Categories
General

Why You Should Turn Customers Into Your Shareholders

If you ask any entrepreneur what the most important part of their business is, there’s a good chance that they’ll choose their customers. The saying “the customer is always right” is a motto that has sustained millions of businesses and will continue to form the backbone of millions more. As the lifeblood of any business, customers can make or break an SME and it’s important to ensure that they’re onside when it comes to your business strategies.

The concept of equity crowdfunding is still a recent phenomenon, but it’s not just a way of raising funds and getting thousands of new investors; it can become an alternative form of marketing that’s highly dependent on customer loyalty. As existing fans and users, shareholders with a vested interest now act as ambassadors for your product or service which is an invaluable edge to have in today’s hyper-connected world of social media.

Put your money where your mouth is

A good example is UK coffee chain, Notes Coffee, which raised just under £1.2 million from over 800 individual investors, surpassing their initial target of £600,000. Remarkably, this was their second fundraising on an ECF platform, with the first round raising £900,000, after which they opened four new locations to reach a total of nine, and doubled their revenue to just under £5 million. Not bad for a coffee cart that started back in 2010!

What’s interesting is their chairman, James Horler, also participated in the most recent fundraising round, which definitely supports the notion of putting your money where your mouth is. It certainly lent credence to the second fundraising round, which likely led to more customers becoming confident to invest in the business. As with most things in life, the true barometer of confidence is backing up your words with viable action and customers will easily pick up on this. Although it’s hard to say that there wouldn’t have been investors if their chairman didn’t participate, there’s little doubt that his presence certainly gave the funding round more credibility which could sway potential investors on the fence.

Customers will want long-term success

Customer loyalty is an amazing trait to have in your investors, as they will not only sustain your business, but to take it to new heights as well by being leading advocates for you. On the flip side, they are also likely to be much more accepting of the challenges or tough periods that the company may go through as the loyalty cultivated means they will be more tolerant than a pure investor with only financial returns in mind.

In the same way, companies will no longer need to toe the line between shareholders and customers as both are one and the same. Shareholders with no connection to the business will only focus on maximising profits at any cost, which isn’t necessarily the optimal way to grow a business. With ECF, entrepreneurs no longer need to balance between what’s best for customers and shareholders, allowing them to pour their efforts into creating a business that continues to deliver value to consumers. This is arguably much more sustainable and allows a business to not just survive, but even thrive over the long term.

Instant feedback

Another strong point for customers is that they will be vocal with regards to honest feedback. This will be amplified if they are active shareholders as they will not only want your business to succeed, but also stick around for the long-term. Unlike pure investors that want monetary gains in the short-term, customers are likely to advocate business changes that are in the best interests of the company. The feedback is likely to be carefully considered instead of geared towards increasing profits, and there’s the added benefit of it coming back fast!

For example, let’s say loyal customers have invested in a small-medium pizza business via ECF, with the company looking to expand. They will want to be assured that the taste remains the same across all outlets and will definitely be vocal should this not be the case! Entrepreneurs can expect fast, honest feedback which allows them to focus quickly to solve problems instead of being distracted by grander ideas. This will likely not be the case if you have traditional investors that are only concerned with the bottom line, and may not even have stepped foot into the store!

It works for all kinds of businesses

The concept of turning your customers into shareholders should appeal to all business owners, no matter what type of industry they’re in. For example, let’s say a noodle house wants to raise funds via ECF to open additional outlets. The lack of pressure placed on them by several large shareholders means they can continue to price their food reasonably, maintaining both quality and customer loyalty. Instead of being pressured to raise prices to maximise profit margins for shareholders, the noodle house can continue to focus on securing new customers while pleasing existing ones as the price remains competitive. Not only does this reflect well on the business as they don’t appear to be just interested in profits, it continues to strengthen customer loyalty which bodes well for the long-term aspirations of the business.

This concept even extends to more digital businesses such as challenger banks. Take the example of UK digital bank Monzo, which has attracted 2 million customers since its launch in 2015. Through ECF they hit their fundraising target £20 million, with £18 million coming in just three hours from 36,000 retail investors who were also Monzo customers. Despite drawing some criticism for allowing customers to use overdrafts to buy shares, the ECF round now looks like a very smart investment with the challenger bank valued at over £2 billion today after securing an investment of £113 million from US startup accelerator Y Combinator. This is double the £1 billion it was worth during the 2018 funding round, and no doubt a huge gain on paper at least for the 36,000 customers/investors that put money into the ECF round!

As an entrepreneur, it’s important to put yourself into your customers’ shoes once in awhile to reflect. Think of your favourite spots to hang out or shop, and how you felt when it closed down. There can be a multitude of factors as to why businesses unfortunately shut down, but in many cases, these situations were entirely preventable. No one likes seeing their favourite businesses close shopp – the same goes for your customers / potential investors. These customers will be the same voices that aren’t just putting money into your enterprise, but will actively play their part to help it grow sustainably for long-term success!

If you’re interested to learn more about how ECF can help your business, contact us here and we’ll get back to you as soon as we can!