5.1 Introduction to Module 5: John Mullins.

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En provenance du cours de University of London

How to Finance and Grow Your Startup – Without VC

274 notes

University of London

How to Finance and Grow Your Startup – Without VC

274 notes

Who? If you’re an entrepreneur at any stage of your journey, or even an aspiring one, and you need money to start or grow your business, this course is for you. What? This course will introduce, and help you put to use in your startup, the five models through which your customers can – and will, if you ask them! – fund your business. These five time-tested models have been put to use by entrepreneurial superstars like Michael Dell, Bill Gates, Richard Branson and more. Sadly, though, the five models are rarely talked about and not widely understood. Until now! The five models will be brought to life by the real-world stories of an inspiring collection of incredibly creative entrepreneurs from around the world – including successes and failures – through a series of captivating no-holds-barred interviews with founders and others, and investors, too. Why? More than two generations ago, the venture capital community – VC’s, business angels, incubators, and others – convinced the entrepreneurial world that writing business plans and raising venture capital constituted the twin centerpieces of entrepreneurial endeavor. They did so for very good reasons: the sometimes astonishing returns they’ve delivered to their investors and the incredibly large and valuable companies their ecosystem has created. But the vast majority of fast growing companies never take any angel or venture funding. Are they onto something that most of today’s entrepreneurial ecosystem has missed? Indeed, should a business angel or VC be seen as the first port of call for getting your nascent entrepreneurial venture off the ground or growing it faster? Perhaps not. How? You’ll be asked to do a series of exercises – out in the real world – to put your growing toolkit to use in your business or the one you hope to start. Hands-on, practical tools to help your business start and thrive – without venture capital. You’ll join our discussion board of fellow participants, if you like, and learn from others who are putting the tools to work, just as you are. And to suit today’s fast-paced lifestyles, we’ve broken what you’ll get – short lessons, interviews, thought-provoking questions, even some optional things to read – into bite-sized chunks, so you can log in and grab them whenever and wherever you are. And what else? If, after checking out and perhaps completing this course, you find your company in a position where seeking venture capital turns out to be the right thing to do next, John Mullins leads an inspiring and hands-on executive education course at London Business School – this one face-to-face – called Financing the Entrepreneurial Business. There, among a room full of investors and entrepreneurs, you’ll study a series of captivating real-world cases and learn everything an entrepreneur – or an investor, for that matter – needs to know to handle the person who sits across the deal table and take an entrepreneurial business from start-up to exit. See https://www.london.edu/education-and-development/executive-education/topic/finance/financing-the-entrepreneurial-business#.WIVY_FyTQ-0 for info.

À partir de la leçon

Module 5: Scarcity models

Welcome to Module 5! In this module, we're going to look at the most counter-intuitive of the five models: the scarcity model. You'll get the story of a fashion retailer that's making life difficult for others in its industry, you'll get an extensive advice-laden interview with an entrepreneur who used scarcity to his benefit, and we'll travel to India to explore today's funding environment there. Let's go!

5.1 Introduction to Module 5: John Mullins.7:24

5.2 Speed and scarcity wins for Zara.4:23

5.3 The hands-on nitty gritty of getting customer funds - interview with Rud Browne, Part 1. Rud Browne on getting customers to pay in advance and buyers to play ball; on managing through a downturn; on advice for entrepreneurs getting started today; and more.6:39

5.4 The hands-on nitty gritty of getting customer funds - Interview with Rud Browne, Part 28:57

5.5 The hands-on nitty gritty of getting customer funds - Interview with Rud Browne, Part 3.7:36

5.6 Easy money in India? - Interview with Ajeet Khurana, Part 1. Ajeet Khurana on 2015's easy money in India: Would it last?; on valuations in India; on mobile-first or mobile-only?; on positive cash flow; and more.9:34

5.7 Easy money in India? - Interview with Ajeet Khurana, Part 2.8:51

5.8 Easy money in India? - Interview with Ajeet Khurana, Part 3.9:21

5.9 Module 5: Wrap-up, lessons learned, and a look ahead.9:49

Rencontrer les enseignants

John Mullins
Associate Professor of Management Practice
London Business School

[MUSIC]

Welcome back, everybody.

It's time for Module 5.

And it's kind of hard to believe it, but

we're already halfway done with the course, right?

In this module, we're going to focus on the most counterintuitive of

the five models, what I call scarcity models.

When I worked for

The Gap many years ago in its early years, what our merchants wanted to do

was sell as much of each style as possible at the best margins possible.

But retailing has changed, and companies like Zara and Mango are killing Gap and

others with a vastly different approach to what and how they sell and

how they buy, and they're doing it with scarcity models.

So first, let's be sure we know what we're talking about here.

Scarcity models are those in which the seller restricts what's available for

sale, both in time and in quantity, with the seller's supplier being paid after,

sometimes long after, the sale is made.

