Wednesday, October 17, 2018

8 Tips For Quantifying Traction In Your New Venture

Vehicles-Drag-Race-tractionWhat is the definition of traction for a business startup today? According to most investors I know, traction is some clear evidence that the “dogs are eating the dog food” – usually meaning that you have at least one customer paying full price for your solution. If your phone app or service is free, then the number of users or downloads better be impressive and growing exponentially.

Another term often mentioned is “momentum,” or growing visibility and advocacy within your customer set. This can happen through early marketing, independent of whether you have yet delivered a single product, proven your business model, or have any real customers. Most great crowdfunding campaigns, for example, are the result of momentum built through social media.

Unfortunately, your personal assessment that you have traction probably won’t be convincing to potential investors and partners, so it’s important that you create and track your progress against some metrics. Here are some of the key specifics for credibility and acceptance as you create and use these metrics:

  1. Itemize investment levels from you, insiders, and family. Professional investors expect traction discussions to begin with the size of your own investment, in money and time, plus support received from friends and family. Next would be the level of support from key insiders who would clearly benefit from the success of your solution.

  2. Define metrics on customer feedback and user counts. Early examples of traction for any solution, especially free ones, would include website traffic, number of blog comments, likes, downloads, and active user rates. Investors are wary of initial surges due to friends, family, and early adopters, so sustainable growth rates over time are key.

  3. Count connections with experts, media, and influencers. You need outside advocates who will back your assertions of traction and valid metrics. Relationships with recognized and influential bloggers, relevant media, and industry analysts are priceless. Traction with these people usually is indicative of later traction to come with customers.

  4. Assemble a credible inside advisory board and partners. Investors and potential partners measure your credibility by the quality of your advisors and peer partners. If Elon Musk is an advisor to your transportation startup, that is major traction, even without a product or revenue. Who you know is still often more important than what you know.

  5. Build an experienced technical and executive team. A sure sign of no traction is a lone inexperienced entrepreneur looking for an investor. You need a well-rounded team, including technical, financial, marketing, and operational experience, and your ability to attract the right people is a strong indication of fundability and traction.

  6. Demonstrate key customer prospect evidence of interest. If you don’t have revenue, it definitely is valuable to have orders, letter of intents, value testimonials, or even calls returned and email responses. While these may not be advertised publicly, they should be celebrated internally and highlighted informally to potential investors and partners.

  7. Show validation data for business model key elements. One important measure of traction would be a metric on how many of the key business model elements have been proven, with actual data or multiple experiments. These would include cost of customer acquisition, cost of leads, sales channel, cost of goods, and pricing strategy.

  8. Quantify progress against generic growth constraints. In every industry there are known barriers to traction, including regulatory approvals, safety standards, and clinical trials. These need to be listed as a metric, with breakthroughs counted and resolution times projected. Investors need to see your accomplishments, and the barriers ahead.

Without measures like these, you will likely hear the most common rejection from investors – “Come back when you have more traction.” Be aware that there is no magic threshold of user signups or customer revenue that will assure success. It all depends on the overall level of perceived risk, your credibility, and the size of the potential opportunity.

It’s up to you to define what traction means in your new venture, and then show your progress against these measures. Your level of passion is no substitute for some real data and analysis. In reality, all traction metrics are for you as the business owner, to measure your progress and growth in your new venture. Don’t be fooled by your own hype.

Marty Zwilling

*** First published on CayenneConsulting on 10/04/2018 ***




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