When I work with early-stage startups on how they can tell their story, the traction slide is often a sticking point. How do you show traction when you haven’t brought a product to market yet, or when your revenue is more of a trickle than a downpour? To answer the question, think about what traction represents to a startup.
Traction, in a nutshell, is evidence that your company’s chances of success are increasing, while the risk inherent in the business is going the other way. Traction is proof that what you are doing is working.
I like to think about the process of building a company as staged de-risking. Perhaps that’s a way to think about your traction: Which risks have you engineered out of the business so far?
When you first founded your company, you likely started with nothing. You have some resources, like your mental capital (training and experience), your social capital (friends, contacts, people you can lean on) and your drive (the desire to run this company in the first place). You may also have a little bit of actual capital, whether this is money raised from the three friends, family and fools or your own savings. You also have an almost infinite amount of risk. At this stage, no company is a guaranteed success.
When building a startup, the typical process is to take a look at the company you are building and evaluate the assumptions you are making. This may be technical assumptions: “It is possible to build this.” It may be market assumptions: “Someone is willing to pay for this.” It could be sales assumptions: “I’ll be able to find my potential customers and persuade them to buy.” It could also be regulatory: “The FDA will approve this” supply chain; “I’ll be able to buy all the praseodymium that I need”; and any number of other assumptions you are making along the way.
Every assumption you make represents risk: You are saying that something is true, but you aren’t sure. My own company, Triggertrap, made the assumption that mobile phones would have 3.5 mm audio jacks in them for the foreseeable future. That turned out to be an incorrect assumption, and was one of the (many) reasons why the company failed. Another of my companies, LifeFolder, assumed that people would be willing to pay for having their end-of-life documents prepared easily and quickly. That was not accurate. Most company failures can be traced back to three problems: Egos get in the way, founders can’t work together, or everyone makes incorrect assumptions about the business.
Traction, then, is anything you can do to prove that your highest-risk assumptions are correct. If a company is making a huge amount of revenue, it’s likely that a lot of the underlying assumptions have been “proven,” assuming that the revenue is higher than the cost of acquiring customers.
You can do a lot to generate traction that has little to do with money, so you don’t have to wait for revenue to come in. Technical challenges can be overcome by building prototypes. Risks around regulatory approval can be mitigated before you ever build your product by finding products that are a lot like yours, and then working with regulation experts to figure out how to reduce the risk of getting stuck in FDA purgatory.
Another way of proving traction is to build a concierge MVP of your product. Say you are building a ticketing service for air travel. You know you can integrate with the booking systems of the airlines because you’ve done it before, but that takes six months’ worth of work. The high risk, however, is whether you can attract customers to your business. Do you have to do six months of work before you build the front end and start seeing if anyone wants your product? Not at all; build a good front end and hire contractors to do the bookings manually. It doesn’t scale at all, but it means that you can front load the high-risk part of your business. Make a thousand sales, measure your cost of acquisition, and report all of that on your traction slide. Is it “real”? No, but it doesn’t have to be: Your experiment proved that your thesis is likely correct. Now you can go and build the slow but boring part of the product that underpins the rest of the business.
To figure out what investors are most scared about, talk to them and pay attention to the questions they ask. Don’t be afraid to ask them what about your business worries them. You can then design an experiment around that and report your findings as traction.
Is it as good as showing exponential user and revenue growth? Of course not, but it’s a hell of a lot better than saying you have 200 people’s email addresses and a handful of news articles written about you. And, more importantly, it shows that you, as the founder, understand what the risks are and that you’re actively working to design them out of your overall business model.