Understanding the Power of Traction

I am currently collaborating with a startup that achieved an impressive milestone of 500,000 users within just two months. In the world of startups, traction reigns supreme.

A startup that has already gained traction is often seen as a highly attractive investment opportunity.

Last week, I engaged with an ideation-stage startup—meaning they hadn't yet developed a Minimum Viable Product (MVP). Interestingly, one of their founders had a track record of raising over $100 million. This week, however, I’m focused on a different startup whose founders haven’t raised nearly as much. Yet, their MVP skyrocketed from zero to 500,000 users in a mere two months.

If I were an investor weighing the two options based on potential profitability, my choice would undoubtedly lean toward the startup that achieved rapid user growth. Both companies possess strong assets that could facilitate fundraising—the first benefits from a founder with a notable history, while the second boasts undeniable traction.

Without a doubt, traction holds the upper hand.

Imagine you’re craving burgers and have two choices: a new burger joint run by a globally renowned chef, famous primarily for their salads, or a recently opened burger place that has already received 5,000 reviews. If you were investing rather than just dining, option two would likely be your pick. While you wouldn't completely disregard the first option, the second one offers a higher probability of a fantastic investment.

This analogy illustrates the distinction between having a proven track record (which is undoubtedly valuable) and possessing traction (which is invaluable). Traction is crucial for a reason.

When a startup achieves traction, it signifies validation. Traction indicates a genuine demand for the product or service offered, answering crucial questions that both you and potential investors will have:

• Is the team capable of transforming their vision into reality?
• Is there a true market for this product?
• Is the idea innovative enough to capture interest in today’s competitive landscape while also being practical?
• Will it resonate culturally?

When you bring traction to the discussion, you effectively begin from Chapter 2, gaining a considerable advantage that enables you to bypass preliminary qualifiers.

Traction is not a mere forecast; it is evidence.

However, there are two important considerations to keep in mind:

1. Traction does not automatically equate to revenue. For instance, Facebook experienced tremendous user growth before generating significant revenue, which attracted many investors.
2. Due diligence is essential, particularly in today’s digital environment. It’s alarmingly easy to fabricate user growth using bots.

At this moment, I am drafting a whitepaper for a startup. As always, my initial step is to create a storyboard for the product, which requires more thought than many people realize.

What changes when the storyboard is for a company that rapidly grew from zero to 500,000 users within a few months?

Let’s say we’re crafting a pitch deck for your startup. You have:

• A competent team with diverse experiences and skill sets.
• A genuine issue that you know many people face.
• An exceptional technical solution.
• Approximately 2,000 users per month.
• A comprehensive market research report from a leading agency that demonstrates a growing market.
• A unique, creative marketing strategy.

If you present this startup to a well-known venture capitalist, they might initially see:

Bla… Bla… 2,000 users a month Bla… Bla…

Initially, this investor may approach your pitch with the same indifference they have shown to countless other startups, each presenting their own “great idea.” But then, that nugget of traction grabs their attention, prompting them to re-examine your pitch deck with renewed interest.

It's essential to recognize that many startups have strong teams, each addressing a valid problem and backed by solid market research.

However, not every startup has traction, and that is what elevates your startup from the realm of “just an idea” to one that prompts the question, “How much money can we raise?”

Thus, traction alters the narrative from:

“Here’s our company, and these are our plans for the future. Here are some technical specifics.”

To:

“We are X. We’ve grown from zero to 500,000 users in two months. Here’s the data and the proof. Additionally, here are some technical details and future plans.”

You might find this change in structure unconventional—many would. But ultimately, what you think doesn’t matter. The only person whose opinion counts has already been convinced.

Stop trying to cater to your grandmother or friends. Your grandmother may not be well-versed in blockchain (if she is, she deserves a board seat!). Your friends represent a minuscule audience.

If you seek investors, tailor your document solely to their perspective. If the public needs to digest the content, ensure it tells an engaging story rather than focusing solely on immediate sales. However, remember that an investor might review numerous whitepapers weekly, while the average user seldom reads them.

If you find yourself in this situation, revise the narrative to effectively capture their attention. Disregard traditional structure and focus on conveying the information they need to hear.

That’s my perspective on traction. What are your thoughts? Do you believe there’s anything as crucial as traction for a startup aiming to raise funds? Do you agree that it’s the top green flag and a magnet for investors?

Let’s spark a discussion in the comments.

I’m AL, a business consultant based in Zurich, Switzerland, dedicated to delivering value to you, the reader. Connect with me on various social media platforms if you’re interested in my insights.

Chapter 2: Building Traction for Your Startup

This video explores effective strategies for building traction for your startup, emphasizing the importance of user growth and engagement.

Chapter 3: Securing Investor Interest

In this video, discover how to attract investors by showcasing traction and validating your startup's potential through effective storytelling.