Yesterday I came across a really interesting book about raising money for a startup. There title is “Startup Seed Funding for the Rest of Us: How to Raise $1 Million for Your Startup – Even Outside of Silicon Valley.” It’s available as a Kindle book on Amazon, and it’s priced at $0.97, so I highly recommend that you read it.
Before I got the book I decided to check the table of contents, and one chapter caught my attention: “2. The Only Chapter You May Need To Read.” I wondered what could be the topic of that chapter.
Here’s how the chapter goes:
Traction: It’s what investors everywhere are looking for in order to determine whether to anoint your startup “the next big thing” and inject the cold, hard cash needed to accelerate your business. If you can’t find traction, forget raising capital — your business will struggle just to stay alive. Find traction, and raising capital will never be an issue for you. It’s important, however, to understand what traction really is and what it isn’t.
I already knew the importance of traction for a startup, but after reading this book the matter is settled for me: the only thing that matters for a startup, at least in the early stages, is traction. If you raise money but have no traction, you are dead. If you have a dream team but don’t have traction, you are dead. On the other hand, even if you are falling short on money and your team is not ideal, if you have traction, you are on the right track and your startup still has a lot of potential.
As the author says, and I agree, at this point it’s very important to define what traction is. If you visit this Quora thread, you’ll find several good definitions. One that I particularly like comes from Naval Ravikant, an investor: “Traction is quantitative evidence of market demand.”
I think we need to go a step further to define it, though. Only showing evidence of market demand is not enough. After all the demand might be there, but your product/service might not be satisfying it adequately. That is, you might be getting a lot of new users or customers, but if those are not saying after trying your product, then you don’t have traction in my opinion.
I would, therefore, define traction as the evidence that there’s market demand for your product/service, and that it satisfies that demand adequately. In practical terms this would translate to the number of new users trying or engaging with your product/service, combined with the retention rate (i.e., the percentage of those users that keeps using the product after trying it).
Certainly there are other factors that could be take into consideration, including revenues and partnerships, but I believe that they will not always be a good indication of traction.
Bottom line: if you are trying to build a startup, focus on getting users and solving a real problem for those users so that they stick around. All the rest will follow if you get this part right.