Like a lot of small business owners in early 2009, Ruth Klahsen found herself desperately seeking capital and finding nothing but refusal everywhere she looked. Until, that is, the Ontario cheese maker hit upon the idea of asking her customers to help finance a $1 million new dairy, reports AOL Small Business.
Abandoning the search for conventional funding, Klahsen pitched existing customers a cheese subscription offer, asking $500 for five years’ worth of deliveries worth $150 a year. In little more than a year, she raised $376,000.
Along with government loans and grants secured with the help of the publicity and financial strength the subscription income generated, that funded the construction of a new home for Monforte Dairy in Stratford, about halfway between Toronto and Detroit.
“We pulled it off,” Klahsen said, sounding somewhat disbelieving on the eve of a party to celebrate completing her new cheese making facility.
Klahsen went through four legal advisers crafting a subscription offer that clearly distinguished that subscribers were only pre-paying for cheese, not buying ownership shares or assuming liability if the company made a misstep.
Once she had that in place, she made a few calls to her network of customers, mostly local chefs. That generated a flood of publicity and several hundred check-writing subscribers.
Klahsen suspects that similar financing would work for similar businesses. “It’s the right time to start doing this stuff,” she says. However, she warns that other entrepreneurs should try it only if they already have a strong reputation in the market.
She also notes that she had to be able to project sufficient cash flow to give away $100,000 worth of free cheese for the next five years. And she had to be willing to offer transparency to people who questioned whether she could actually deliver. Subscribers have no recourse if the plan goes awry, she says.
Photo by Monforte Dairy.
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