You could have the greatest idea for a startup in the world. You could even have the best team working together to build a great product. That's all fine and dandy, but for first-time entrepreneurs, if you don't have traction, you're not going anywhere. Traction means having a measurable set of customers or users that serves to prove to a potential investor that your startup is "going places." The tricky part is actually gaining that traction and knowing when you have enough to approach potential investors, so here are a few tips that should help.
There are a lot of different ways a startup can achieve traction for their product. Entrepreneur, investor and blogger Gabriel Weinberg has an excellent list of "traction verticals" that he curated earlier this year based on the dozens of interviews with fellow startup founders.
- Mark Peter Davis
The list is quite exhaustive so if you ever find yourself wondering how to get traction, run down this list and see what might fit for your company. But the thing to note is that each company had a slightly different strategy.
So now that you're gaining users and building up traction, how do you know when you've got enough to win over investors? Mark Peter Davis, a New York-based investor with DFJ Gotham Ventures, wrote about this very subject this morning from a VC's perspective.
For startups targeting consumers, "investors want to see 'hockey stick' adoption rates which imply consistent or increasing growth rates on a percentage basis," says Davis. At this end of the spectrum, investors look for large numbers of users, whereas with enterprise solutions, a small group of customers (even those with merely an intent to purchase) can be enough to win over a potential investor.
For those aiming their products and services at fellow small businesses, proper traction relies on the "marketing equation."
"The marketing equation is defined as the relationship between the customer lifetime value and the cost of acquisition," says Davis. "Put simply, investors want to know that a company can repeatedly acquire customers for $X and generate more than $X in gross profit from each customer."
However, Davis warns that the true answer to the traction question is simply, "it depends." All companies are different and all investors are different, so there are no "hard-and-fast rules," as he puts it. "The more the merrier," is probably a good rule-of-thumb for traction. Some would argue, perhaps, that there is no such thing as too much traction, but at that point you may not need investors at all.
Know some other great ways to gain traction? Or do you have tips on when is the right time to approach investors? Let us know your thoughts on traction in the comments below!