Building a successful IT services business isn’t easy. But perhaps it shouldn’t be or everyone would be doing it should it, further commoditizing the market and reducing revenue opportunities. Some of the most skilled technology professionals have seen the organizations they worked so hard to get off the ground fail after just a few months (or, if they’re lucky, a few years). The root cause for those misfortunes is rarely traced back to a lack of IT capabilities, but more often to inexperience with financing their expansion and other challenges related to growing a business.
The introduction of cloud and managed services has significantly boosted the depth of resources and training programs available to develop the technology side of operations. But, without a sound fiscal plan, business expansion can be extremely difficult, even under the best economic conditions. Just a few years after the national banking meltdown and the implementation of a series of new, more restrictive financial regulations, the lending options are still fairly limited for small business entrepreneurs. Basically, if you have the cash required to expand operations, commercial banks will be more willing to let you borrow more.
Consider the situation where a provider has to make infrastructure upgrades to land a major client. Paying for it using their own funds could significantly jeopardize their cash flow, but without that investment, the deal may not happen and the revenue will be lost. The same scenario plays out when adding a new service or vertical market practice. If organizations do not have the cash reserves to cover their investments and bank institutions are reluctant to offer fair or any loan terms, what options do they have left?
Other than looking to their vendor and distribution partners for extended credit, their alternatives are limited, though the latest method for raising a significant amount of cash is gaining steam. Crowdsourcing, defined by Investopedia as “the use of small amounts of capital from a large number of individuals to finance a new business venture,” has been generating quite a buzz recently. This capital procurement scheme relies extensively on social media to deliver the message to potential online investors, leveraging a comprehensive network of friends, family and colleagues to spread the message.
At the heart of an effective crowdsourcing strategy is a specially designed website that fully explains the projects and the benefits to those who lend their cash support, with a payment processing engine to collect contributions. After constructing their expansion plan and cost estimates, service providers can create an account on one of these fundraising sites and develop a landing page where they can drive potential investors. That’s where LinkedIn, Twitter, Facebook and other social media sites come into play. With the right messaging and promotional frequency, providers can spread the word about their project and why friends, family and others would want to invest in their company’s growth. While some choose to offer incentives to those who contribute a certain dollar amount, including reduced rates for future services or free T-shirts, others simply rely on smaller donations to reach their goals.
That’s the beautiful thing about crowdfunding. It expands the pool of potential investors beyond the traditional lenders and business community, allowing anyone to help fund the expansion of a company they believe in – whether they give $1 or $10,000. While some providers may think of crowdsourcing as corporate charity or discount its value to their organization, these programs can be customized to create a real value proposition for contributors. While government and industry regulations may limit some of the options, these funding schemes offer a host of new funding sources for creative entrepreneurs.
Want to learn more about crowdsourcing and if it’s a real growth funding opportunity for your business? Join CompTIA for its upcoming webinar, scheduled for November 6, Crowdfunding: How Can Crowdfunding Raise Capital for my Company? During the session, Sara Hanks and Brian Knight of CrowdCheck Inc. will cover the processes, benefits and drawbacks of these programs, including the proposed Securities and Exchange Commission (SEC) rules and other industry terms and conditions.
If that non-traditional fund raising option isn’t your cup of tea, be sure to check out one of the many other CompTIA resources designed to help solution providers improve their cash flow and enhance their financial situation. The association offers a long list of online channel business training sessions and Quick Start Guides, as well as a variety of live event workshops, with new topics and benefits added each month. With each specifically designed for IT channel companies by solution providers and other IT channel professionals, these resources address the issues and opportunities facing those in the industry.
Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.
