Bringing investors into a business can be tricky. Once others are putting their money into your company, they can demand a greater say in your business decisions. But what if those decisions conflict with how you are serving your customers? Entrepreneur Rowan Gormley resolved this conflict in perhaps the simplest way possible. Gormley founded a company where investors and customers are one and the same.
Gormley launched NakedWines.com in 2008 after losing his job. With the tough economy, he and his partners created a much needed service for one struggling industry. They came up with a unique crowdsourcing model for wines. He tells the Huffington Post:
“We had to start something that was completely different and massively better than what was already out there…It forced us to come up with a crowdsourcing model, and forced consumers to give us money for wines by winemakers they’ve never heard of and to try wines they’ve never tasted. We had to be incredibly transparent, and that’s where the name “naked” came from.”
Here’s how it works. Wine buyers can sign up on the site as “Angels.” Angels invest $40 a month. That money goes into their “piggy banks” so that they can use it on future wine orders. But by paying that money up front each month, it allows NakedWines.com to invest in local wineries.
Then those local wineries can offer their wines on the site at a discounted price, usually about 40 to 60 percent of normal retail prices. That upfront money can help winemakers avoid a lot of the costs associated with running a traditional wine business, like sales and marketing.
The model puts the company’s funding in the hands of its customers, who will ultimately decide its success of failure anyway. The crowdfunding solution allowed NakedWines.com to succeed in a very challenging economy. But it also helped solve one of the biggest conflicts when trying to fund a startup. Gormley explains:
“The great thing about getting money from customers is that your customers and funders are the same people. Instead of a conflict of investors versus customers, [where you are] trying to please both, give your customers a chance to prove if they’ll back you. And if they will, it’s a much better source of money.”
Image: Naked Wines
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Great idea and I’m glad it’s working out! These types of innovative models are what SMBs need to increasingly pursue as traditional capital becomes more difficult to obtain.
I agree. Getting creative with funding can be the difference between success and failure.
What a great way to get owners to come together. Sometimes, you don’t have to leverage products. You can simply leverage other businesses.