customers’ cash as a means of funding early growth. It’s important to choose a model that suits your industry and to use the tactics (and skirt the pitfalls) specific to your choice. ‘’Relying on up-front payments for financing isn’t new, but it’s striking just how many start-ups are doing so.’’

The Matchmaker Model
Some companies’ entire business models consist of connecting buyers and sellers. This strategy can dramatically reduce the need for capital, because the companies have no inventory and the cost of goods sold is extremely low. Consignment stores and real estate brokers have operated on this basis for centuries. More-recent examples include eBay and Expedia. Matchmaker models have become especially popular as companies have discovered the power of “collaborative consumption” the sharing of underutilized resources, a practice that’s increasingly promoted and coordinated by web apps and social media. Airbnb, the peer-to-peer lending site Zopa, and even a company called DogVacay (a pet-sitting start-up) all profit from matching buyers and sellers and thus reduce their financing needs.

The Deposit Model
In the United States and other developed markets, travel agents have seen their traditional business model disrupted by B2C players such as Expedia, Travelocity, and Priceline. In India the travel start-up Flight Raja (now Via) has grown dramatically by playing in the B2B space. In 2006, when it launched, FlightRaja capitalized on the fact that India had very few broadband lines; the scarcity limited consumers’ ability to find their own tickets and also limited travel agents’ ability to find and issue tickets in real time. So the company asked travel agents for a $5,000 deposit; in exchange, it provided a real-time connection and ticketing capacity. Within two months FlightRaja had signed up 180 agents and was booking 200 tickets a day. It reached profitability just three months later; by its first birthday, it had signed up 3,000 agents in 290 cities and was issuing 5,000 tickets a day. By 2012 it had annual revenue of nearly $500 million. Like many start-ups that quickly prove their viability, FlightRaja soon attracted interest from VCs. But by asking for deposits up front, it gained crucial early funding without having to look to outside sources.

The Subscription Model
In 2005 Krishnan Ganesh hired three teachers in Bangalore; gave each a PC displaying a digital whiteboard, a webcam, and a VoIP connection; and launched TutorVista, which quickly became a $100-a-month service offering web-based academic help in math, science, and English to children around the world. Within 14 months TutorVista had signed up 2,000 students in 13 countries and hired 240 teachers. In 2011, when it sold a controlling share to the educational publisher Pearson (its current owner), it was the largest private employer of teachers in India and had a market valuation of $213 million. TutorVista’s subscription model has been key to its growth. Because customers pay a predictable monthly fee in advance, the business is highly capital-efficient, and it enjoys smoother revenue growth than most start-ups do. Newspapers and cable networks have used subscription models for many years, and newer companies such as Netflix have grown spectacularly by relying on set monthly fees. But Tutor Vista is an example of a subscription-based company operating in a space that doesn’t typically rely on subscriptions. Massage Envy is another: Although most massage therapists simply ask clients to book and pay for appointments as needed, Massage Envy sells $59 monthly memberships a strategy that allowed it to open more than 800 U.S. locations in a decade.

The Scarcity Model
Still other companies use scarcity to motivate customers to buy (and pay) early on. This tactic, especially useful in retail, takes advantage of the fact that retailers often do not have to pay their vendors up front. Zara, the Spanish pioneer of the fast fashion concept, creates more than 10,000 styles a year, with limited-edition designs moving from its studios to its stores in as little as two weeks. Because customers know that the next week’s assortment won’t be the same, they tend to quickly buy items they like. Zara pays its vendors on extended terms, creating negative net working capital that has helped fuel the company’s fast growth. Vente-privée, a French flash-sale site that offers overstocked high end fashion goods, uses a similar model and was able to forgo outside investment until it had been operating for six years.

Angels in the firm
Angel investing has morphed significantly in the past decade. Angels used to be organized groups specific to a region or cause consisting of people who were interested in speculating on start-ups think a neighbourhood investment club on steroids. Often these investments had an economic development component or a sense of giving back to communities. But the democratization of start-up investing by the internet and deregulation has created super angels: wealthy individuals who actively participate in funding and building start-ups. These folks are pros, and many are connected to VC firms and large corporations that invest in or acquire new start-ups.

Just for Note:
APPEARING ON Shark Tank is one of the best things that can happen to a company, Just making an appearance, whether or not the Sharks invest or the promised investment happens, can give companies a boost. Tom+Chee got just $20,000 after the show, but its revenue is soaring from a pre-Shark Tank $900,000 to a projected $17 million for 2015. But not all contenders excel (ToyGaroo, not listed, got $200,000 and then went bankrupt), because some get big investments before they get their bearings. The lesson? Build a healthy company before asking for cash. As Daymond John told Inc. recently, “I want my money to be used to fuel the car, not make it.” — JOHN BRANDON

Reference:
Mullins J. Use Customer Cash to Finance Your Start-Up. Harvard Business Review [serial online]. July 2013;91(7/8):19–21. Available from: Business Source Premier, Ipswich, MA. Accessed August 16, 2015.
Hogg S. Angels in the firm. Entrepreneur [serial online]. July 2014;42(7):69. Available from: Business Source Premier, Ipswich, MA. Accessed August 16, 2015.
THE SHARK TANK EFFECT. Inc [serial online]. May 2015;37(4):22. Available from: Business Source Premier, Ipswich, MA. Accessed August 16, 2015.

About the Author:
Dr.Hisham M Safadi (Hisham Safadi ) BDS & MSc Leadership and Management in Health Care Practice from the University of Salford where his Master dissertation subject is the effect of Emotional Intelligence on improving Dentistry care in Middle East. Born and raised in the Emirates of Ras Al Khaimah, United Arab Emirates. Dr.Safadi had start his professional career as a dentist then turn to the field of managing medical facilities and reforming delivery of health care services. His main interest is business consultancy, leadership and entrepreneurship.
Twitter: @hishamsafadi
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