Neil Patel

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How to think about startup traction? In other words, what’s the best way to think about traction for startup founders?

Traction is one of the most pivotal metrics for startups. Growth is vital for all businesses, no matter what size and stage of maturity. It is even more critical for startups. For survival, especially when it comes to fundraising.

So, how should entrepreneurs think about startup traction? What does it really mean? How do you attain and maintain it?

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    What Is Traction For Startups?

    By definition, traction is pulling or drawing something along. Such as car tires or tank tracks gripping the ground to pull the vehicle along.

    This is very applicable to startups and businesses. In this use case, traction is making progress. Though, sometimes, even often, it takes work. It takes the right tools.

    So, traction is growth in your business.

    It is one of the key metrics companies, and specifically, startups, are judged and evaluated on.

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    So, how do you measure it, and get more of it?

    Before you continue reading this post, take a few minutes to check out this video I have created. In it, I have explained in detail how to get traction for your business. You’re sure to find it helpful.

    Traction In Startups

    There are only two directions for any company to go. Either up or down. It is impossible just to stay static in business. It’s not possible to simply tread water forever.

    Even if you try, another competitor will be swimming past you, and take your customers with them. They will have the advantage of constantly compounding their traction and gaining strength in momentum, attention, and finances.

    Regardless of how large your aspirations are for your business, or whether you think you’ll need outside financing right now, your company must always be growing and making progress.

    Everything gets harder when your business is stalled or declining. The opposite is true when you have traction and know how to control it. Then the positive results are exponential.

    A startup with traction is one which draws the best talent in your field. Everyone wants to work with and be affiliated with a winner. In the reverse, without traction, you’ll likely be losing your best talent.

    Customers see the headlines too. Consumers want to align with winning, trending brands too. Not the losers.

    Traction is Critical for Attracting Funding

    Traction is incredibly important when it comes to obtaining investments and in startup fundraising. Investors require traction. They desire and need high-speed growth. Without traction, they see something is wrong. There is far more risk. They won’t be able to get the returns they must have.

    It also shows that you haven’t secured product market fit. Or you are not serving your customers well enough. Or your management team is not capable of executing well enough to achieve and maintain growth. None of these things are going to attract investors to participate.

    The opposite is true as well. Traction shows that your startup is on the right track. You can achieve things. You may have hit product market fit. You can not just create a commercially viable product, but can also manage growth.

    This is a highly attractive indicator of an investment that will be multiplied for angels, VCs, and other investors. This is why you need to think about startup traction.

    This also applies to advisors, vendors, partnerships, and more.

    How Much Traction Does Your Startup Need?

    The velocity of traction your startup needs will often depend on why you need and want it.

    As a company, it is good to know that your growth is in line with the overall economy, market, and industry benchmarks. Though, this is just a start. The basic level of acceptable performance.

    Everyone you engage with will have their own specific requirements or expectations for your rate of traction too. This includes all types of startup investors, being accepted by startup accelerators, and meeting expectations in public markets. That could be 10 percent a month. Or it may be 20 percent to 50 percent week over week in the earliest stages of a startup. It may be far more modest for mature blue chip stocks.

    However, in startups, expectations for traction seem to have been speeding up too. Everyone wants big growth, and to be part of a wild success story. Especially when it comes to making money. As well as bragging rights. The world and business are far more global today, with more room to grow, and the ability to grow far faster than ever before. Especially for tech startups.

    Ways That Startup Traction Is Measured

    There is more than one metric, or way to measure and demonstrate startup traction.

    Often, once you are gaining great traction in one area, others will naturally rise as well. Not always, especially if you are sacrificing one for the other. Though a rising tide often lifts all boats.

    Still, startup success is all about focus. It takes simplicity to make progress, win, sell, and raise money.

    With this in mind, pick a metric that you are confident that your startup can perform well on, and keep on driving at a great rate.

    This is especially important for creating a winning pitch deck and pitching investors. Though it is also critical for all stages of business. Be sure to pick the metric which is most important for your stage, and what’s next.

    Get your team focused on that, and measure it visibly and constantly, in order to keep on driving it up.

    These are some of the common ways businesses can measure and demonstrate growth. Go through this checklist that will help you understand how to think about startup traction.

    Users

    In startups, customer acquisition and the number of users are frequently a top focus. It’s a popular metric for traction, and a big data point to be used in pitch decks. Especially if you are pre-revenue, or are likely to be acquired for your users, rather than profits.

    Headcount

    In recent years employee headcount has often been used as a proxy for traction. It can be an indicator of how much your business is growing. Though it is not always a measure of revenue or profit. A more meaningful measure of business health and profitability may be revenue per employee.

