For decades, the default growth story has been simple:
Raise more money. Venture capitalists back the big idea. Banks extend credit. Balance sheets swell with other people’s capital.
But this binary view—equity or debt—comes at a cost. It assumes that outside capital is the only fuel for growth. For many companies, especially those looking to scale beyond the early stage, the result is dilution, debt, and distraction.
There is a third way forward. Customer funding—still underutilized even among experienced leaders—is emerging as a viable, and often faster, growth engine.
The Problem with the Two-Legged Stool
Research from McKinsey & Company (Strategy: Beyond the Hockey Stick) underscores how difficult it is to achieve breakout growth: fewer than 1 in 12 companies move up a performance tier in a decade. One contributing factor is that the pursuit of external funding becomes an end in itself.
Time and energy that could be spent deepening relationships with customers instead gets poured into pitch decks, investor roadshows, and loan negotiations. Equity can provide time and capital for bold moves, but at the cost of ownership. Debt can amplify returns, but adds pressure and risk. Both create dependencies on decision-makers outside the company’s walls.
It leaves too many leaders sitting on a two-legged stool—unstable, waiting for someone else to believe in them enough to fund their next move.
The Third Leg
Customer funding adds the missing third leg.
Instead of relying solely on outsiders, you let customers fund growth directly. They do this when they pre-pay, subscribe, commit early, or purchase services that finance the creation of future products.
John Mullins, a professor at London Business School and author of The Customer-Funded Business, has documented how companies as different as Airbnb, Dell, and countless service firms have built expansion on customer cash rather than investor dollars. This approach doesn’t remove the need for outside funding. It simply changes the order of operations: customers first, capital later.
How Customer Funding Works
Customer funding isn’t a single tactic. It’s a mindset—one that expresses itself in several proven models.
Platforms like Airbnb and Uber show the matchmaker model: connecting buyers and sellers, taking a fee, and scaling without ever owning inventory.
Companies like Dell demonstrate pay-in-advance models, securing revenue before building through pre-orders or direct-to-consumer commitments.
Many organizations opt for a subscription model, transforming one-off sales into recurring revenue streams that create predictable cash flow. Software-as-a-service businesses are the classic example here.
Another path begins with a service-to-product approach. High-value, bespoke services generate income that funds the development of standardized, scalable products. Consulting firms that evolve into software companies follow this trajectory.
Finally, time-and-materials contracts allow agencies, consultancies, and specialized manufacturers to fund their capability building and growth as client work progresses.
The unifying principle is simple: the customer relationship becomes the funding source.
Why This Approach Matters Now
Conditions for growth have shifted. Capital is more expensive. Investors are slower to commit, valuations are lower, and lenders are scrutinizing cash flows more than ever. Meanwhile, competitive pressures have only intensified.
In this environment, customer funding delivers two powerful advantages:
- Speed: Pre-orders, subscriptions, and bundled service contracts create immediate access to cash, allowing companies to act faster than those waiting for a round to close.
- Focus: When customers pay upfront, what gets built aligns tightly with market demand. It is real-time validation that external funding alone can’t replicate.
Integrating Customer Funding into a Broader Strategy
Customer funding is not an argument against external capital. The best operators use all three levers—equity, debt, and customer funding—to complement each other. Starting with customers, however, de-risks the business.
When you arrive at the table with proof of demand and revenue in hand, you negotiate from a position of strength. Investors and lenders respond differently when the market has already validated your path.
For leaders exploring this approach, ask yourself:
- Can our best customers be persuaded to commit earlier, even pre-paying?
- Could we offer a recurring option that creates more predictable cash flow for both sides?
- Could a service we deliver today evolve into a product that scales tomorrow?
These questions reframe growth as something that begins inside the business, not outside of it.
A Different Kind of Growth Mindset
For years, “growth mindset” has been shorthand for raising another round. But durable, controlled growth rests on a stronger foundation.
Equity buys time. Debt buys leverage. Customer funding buys freedom.
As competition intensifies and capital tightens, more leaders are discovering that the most dependable source of growth capital may be the customers they already serve. When those customers become partners in funding the next stage, the question changes from “Who will give us the money?” to “How fast can we deliver?”
Sam Palazzolo
