SUMMARY
99% of the cases, the vision of being successful in acquiring traction does not happen as planned
Early-stage startups seek momentum which is an indicator that their startup is working
Traction is glamourous, it attracts investors, talent and press equally
If you build it, they will come.
This principle rarely works for startups
The most exciting phase in the startup journey for the founder when they build the product and launch it in the market. The founder’s dream is now a reality. If the product or service is free founders seek user growth and if the product or service is paid you then founders seek customer growth. Unfortunately, in 99% of the cases, the vision of being successful in acquiring traction does not happen as planned.
I moderated a panel discussion on 11th Oct on “The Metrics VC Invests In” by Inc42 organized The Product Summit. My panelist were Sajith Pai, Ritesh Banglani, Seema Chaturvedi & Amit Somani.
The investors' panel discussion is LIVE at #TheProductSummit2020. Join the discussion and learn about how do #VCs think!
With: @sajithpai (@BlumeVentures); @banglani (@Stellaris_VP); @mehtasanjay (@100X_VC); @amitsomani (@Primevp_in) & @SeemaC_AGroup pic.twitter.com/8L9KmhqKZG
— Inc42 (@Inc42) October 11, 2020
We discussed on below points
- The Metrics that matter
- How to focus on the right metrics to achieve hypergrowth?
- Why some startups get funding and others are passed over
- How VCs think
Sanjeev NC curated notes on the panel discussion. It is like a bible for early-stage startups on managing, pitching and tracking metrics.
Getting inspiration on generating traction from Movie: The Pursuit of Happyness (2006).
You got a dream… You gotta protect it. People can’t do somethin’ themselves, they wanna tell you you can’t do it. If you want somethin’, go get it. Period. – Chris Gardner
In 1981, San Francisco salesman Chris Gardner invests his entire life savings in portable bone density scanners. This business does not work. He earns him the chance to become an intern stockbroker. Gardner develops a number of ways to make telephone sales calls more efficiently, including reaching out to potential high-value customers, defying protocol. He delivered on traction even with limited resources. Just keep dialing is the lesson from the movie.
Chris Gardner is a man of courage, perseverance, and faith. He believed that success depended only on his efforts, not fate or luck. He has a dream, he keeps it, and goes after it. The epilogue reveals that Gardner went on to form his own multimillion-dollar brokerage firm.
For Startups traction is everything. You can’t improve what you don’t measure.
Understanding Traction
Free Product = Users,
Paid Product = Customers
Early-stage startups seek momentum which is an indicator that their startup is working. If they do not see the desired momentum, founders tend to take help of advertising to distribute their brand. They start spending money on Facebook, Google, Instagram etc and run out of money eventually. Traction is the quantitative evidence of the product demand that can mean the difference between the success or failure of a startup.
Traction is glamourous, it attracts investors, talent and press equally. A venture fundable startups are designed to generate lots of traction. Traction is all about growth. But getting growth is tough or nearly impossible for startups. How to distribute the brand is the biggest challenge startup founders face. You are not Apple so your startup would need to provide lots of incentive, engagement and customer support for your first wave of the audience to notice your brand than just a pretty website.
Investors wants to see growth traction and metrics, but not all great things grow quickly. Everything interesting takes time.
80:20 Time Rule To Generate Traction
The below figure helps seed stage startup team on how to allocate time from idea stage to launch of the product.
Investors Get Attracted To Traction
Raising capital is tough and mostly founders hear that “It is a pass” but do not get enough insights into why the deal was passed. There may be multiple reasons to pass the deal, team, market size, product etc but everything gets ignored if there is traction in business. Investors chase traction.
Traction can be showcased on the following metrics – Financial, User, Acquisition, Sales, Marketing etc. If a startup is spending a dollar in sales and marketing, they would want to generate almost a dollar in revenue. Traction is important as it shows the founders ability to consume growth capital from investors to build an exponential scale.
The best thing to measure the growth rate of is revenue. The next best, for startups that aren’t charging initially, is active users. That’s a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users. – Paul Graham
In the seed stage the founders mission should be to:
- Track if the startup is on the right growth path, follow the right metric.
- Monitior if the startup is shipping the features customer want, building the right product
- Lastly continuously assess the if the business will eventually make money.
In other words – growth, product, profitability are the key metrics to business success.
