[MUSIC] Hello everyone, welcome back, and I hope you got some aha moments out of doing the assignment at the end of module 2. You're going to find that that problem solving perspective is very useful as we talk about pay-in-advance models in this module 3. Pay-in-advance models are the most straightforward and the most easy to apply of all five customer funded models. In chapter two of the book, I tell the story of the customer funded origins of Dell, the little known origins. And I show how Michael Dell got his start and then grew very rapidly, by asking his customers to pay for the computers before he produced them. Now that may be a bit audacious perhaps, but it certainly isn't rocket science. In this module, we're going to focus on pay-in-advance models and how you can put them to work in your business. So let's get started. First, let's be sure what we're talking about here. Pay-in-advance models are those in which the seller asks the buyer to pay in advance, at least in part, before the goods or services are created, produced, or delivered to the buyer. So let's think about some familiar settings in which pay-in-advance models are found. Suppose you want to fly to a holiday destination next month. You'll pay in advance for your airfare or the B&B where you're going to stay. If you're in the US or the UK you may shop at a membership store like Costco or Sam's Club. You have to pay in advance to be a member to shop there. You may pay in advance to Amazon for free delivery for the rest of the year with Amazon Prime. All of these are examples of pay-in-advance models because in every instance, the customer is paying for something before they get it. And that means the seller has your cash before you get the services. It also happens in the B To B world, of course. So there are paid-in-advance service agreements, maintenance agreements, things like that to keep equipment up and running. In consulting, there is almost always a down payment in order to get started on the project. There are three thing I really like about pay-in-advance models, especially in a B To B setting. Number one, all you have to do is ask for the order and a check to go with it, just as Michael Dell did. A check or a credit card. Getting that payment is real validation for your business. That's point number two. If somebody writes you a check, that means they're not simply telling you they like your idea to be nice to you, which people sometimes do. They're putting their money where their mouth is. And number three, if the customer is not willing to write a check and others aren't willing to write a check either, then maybe your idea isn't so good after all. And maybe your customer doesn't have the problem that you think they have. And you'd probably rather learn that early rather than later, after having wasted boatloads of your precious time and perhaps an angel's money. But wait, why, you say, would anyone write me a check for something my fledgling company is not yet produced? Well they did so for Michael Dell didn't they? So why shouldn't they do it for you? There are some good reasons actually why customers will do this. They'll do it because they've got a real problem. They've gotta remodel the kitchen before the holiday party comes around. Or in a B To B setting, there's a pressing IT problem that they have to solve, and you've convinced them that your solution is the best one. Number two, you've built trust, just as the young Michael Dell did. Maybe you did that by showing that your technology works in the lab or maybe worked for another customer. And all you need is a check for x dollars to take it to the next level so it can solve their problem. Now have I said this is easy? No I haven't. But if you're solving a compelling customer problem and yours is the best solution, it gets a lot easier really fast. Okay, so let's pause and do a little exercise here. You can do this exercise for you as an individual or for the business where you now work. I'd like you to think of all the things that come to mind that you've paid for recently, at least in part, before you've received them, either in your business or personally. Okay, pause and go. Okay, there's lots of stuff there, right? Some goods, maybe the books or other things you've bought online from Amazon or somebody else, paying for them before they arrived. Maybe some services, maybe you had to fix the boiler in your flat or you needed a plumber to come do some repairs in your bathroom. Maybe you bought some airline tickets, maybe you bought a season pass for the upcoming ski season. All of these things are paid in advance. Now one thing you'll recognize pretty quickly here is that many services, almost all of them, are paid in advance under normal circumstances, why? Because if that weren't the case, some buyers would refuse to pay afterwards. And it's hard to take back a service once it's been delivered, unlike a product. So if you're looking to start a business with no investment, with the customer's money, you might think about starting a services business. In many cases, all you'll need to get started is customer number one. By now I think you've got the drift. So what lies ahead in module 3 to bring this ideas to life? First, I'm going to tell you a story of the very cool pay-in-advance entertainment business that's not in the book. It's called Funovation, they make laser mazes for entertainment operators around the world. The story demonstrates how even in the technology business, it's possible to build a pay in advance model. Then I'm going to interview Eric Miller, one of the Funovation co-founders, who will explain exactly how his team built a customer-funded business into the global leader in their category. Next I'm going to give you a really cautionary failure story that holds some other important lessons. After that, we'll have an interview with a social entrepreneur who is using a pay-in-advance model to make a dent in the huge literacy problem that we're seeing in many schools today. And then the final interview in this module will be with a Latin American based professor who will shed some light on the entrepreneurial financing ecosystem in Latin America. After the interviews, I'll come back to you to wrap up this module with some observations. Observations about bootstrapping, observations about the importance of getting good terms on everything you buy in