[su_note note_color="#ffffff" text_color="#363232" radius="0"]This question originally appeared on Quora: How do you define 'traction' for a start-up? Answer by Brendan Baker, Working with smart people to get great products to the right markets.[/su_note]
This view is (hopefully!) from an investor's perspective, and treats 'traction' as different from internal management metrics.
What is it?
I've always liked Naval Ravikant's basic definition: 'Quantitative evidence of market demand.'
Traction is proof that somebody wants your product. Ideally, it should communicate momentum in market adoption.
What works?
Broadly, I find traction most convincing in the following order:
- Profitability
- Revenues
- Active users
- Registered users
- Engagement
- Partnerships/clients
- Traffic
So that's the broad version, which only half applies to any startup, as all are different. Here's where it gets interesting: use evidence creatively (and honestly) to tell a unique story of your momentum.
How to do it: some examples
Use specific numbers (ex: 50,000 registered users) or growth numbers (ex: 30% monthly growth in users), to best communicate momentum. To really push it, include a graph of your accelerating growth (legend has it that Google's pitch deck was one slide: their user growth).
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Let's say it's an e-commerce startup. You may want to talk about revenue growth, average sales or gross margins, customers, average return visits per customer, units moved, etc., as well as some industry specific numbers I'm probably forgetting. And think about the growth.
Or a fashion Q&A consumer internet product (there have been a few cool ones recently). You may want to talk about pure user numbers, engagement of those users (number of questions or answers, photo uploads, time on site, outfits tried), virality (average new invites per user, waiting lists, etc.) or partnerships (brands signed on, stores engaged, etc.).
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Say a freemium SaaS product for small businesses. You may want to talk about revenues, conversion to paid customers, registered users, cost of customer acquisition + lifetime customer value, signed distribution partners, or if you're really creative, some quantifiable evidence of value to customers. And always consider using growth numbers.
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Finally, one more common type: Enterprise. What can work here is revenues, number of enterprise customers/clients, average contract size (growing?), and your qualified sales pipeline. Try to find some downstream value add example, say that your product engages X of their staff or customers, or saves them Y % on marketing costs while improving results. An example of customer progress can also work well ('started with limited pilot, moved to full rollout across Z offices').
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Try to be imaginative about using the evidence that works for your business, while still including the basics that investors will want to see. Always make sure what you use shows momentum, and is honest.
