Measuring Startup Traction
What 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 mobile 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 base. This can happen through early marketing, independent of whether you have yet delivered a single product, proven your business model, or have any paying customers. Most great crowdfunding campaigns, for example, are the result of momentum built through social media.
Unfortunately, your assertion that you have traction probably won’t be convincing to potential investors and partners, so it’s essential that you create and track your progress against some metrics. Here are some specific areas that indicate credibility and acceptance:
- 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 capital received from friends, family, and co-founders. If you don’t believe in your startup enough to risk the capital of those close to you, why should investors?
- 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, followers, downloads, and active users. Investors are wary of initial surges due to friends, family, and early adopters, so sustainable growth over time is critical.
- Count connections with experts, media, and influencers. You need outside advocates who will back your assertions of traction. Relationships with recognized and influential bloggers, relevant media, and industry analysts are priceless. Traction with these people is usually indicative of later traction to come with customers.
- 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 Guy Kawasaki is an advisor to your tech startup, that is significant traction, even without a product or revenue. Who you know is still often more important than what you know.
- Build an experienced technical and executive team. A sure sign of no traction is an inexperienced solo 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 co-founders is a strong indication of fundability and traction.
- Demonstrate evidence of key customer interest. If you don’t yet have revenue, the next best thing is to have orders or letters of intent from prospective buyers. While these may not carry the authority of income received, they at least show that you’re talking to potential customers and seeking product-market fit.
- Show validation of key business model elements. One important measure of traction is a metric on how many of the key business model canvas elements have been proven with actual data or multiple experiments. These would include the cost of customer acquisition, cost of leads, sales channel, cost of goods, and pricing strategy.
- Measure progress against industry barriers. In every industry, there are known barriers to traction such as regulatory hurdles, safety standards, and clinical trials. These need to be listed as a metric, with resolution times projected and breakthroughs counted. Investors need to see your past 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 track 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.