The benefit of traction

While the phrase ‘traction’ has typically been associated with tyres, friction and slippery driving conditions, its use is increasingly common in entrepreneurship and venture capital circles. This article explores what it means and how it applies to your business.

Defining Traction

The typical entrepreneurship journey moves through various stages, from idea conception tobusiness plan to execution and then growth (or failure). For most entrepreneurs, the journey is challenging because they need to perform many activities simultaneously while always being conscious that they may run out of money in the near future. To fund this gap, investors often turn to early stage investment, which they are more likely to get if they can prove traction – some clearly identifiable momentum and progress so far.

Investors need to carefully balance risk and return and will be well acquainted with the harsh realities of early stage investment, i.e. that most startups fail. As a result, they will be trawling through the evidence you provide (often in the form of a business plan) to assess whether or not a commercially viable business opportunity exists in which they should invest.

For the most part, investors will need to take a leap of faith with early stage investments, relying on the assumptions contained within your business plan to help them decide whether or not to invest (and if so, on what terms). If you, the entrepreneur, can demonstrate that you have gained some traction, especially by proving customer demand with a record of actual sales, you are essentially reducing the risk for them; factual evidence will always trump assumptions, projections and wild conjecture.

The most persuasive evidence you can provide that your business is worth investing in is ‘evidence of demand’. Clearly if this demand is translated into sales, you have irrefutable evidence that the startup has traction. The greater the sales, the greater the proof.

In terms of the ‘traction hierarchy’, active users and letters of intent probably fall into the next tier, below real sales, finally followed by viewer numbers (on your website). While growing visitor numbers to a website was once a good barometer of the potential of a business, it is no longer considered a valuable proxy. These visitors have to convert to sales and, hence, the focus returns to the one piece of evidence that trumps all others – real sales.

Why is all of this important?

One of the problems entrepreneurs face is that their energies and focus are spread widely, as they can get distracted by the most pressing challenge to hand (regardless of its relevant importance in the bigger picture). There is so much to do and so little time. Hence, they can have an excessive product orientation, focusing predominantly on product design, without really addressing wider concepts such as addressable market size, customer acquisition costs and sales forecasts, etc. Business plans can really help ensure entrepreneurs retain focus. They force you to take a holistic view of your business opportunity. However, not all entrepreneurs embrace the principles of business planning, and even those that do may not have a strong focus on ensuring all activities are correlated with the core aim of gaining traction.

Entrepreneurs need to conclusively demonstrate that there is strong evidence of demand. They need to concentrate efforts on the area of product /market fit, a concept Steve Blank has explored in detail in his book, The Four Stages of the Epiphany. Blank states that the primary role of an entrepreneur is to iterate and test assumptions and hypotheses they have made with regard to customer behaviour and demand until they find a commercially viable business model.

‘Your startup is essentially an organization built to search for a repeatable and scalable business model.’

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