Trends & insights
Jul 20, 20215 min read

What to look for when seeking funding for your business.

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by Klarna

To answer the many burning funding questions small and medium businesses have around acquiring or adding funding, Klarna was joined by Clearco’s Daniel Rodic (head of market development), and Mili Trapara (account executive team lead); and Kevin Gould, founder of Kombo Ventures and multiple D2C brands, to talk through how and when to raise funding and get the most out of your money.

Part 4 of our Small Business Summer Series, watch the entire conversation here, and in the meantime, here are some key takeaways from the valuable conversation:

Investors are new customers.

Daniel Rodic highlighted how, when thinking about bringing in a new investor (whether through venture capital, private equity, personal investment, or through a bank), you need to remember you’ve “almost brought on a different customer. And they have different wants, different needs. And the product you’ve sold to them is a return on their investment. So now you need to service them [too].”

Being able to properly attend to your “new” customer’s needs and wants while handling all the other parts of your business is a challenge and can divide your attention if you’re not careful. Recognizing their different priorities and juggling them appropriately will free you to focus more on satisfying your paying customers.

Financing through new customers.

For small businesses with monthly sales under $50,000 per month (although not only them), think about the guerrilla tactics you can use—such as DMing all your followers/existing customers and urging them to purchase now. It’s the easiest way to finance your business and gives you flexibility. Those added sales give you more room to pay for ads or hire staff to help bring in more new shoppers who don’t require any additional spend on customer acquisition.

“Hustling to get new customers, in the beginning, is the easiest way to finance your business because it’s low-hanging fruit, you don’t have to pay to get those customers,” Gould pointed out. In the long-term, those sales make you more appealing to future financing options.

Unit economics drive your success.

Kicking it back to econ 101—make sure your unit economics are in check—margins matter. Very simply, don’t spend too far beyond your profits. The earlier you start tracking your unit economics, the better chance you have at establishing a firm footing and achieving steady growth.

Gould pointed out at the beginning of a business, the first unit costs might not be a high priority. Getting a handle on them early, before you start significantly scaling up, will pay dividends in the long run, helping you avoid getting stuck when sales accelerate.

Plan your partnerships, and make them work for you.

Gould and Rodic had engaging perspectives about the significance of partnerships. Rodic highlights the importance of whoever you partner with, whether as a new hire or as a financial relationship, always thinking through this vital question: What is their strategic value to you at this moment of your business?

For instance, if the next step your business needs to take is opening in a new market, say the UK, adding someone well-versed in working there and already has relationships and experience in that market could have significantly more strategic value and impact than just someone who has general financing to offer.

Start building relationships before you need them.

Our panelists encouraged business owners to make time and space for networking and connecting with valuable future contacts well in advance of when you need them.

Meet with equity, angel, or venture folks just to connect and begin forming relationships, go to the banking institutions near you and chat about your business and what you’re looking to do and want to achieve. Having started those conversations, you’ll be in a stronger position when you need (or want) to leverage their aid.

Otherwise, as Rodic pointed out, you could find yourself 6 months away from being out of cash for your business. Then you’ll be far more vulnerable when going to a bank for a loan. Don’t find yourself “truly desperate for the capital” because, at that point, it’s much harder to build back. Since those financial relationships are built on trust, the sooner you start building a connection, the better.

 


For more on funding and other valuable pieces of advice for small business owners, the Klarna Summer Series has lots of great ways for you to learn and boost your skills and take your business to the next level. Check out all the sessions here.

Klarna helps small businesses thrive.