What is traction for a startup?
There is a lot of talk about it out there online and in startup circles. You know you need it. Yet, there is a lot of confusion about it. Why is traction so important? What does it really mean? How can you get it?
What Does Traction Mean For Startups?
When you are figuring out what is traction for a startup, note that at its most basic ‘traction’ means making progress or getting attention. Going deeper into the dictionary it can mean gaining a grip and pulling something forward. Like putting snow chains on car tires or using a tractor to pull a stuck vehicle. It means progress, but also often progress that you have to create and use the right tools and techniques for.
When it comes to business, traction means you are getting somewhere. You are really gaining some momentum and moving along.
Via Entrepreneur.com, angel investor Martin Zwilling defines traction as “evidence that your product or service has started that hockey- stick adoption rate which implies a large market, a valid business model and sustainable growth.” For investors that shows “that the dogs are eating the dog food, and your financial projections are not just a dream.”
Clearly, every entrepreneur and business owner wants traction. Though it is not just nice to have a bonus. It’s a must.
Traction will be a must of your story as well if you are looking to raise capital. When it comes down to fundraising keep in mind that it is all about storytelling. For a winning deck, 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.
Why Is Traction So Important For Startups?
When figuring out what is traction for a startup, remember that traction is vital for a variety of reasons.
In life and business, you are either growing or shrinking. You can’t just maintain the status quo or stay static. If you try, you’ll soon be surpassed by someone else. Traction is evidence that you are really progressing and growing.
Proof Of Concept
Traction is proof of your concept and business idea. In the early days, this isn’t just about proof and evidence for investors and partners, or your team and cofounders, it is for you too. It is validation that there is a real demand for your product or service and that there may actually be a real business here.
A Path To Revenue & Profits
Many types of traction are a sign that you are on a path to revenue and profitability as part of understanding what is traction for a startup. Today, this is more important than ever. Big goals and going fast can still be great, but more than ever founders and all those around them are recognizing that revenues and real profits are vital and sexier than ever.
Everyone wants to be on the winning team. When it comes to recruiting for startups, and when you are trying to negotiate hard to land great talent without the biggest salaries, bonuses, and perks packages, and you are asking them to bet their lives, financial futures, and careers on you, traction can be a great tool.
From the earliest seed money through to late rounds, investors want to see consistent traction. It is one of the most important metrics for gauging the value of betting on you.
To further expand on this, below is a video where I cover in detail how to raise startup capital for your business.
Types Of Traction
In terms of what is traction for a startup, keep in mind there is more than one type of traction. According to Rocketspace some of the most common methods and metrics for driving and recording traction include the following.
From a true business perspective, profitability is easily probably the best form of traction to be able to show, and achieve. It should be the ultimate goal of a real business. It is also the end result and epitome and validation that you are doing the right things and are being successful in many other areas of your venture and organization. It’s not necessarily about the amount, but showing continued improvement in profits.
When it comes down to what is traction for a startup, revenues is the most critical factor. Of course, before you can get to profits, you have to have revenues. Without revenues, you don’t have money coming in. You don’t have cash flow. You can’t keep paying the bills and making payroll. Without traction in revenues, you can’t grow and expand your business. At least not without other forms of capital injections. Which of course often relies heavily on showing them traction. Even if you have revenues but no profits yet, you should be able to chart and show a path back to profitability.
Amount of traffic generated
At the very beginning of a startup, you may believe that profits and revenues and profits need to wait in favor of gaining other metrics to bolster your business model first. One of the first metrics you may be able to track and more easily control traffic. It’s a great precursor to everything else. If you have the traffic, there are a variety of methods for getting revenues and profits.
Amount of engagement
Of course, traffic alone isn’t enough. Traffic is easier, but much of it can be meaningless or irrelevant. So, the next best metric for showing how meaningful and valuable it is, and that things are working is engagement.
Number of registered users
Whether free or paid, numbers of users has been a powerful metric. If you re lacking revenues or engagement the number of registered users is a good factor to outline as part of understanding what is traction for a startup. One which shows that people are not only engaging, but are taking action, and have found your business compelling enough to invest their time in registering.
Number of active users
Again, as we’ve seen with Facebook, registered users and signups alone don’t always directly translate into relevant users, revenues, and profits. Having five billion users can just be a burden and expense if only one million of them are commercially viable and active. There can be a huge disparity in these numbers. Active users, and those who are paid are even better.
Partnerships and clients achieved
Traction in paid clients is the best you can shoot for in most cases. Once you have paid clients there will be more opportunities for growing revenues and getting to, or increasing profitability. Partners may be paid clients too. For example, enterprise customers who in turn have thousands or millions of sub-users. Though even partnerships themselves can be a valuable metric. Notable partnerships can signal great growth in other metrics ahead, add a lot of credibility and can show a path to negotiating an acquisition.
Hopefully this post provided some perspective when it comes down to what is traction for a startup.