When the goods are gone, they're gone.

And very importantly, there won't be anymore.

So what's the implication here if you're the customer?

Many of you are probably Zara shoppers.

And if you as a customer finds something in a Zara store that you like,

what do you do?

Well, you know you'd better buy it now or you miss your chance, and

you'd better come back often because you may miss something that you might like.

So what's the implication for the seller?

Let's think about it.

The customer pays in cash or with a credit card, but the seller, Zara, for example,

does not need to pay its supplier yet, typically not for 60 days.

This provides a boatload of cash with which Zara can open more stores and

grow the business, which is exactly what Zara has done.

So that's the brick-and-mortar version of the scarcity model, and

it's worked really, really well for Zara.

They've grown like crazy.

You'll hear more about Zarah later in this module.

But there's also an online version of the scarcity model called flash sales,

the inventor of which is a French company called Vente-privee.

There the story's been quite different, and

I think it's worth understanding why so many flash sales businesses

have become very large and why so few of them are prospering today.

First, though, how do flash sales work?

Typically it's a three-day event, for example, on Vente-privee.

There's scarcity timewise there.

There are only a few styles for sale, so scarcity selection-wise too.

And when the sale is over at the end of the three days,

the orders that came in from the customers are placed with a vendor.

The vendor then ships to the merchant, and the merchant ships to the consumer, or

sometimes it goes directly vendor to consumer.

Then, quite some days later, the vendor gets paid.

But meanwhile, the customers have already paid the vendor.

Maybe that's you.

And you can use their cash until you need it to pay your vendors.

So originally, flash sales merchants like Vente-privee were in the business of

discreetly solving apparel manufacturers' problems of fashion mistakes.

They'd made too much of something, and Vente-privee and

others would buy it, but they'd buy it at closeout prices.

And they would sell it in flash sales events that would not disturb the fancy

markups on the Champs-Elysees in Paris.

That's especially useful in tough economic times like 2008 and 2009,

when many of the flash sales businesses got funded and grew very fast.

Eventually, though, two things happened.

The merchants got their inventories in order and they had fewer closeouts.

And at the same time, the number of flash sales merchants was growing rapidly,

creating growing demand for the closeouts that the manufacturers now had less of.

Well, think about it.

Here's a short quiz.

If you were a manufacturer with multiple flash sales merchants beating down your

door for your closeouts, how would you react?

I'll pause here.

What would you do?

[LAUGH] Well, here's what they did.

They raised the prices of course, right?

If too many people beating down your door, you raise the price.

And they made more of the stuff.

So today, the many flash sales merchants are simply another distribution channel,

perhaps an attractive one for the apparel manufacturers.

But the flash sale deals are not what they used to be, as most of what's sold there

is merchandise made specifically to sell that way.

Perhaps a few fewer fashion touches here,

fewer stitches per inch there, less costly fabric as well.

So the value's gone and the customers have figured it out.

And by the way, aren't there always 50% off sales at the malls anyway?

So the results have not been pretty for the flash sales industry.

Dismal results, in fact.

And since I wrote the book, Gilt Groupe has still been unable to go public

despite talking about doing so for years.

Zulilly went public but then got sold after its post-IPO price tanked.

And Vente-privee had to shut down its US operation.

So if you want some failures to learn from, here they are.

Now how have they responded if they've not already shut down?

Many of them have moved to more traditional e-commerce models,

rather than flash sales model, to try and find a way forward.

But what that means is they have to compete directly with the likes of Amazon.

Good luck with that.

Vente-privee, the originator, still gets more than 80% of its

sales in France despite the fact that they have divisions in many other countries.

So they've struggled elsewhere too.

So my suggestion to you is this.

You're going to need to do something more meaningful

than buying somebody else's closeouts if you want to build a scarcity business.

And the rest of this module may give you some pretty interesting ideas.

So let's take a look at what lies ahead as we examine these scarcity models.

First, I'm going to tell you the Zara story,

so you get it in more depth, and what makes it work and why Gap and

others are struggling so much to compete with Zara.

Next I'm going to interview a Canadian entrepreneur, his name's Rud Browne.

He put together scarcity principles and combined them with a pay-in-advance model

and used them to ward off the effects of the financial crisis in 2008 and

come out largely unscathed.

His story is told only very briefly in chapter one of

The Customer Funded Business, so

you'll get the inside story straight from Rud in considerably more depth here.

Then I'm going to talk to Ajeet Khurana,

one of the best-known and most successful angel investors in India.

He thought about screening ventures according to whether or

not they've won customer funding, and

I think you'll find his perspective useful no matter where you are.

Finally, I'll come back to wrap up the scarcity model topic,

I'll suggest some optional reading for

those of you who still think flash sales might be a way forward, and

I'll tee up a few final lessons you won't want to overlook in chapter six.

I'll be back with the Zara story next.

I'll see you there.

[MUSIC]

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