Whether you’re someone thinking of starting your own business or someone who probably has a startup, you have heard the term traction before.
Traction is basically a measure of growth. It is the rate at which a business captures value from its users. Having traction is proof that your company is continuously evolving. The progress could be incremental or a sudden breakthrough, as long as there’s something to prove that your startup is getting where it’s supposed to be, it can be called traction.
But, that’s what the definition says.
As an entrepreneur, it is vital that you know what traction really means for your startup and why it is such a hot topic in entrepreneurship and venture capital circles. And, that’s what we’ll talk about in this article.
So, what does startup traction really mean?
For startups, having traction proves that your product or service is feasible. It proves that your business goals aren’t just a fragment of your imagination, but something real and achievable.
It indicates the level of exposure or acceptance your business has achieved in the market it was targeting. Simply put it means reaching so called Product Market-fit. This concept, as explained best in this excellent article, should be your number one goal after you have validated problem-solution fit.
Now traction can be achieved and measured in many ways. It mainly depends on what kind of industry you are in.
While a SaaS brand could measure traction based on the number of website visits, registered users, churn rate etc, a more traditional business model could make use of the number of sales, revenue and profits as the core parameters. An improvement measured using any of these metrics can help you evaluate the effectiveness of all your business decisions.
Traction is not the only thing required for the growth of your company. Growth needs resources. And the most important resource a company can gain is capital (and yes, we’re talking BIG BUCKS! Excited yet?). Which basically translates to, “You’ll need an investor at some point”.
“Nine out of ten startups fail.”
This statistic is a horror story for you and your investor’s biggest fear. And this is precisely where you both focus on “traction”.
More traction means that your startup is less likely to fail and all your potential investors out there are looking for a company that has the maximum TRACTION (or let’s just say, takers in the market).
Gaining investors will make sure that the capital is invested in the right place and for the right purpose. Investors are profit-oriented therefore they will make sure you’re following the right business plan and mentor you throughout the startup journey to generate maximum profit. Because at the end of the day, it’s their own money that’s at stake.
Why is startup traction so important?
No amount of traction is “Enough traction”.
It doesn’t really matter at what point of the startup journey you are in, this is a fact that you need to come to terms with.
A clearly defined goal, a fixed path to it (okay, maybe a little waver here and there), a list of all your potential investors and a measure of traction will help you gauge where your startup will be in comparison to your competition in terms of:
The most obvious aspect.
Traction can be measured in different ways and for any type of traction, the ultimate result is a growth score.
Getting everything right and making significant progress in clearly defined metrics that can give your business the traction it needs, can help your business actualize all its long term goals.
However, traction can also signify a downward growth. This can give you the numbers to see what exactly is going wrong so you can turn things over before it’s too late.
Proof of Concept
Traction shows your investors that your goals aren’t just a mere concept. It shows the progress that has been made to realize these goals.
It can convince your investors that your brand is capable of acquiring customers and generating profits from them. This brings us to our next point.
Path to revenue and profits
Most types of traction prove that your business can make money. While achieving profitability can be tricky for a startup, a clear indication that your business is generating enough revenue that is being invested back into the startup can suffice for proof of traction.
When you have traction, you can have revenue and perhaps some profitability too. It’s as simple as that.
A CEO who has “been there and done that” is traction. Traction can also be a great way to convince someone that you’re worth working for. It is also crucial when you’re trying to partner up with brands or influencers. It can help you gain a fresh set of customers which again, can fuel traction.
Traction attracts investors and investors look for returns. Contrary to popular belief, continuous pressure on generating profits can hinder the growth of a startup. The focus shifts from building the business to making money.
Though the two walk hand in hand, a startup investing in itself in the seed stage performs much better than the ones that don’t. Traction can help you make investors wait out the initial setbacks (profit-wise) for a better payout in the future.
But just like your startup idea, ‘traction’ actually looks different for different people and at different stages. So let’s talk about the types briefly.
Types of business or startup traction
We’ve continuously been saying that there are many ways to measure traction, depending on who you are, what you’re building and what the goal is. Here are the different types of traction we typically work with startups and scaleups on:
A quintessential measurement of success is profits. And for good reason, because that’s the end goal of every business. Upward growth in terms of profitability means that you’re doing the right things. It validates all your business decisions.
Revenue is what keeps your business going. All your company’s liabilities and other expenses like payroll are dependent on the revenue. For a budding startup that’s making no profits, traction in revenue is a strong indicator that you’re on the path to profitability.
An increase in traffic means an increase in the number of potential customers. It may not mean much on its own, but with a few tactics in hand, this traffic can be monetized.
