Month: July 2013

It is All About Access

Traveling the country and meeting with business owners (and those who advise them), I ask a simple question. What does a business investor expect that is different than what a customer expects? I almost always get the same answer: discounts. Most people think that owners are expecting to get lower prices on the products they buy. That’s actually not very important to investors at all.

Owners primarily expect two things when they participate in crowdfunding campaigns. The first thing that they expect is access. That means that they’re able to talk to the manager, and business leaders, and give their feedback. They like to be included. Now obviously, that doesn’t mean that each time you want to hire or fire someone, you’re going to be contacting your crowdfunding investors. But it doesn’t hurt to let them know that their opinion matters. Surveys and other feedback loops help reinforce that the investor has access. Having owner loyalty cards is important, just like having actual physical stock certificates. People want to be recognized as owners. That is true when they walk into the business. And it is also true that that people want their ownership status displayed on their social media page and on their physical wall in their home or office.

This leads to the second thing that owners really want. Investors want to be part of something bigger. They want to be involved with their community. Just like people are interested to see themselves on the roll of people were involved in a particular nonprofit charitable fundraising campaign, these investors also want to be recognized and included in the community of people who added to a local business. This creates a huge advantage to the crowdfunded company. Not only do you have a lot of investors who are going to talk about your business, the investors are also letting you speak directly to their followers about how grateful you are to have them as part of your team. It is a double-win. The business brand gets the benefit of a larger network, and the investor’s personal brand is enhanced because of their connection to a local business in the community.

Remember the crowdfunding isn’t just about discounts. It is about access and community. Companies that embrace crowdfunding will be far ahead of their competitors, saving hundreds of thousands on old economy marketing strategies that are less and less effective – strategies like providing coupons and discounts to entice people through the doors.

Jonathan Frutkin
Jonathan Frutkin is an attorney at The Frutkin Law Firm, PLC in Phoenix, AZ. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which was published in May, 2013.

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Three Reasons Why Owners are Better Customers

Every company needs customers. Our job is to help profitable locally owned businesses take their customer base and transform those people into owners through the power of crowdfunding.

Customers are the engine that creates value to a business. First, they spend money in the business. Obviously step one toward profitability is sales! Second, customers are service and quality (and value) sensitive. These customers help business managers shape their service offering to respond to the market; successful adjustments create more and more customers. Third, customers spread good experiences through word of mouth (and social media), generating additional customers. Of course, a dissatisfied customer can also sound off to the world about a bad experience, costing the business customers in the future with a bad Yelp review or Facebook post.

However, we know three things about owners which make them so much more valuable as customers:

1)      They spend more money.

Even if an owner has a very small percentage stake in the business, they feel more comfortable buying just a little bit extra. And all those little bit extras can really add up. Do you want fries with that? Owners do.

2)      They visit more frequently.

An owner, when faced with a choice between visiting their own business and a competitor will almost invariably choose their own business even if that means waiting until later to make a purchase. Or they may deal with inconvenience, going out of their way to make a purchase. Increasing the frequency of customer visits is a key component to increased profitability.

 3)      They become evangelicals for the business.

Instead of passively sharing information about their purchasing habits as part of a conversation with their friends, owners go out of their way to preach about the great products and services provided by their company. Great Yelp reviews and glowing social media posts become commonplace.

But perhaps the most powerful part is that the occasional bad customer experience is much less likely to make it out to the public square. While a customer may want to blast the shortcomings of a failed experience, an owner wants to make sure that management fixes the problem. So while a poor sales clerk may receive extra skills training, that issue won’t make its way onto social media. And while a good review is worthwhile in this social media age, a bad review is like kryptonite. A crowd of owners protects a business when things go wrong.

Crowdfunding is about a lot more than “funding”. It is really about the crowd. And having the crowd own your business is soon going to become the key component to a successful marketing strategy.  

Jonathan Frutkin
Jonathan Frutkin is an attorney at The Frutkin Law Firm, PLC in Phoenix, AZ. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which was published in May, 2013.

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Crowdfunding and Business Valuations

During my travels to meet with leading law firms around the country to discuss the implementation of equity crowdfunding, I have heard a consistent refrain: How do we value these businesses for purposes of selling shares?

Well, the answer is no different really in a crowdfunding setting than any time that a company sells equity. The amount of the shares should be an accurate reflection of the value of the business based on current and anticipated profits. However, because the real power of crowdfunding is based on making the new owners feel like they are participating in a wonderful venture, the valuation should accurately reflect the ability of the company to distribute profits to the investors (in the form of distributions or dividends) and allow them to get that solid return.

But the real question, after more thought, is “Won’t crowdfuding campaigns give us a window on TRUE business valuations?”

If you want to guesstimate how much your home is worth, it is easy. Because the actual real estate sales prices in the neighborhood are public information, websites like Zillow.com can give you a solid sense of the worth of your specific house. In public trading markets, we can see the market cap of any company instantly on any search engine.

But for a private company, there is an incredible amount of mystery, because the sales prices are almost never made public. The result is that business brokers and investment bankers are forced to make their best efforts to develop a market for the sale of a company.

Equity crowdfunding is great, because the information will be publicly available. It means that analysts will be able to compile information about private company values much more easily. And it will make it much more easy to know how much your private company is worth – all thanks to equity crowdfunding.

Jonathan Frutkin
Jonathan Frutkin is an attorney at The Frutkin Law Firm, PLC in Phoenix, AZ. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which was published in May, 2013.

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