    Valuation

    Although experienced entrepreneurs warn newer entrepreneurs not to get overly caught up in valuation. Especially when it comes around to fundraising and paper valuations. It is certainly a volatile metric, which can be subject to emotional markets.

    Of course, at some point, a company’s valuation and share price do become important. Especially when you are preparing for an IPO, are public, or are working on M&A deals.

    Market Share

    Market share is a valuable data point. It is meaningful in how much of your space you are winning and holding. The percentage you need or which is notable will depend on your type of company and your market. In some spaces you. You may only need 40 percent market to be the market leader in some industries. Or just low single digits to create a multi-billion dollar business in others.

    Profit

    Traditional business valuation measures real profit. Ultimately, it is what a business is created to do. This might not be a priority for all startup investors. In some phases of the economy, losses are acceptable in exchange for other types of traction. Though, when there are corrections, profitability quickly becomes much more important.

    Revenue

    The precursor to profit is revenue. Revenue means sales and that customers are willing to pay real money for your product. Which is what differentiates a hobby from a true business.

    Sales Volume

    Before revenues and profits are sales volume. How many units are being sold? In terms of pure traction, it may not matter whether you are bringing in $1 to $1M per sale. Though increasing per-customer revenue and profit margin should always be on your radar. These metrics can prove to be critical when you think about startup traction. That’s because the numbers will influence your fundraising success rates.

    Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

    Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

    How To Gain & Maintain More Startup Traction

    Join A Startup Accelerator

    A great way to be forced to make progress as an early-stage startup is to join a startup accelerator program. They are structured to push you to make progress and get traction in just a couple of months. Acceptance can also come along with seed funding, and then introductions to more investors on demo day in the end.

    However, startup accelerators like Y Combinator are famous for being harder to get into than Harvard. Proving you already have some great traction may be important before you apply.

    Growing Yourself As A Business Leader

    To grow a business, especially as you advance to more significant levels for the first time, you must grow yourself as a leader. Don’t be the roadblock holding up the machine, and blocking your own traction.

    Invest in consistent learning, and enhance your skills in hiring and fundraising. Leverage the know-how and experience others have as startup advisors and consultants and advisors. Working on your skills as an entrepreneur is a good start when you think about startup traction.

    Publish Content, Content, And More Content

    Companies with the most traction are now content companies in some way or another. Whether that is podcasting, blogging, PR, article marketing, or video publishing.

    Mergers And Acquisitions

    M&A is a powerful method for making big leaps in traction. Use it to acquire the traction of others, or their teams, tech, market share, and branding.

    Strategic Partnerships

    Creating exclusive or semi-exclusive agreements to sell your services or product, or to license it can help you plug into massive traction almost overnight. As well as building strength and sustainability in your volume of business.

    Optimization & Automation

    Sometimes scaling traction is easily done with a few tweaks to optimize and automate operations.

    How can you automate your processes and systems?

    It may be tweaks to your website or sales funnels. It could be improving the use of your CRM, and automating follow-up. Or using new software or leveraging others to hack time, and get more done.

    Branding Or Rebranding

    The brand alone can make all the difference in traction. A hot brand can grow extremely fast. A trusted brand can maintain business volume, and improve its unit economics.

    It may be time to invest more in your branding and brand visibility. You may need to pause and rebrand or restructure your brands. Or it might help to acquire or merge with a trending or more trusted brand.

    New Products & Upsells

    Improve sales, revenues, or profits by releasing new products, working on upsells, and add-on products that grow per customer value. Just don’t abuse or mllk your most loyal customers to death. It could have the opposite of the desired effect.

    Sales & Marketing

    Traction often simply comes down to sales and marketing. Perhaps you haven’t really invested in a professional marketing plan and strategy yet. Or you may just need to scale up and start investing a lot more in your monthly advertising budget.

    Resetting Company Goals

    When did you last pause, evaluate, and recast your goals?

    It may be time to upgrade those goals, set higher and more aggressive milestones, and chart new forecasts.

    Be sure you are also making these goals and metrics clear and visible to your teams, and have their buy-in. If they don’t know, they are going to be working in the wrong direction, or aiming lower.

    Summary

    How should you think about startup traction for your company?

    Traction is one of the most vital metrics for startups. In fact, growth is essential for all businesses of all sizes. You grow or die.

    As a startup entrepreneur, you must master creating and maintaining traction. As well as being able to demonstrate, and convey it well. This is true for recruiting great employees, advisors, and investors. Customers will notice as well.

    Make sure you know how to measure traction for your startup. As well as which are vanity versus truly valuable growth metrics. Plus, how to move the needle, and keep your growth rates up.

    You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.

     

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    Neil Patel

    I hope you enjoy reading this blog post.

    If you want help with your fundraising or acquisition, just book a call

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