For a SaaS brand, traction measured in terms of traffic can serve as a prerequisite for the measurement of every other metric. It can help you identify if the kind of crowd your website is attracting is helping your brand and make tweaks in your acquisition strategy.
Amount of engagement
Generating traffic is fairly easy, but what’s hard is making them engage with your website. Engagement can tell you how well your product is received. Of course, not everyone who engages with your website converts, but it does add value to your brand because that’s the next best metric after traffic.
Number of registered users
The number of registered users shows that people are going more than just engaging with your product. It indicates a certain level of acceptance towards your product. Registered users receive updates on the launch of new products or special benefits which can help in customer retention.
Number of active users
A lot of registered users may not actively interact with your website. Which means not all registered users can help you generate revenue. In this case, a more relevant metric would be to measure traction in terms of active users.
Now, typically, growth marketers or consultants may tell you that this is what traction looks like. But there’s more to it – traction may vary based on perspectives as well.
What is traction from different perspectives?
Traction determines if your venture will be successful or not. It decreases the risk factor associated with investing in your business. Traction for investors means that you have what it takes to make your ideas work.
When you’re trying to collaborate with other brands, traction that indicates potential for future growth and credibility is what’s considered. Teaming up with well established and reputable partners can help you build a solid reputation in the industry. This can be achieved by analyzing your funding information, firmographics and traction accordingly.
Things don’t always work out for brands that wait for their customers to come to them. Taking your brand out there and creating awareness of the product can be achieved through creating well-developed campaigns.
Puts ‘traction’ into perspective now, right? To further add to it, let’s quickly go over some of the most acclaimed startup traction stories.
Startup traction stories to put things into perspective
Howard Schultz started with a single coffee shop in Seattle. They could’ve measured traction in terms of sales achieved but their billion-dollar insight came by studying their consumers.
They noticed that most of their customers came, ordered coffee, pulled out a laptop and worked for hours. Sometimes they were even joined by their coworkers.
Traditionally, this kind of behaviour seems problematic but Starbucks realized that the lifetime value of these customers was higher than those who simply walked off with their coffee.
They came up with a new tagline, “A third place between your home and office” and started a rebranding campaign that worked with this freelance population. They started promoting Starbucks as a co-working space before it was even a thing. They provided these consumers with free Wi-Fi, comfortable seating and an overall improved aesthetic to the whole store.
They went from being just another coffee shop to creating their own niche. This is what turned it into the multi-billion company it is today.
PayPal is a great example of a company that went through multiple iterations before settling on an email payment system. As founder Reid Hoffman described recently;
‘Over the years PayPal has made multiple significant pivots. The company started as a mobile encryption platform. Then it was a mobile payments company. Next PayPal was a combination mobile and Website payments company. Finally, PayPal became an email payments company. Each pivot over the life of the company was the result of rethinking the business but maintaining the vision. The focus was always to become a payments operating system, but the nature of the operating system changed multiple times.’
Airbnb took two years to see some traction. With no investors, poor credit score and lots of debt, they even sold cereal to keep the company afloat. This is Joe Gebbia talking about starting Airbnb,
‘We started the company by accident — in 2007 our rent went up for our San Francisco apartment and we had to figure out a way to bring in some extra income. There was a design conference coming to the city, but hotels were sold out. The size of our apartment could easily fit airbeds on the floor, so we decided to rent them out. We didn’t want to post on Craigslist because we felt it was too impersonal. Our entrepreneur instinct said “build your own site”. So we did. It wasn’t much of a site to start out — a couple pages, and pictures of our apartment. 3 people stayed with us, and we cooked them breakfast each morning. We became friends by the end, and they were grateful to have saved hundreds of dollars on their trip, and connect with actual people. We netted close to $1000!
After that first weekend when we hosted people on our airbeds, we received emails from all around the world asking when we would make the site available in places like Buenos Aires, London, and Japan. At that point we started to brainstorm what a larger, international version of the site would be. That was basically our market research. People told us what they wanted, so we set off to create it for them. Ultimately while solving our own problem, we were solving someone else’s problem too. We were at a point professionally where we were very ready to pursue our own idea. We were anxious though, like waiting in line for a roller coaster. We didn’t know exactly what was ahead, but we knew we were in for a ride.’
Traction is extremely important to your startup but generating it is equally hard. Traction for you can be different depending on where you want to go and what you want to do with it. The path to traction will never be a straight line and the trajectory for each idea out there will differ!
But the first step always remains the same – identifying what stage you are at and what truly defines “traction” for you.
This is why we have built the Traction Tracker, putting our years of experience into creating a quick questionnaire that walks you through a series of questions that represent the core pillars of actions that lead to traction.
Our goal is to help you identify what needs to be focused on to move to the path of traction. And it all starts by getting real about your score!