How Elite Entrepreneurs Define Traction (and Attract Funding)
This answer may hurt a little.
The startup world’s definition of traction is one of the fastest evolving ideas that is affecting investors’ decisions on funding-worthy enterprises as of late.
In actuality, the meaning of traction has evolved over the past ten years. Surely, not all startups have the same definition or degree of traction, and not all startups can boast about the same results. But many of the elite entrepreneurs who have outperformed the competition have a very similar conception… to an astounding degree!
To be more clear, let’s examine closely what it means to have traction – a very important attribute that investors and on-the-fence consumers will use to judge your ability to deliver on your promise and grow your business. To start, let’s be clear on what it is not:
It is not sales.
It is not marketing.
It is not PR.
It is not x# of employees.
It’s a little bit of all of the above, and more. Here’s where many people agree:
Tolis Dimopoulos, attorney to startups, says: “Traction is a measure of how well a startup is delivering its business model and how well its target demographic is accepting that business model.”
Chris Cameron, technology journalist, explains: “Investors want to know that a company can repeatedly acquire customers for $X and generate more than $X in gross profit from each customer.”
Traction is essentially twofold. One, you are convinced that, as Steve Blanks puts it: “your customers are going to adopt en masse”. Two, you can continue to acquire those customers at a profitable rate.
How much traction is enough?
Since traction refers to the sales potential for a product or service based on a company’s marketing activities and plans, the amount of traction needed to captivate a potential investor will ultimately depend on the investor’s risk appetite and expected return on investment. The more traction you have, the more that you’ll be able to persuade the investor and dictate the terms of the potential investment.
The book “Traction” by Justin Mares articulates 17 traction channels for systematically approaching marketing. Here’s an example of how you could develop a winning strategy based on one of those traction channels.
- Traction Channel: viral marketing.
- Strategy: encourage people to share promo codes through social media, and give both a credit when a friend uses the code.
- Result: supporters of your product help to grow potential sales exponentially.
That’s traction that will attract investors! Why? Because even though those sales might not be immediately profitable, you’re showing that there’s real sales potential while growing your sales base. Justin Mares says that traction is “real customer growth”… and who wouldn’t want to invest in that?