Startups are known for their innovative ideas, but coming up with an idea is only the first step. To succeed in the business world, startups must demonstrate traction and social proof. Traction is the measure of a startup’s viability and success in the market. It can come in many different forms, from revenue growth to customer acquisition to team development. Social proof is the endorsement of a startup by other people or entities, such as customers, investors, and the media. In this article, we will discuss different ways to generate traction and social proof for your startup.
Types of Traction Chart
Different types of startups require different types of traction to demonstrate their viability. Brendan Baker, a VC at Greylock, created a chart that outlines the types of traction different business types should focus on. For example, e-commerce startups should focus on revenue growth, average sales or gross margins, customers, average return visits per customer, and units sold. On the other hand, fashion Q&A consumer internet products should focus on user numbers, engaged users and type of engagement, virality, and partnerships. Premium SaaS products for small businesses should focus on revenues, conversion to paid customers, registered users, customer acquisition costs, lifetime value per customer, and distribution partners. Enterprises should focus on revenues, number of clients, average contract size, and qualified sales pipeline. Retail startups should focus on revenue growth, units sold, average sales or gross margins, customers, and lifetime value per customer. Consumer products startups should focus on units sold, revenues, number of retail outlets products are sold in, and distribution partners.
Modes of Demonstrating Traction
Formation
Pitching a business that does not yet have a legal entity, a tax ID number, business bank account, collateral, or team/employees is not as impressive or exciting as a business that has been legally formed and has a team working full time. This shows traction toward legitimacy. The basic steps of forming a legal entity, creating a basic website, and beginning to create collateral legitimizes your business past the point of ideation.
Customers
Paying customers that equate to revenue and profitability are the best possible form of traction to demonstrate. If you are able to pull in paying customers without raising capital, your startup is in a very good position. In fact, many startups find that focusing on traction early and acquiring paying users will eliminate much of the need to raise capital in the first place. Playing second fiddle to a paying customer is an interested customer.
Product and Team Development
Each build and iteration of your product shows traction. Making note of the different stages of a product’s evolution (alpha, beta, full launch) marks an important step in the development of your business, and an opportunity to show what you’ve learned in the process. In addition to building a product, showing growth in your team is an important indication of traction.
Creating Traction
Ok, so now you know different ways to show traction. But how can you build that traction, and specifically drive traffic and attract users? Gabriel Weinberg, founder of DuckDuckGo, explains that there are several different strategies that have been used successfully, including traditional and nontraditional PR, Search Engine Marking and Optimization (SEM/SEO), blogs, viral videos, and more.
Social Proof
Social proof is the endorsement for your business by others. Having credible advisors, customers, media outlets, and investors can help build your social proof. Big name customers can be flaunted on website pages, within articles, and in pitch books to other customers. Being covered in a reputable media outlet speaks to credibility as well. Investors provide a huge endorsement in the form of their hard-earned cash.
Conclusion
Generating traction and social proof is crucial for startups to succeed in the business world. The different modes of demonstrating traction and the types of traction to focus on vary depending on the type of business. Therefore, it is essential for startups to identify their target market and focus on the appropriate type of traction.
Once traction is established, the next step is to create social proof. Social proof helps build a startup’s credibility and legitimacy in the market. The more social proof a startup has, the easier it is to attract more customers, investors, and media attention. Social proof can come from advisors, customers, media outlets, and investors. By leveraging social proof, startups can quickly establish themselves in the market and attract the right audience.
In conclusion, startups must focus on generating traction and social proof to succeed in the business world. By following the strategies and tactics discussed in this article, startups can build credibility, legitimacy, and momentum in the market. It is important to remember that each type of startup is unique, and therefore, the approach to traction and social proof must be tailored to the specific business model. By staying focused on the right type of traction and leveraging social proof, startups can achieve success and build a thriving business.
Table: Types of Traction by Business Type
| Example business type | Type of traction to focus on |
|---|---|
| E-commerce | Revenue growth, average sales or gross margins, customers, average return visits per customer, units sold |
| Fashion Q&A Consumer Internet product | User numbers, engaged users and type of engagement, virality, partnerships |
| Premium SaaS product for small business | Revenues, conversion to paid customers, registered users, customer acquisition costs, lifetime value per customer, distribution partners |
| Enterprise | Revenues, number of clients, average contract size, qualified sales pipeline |
| Retail | Revenue growth, units sold, average sales or gross margins, customers, lifetime value per customer |
| Consumer Products | Units sold, revenues, number of retail outlets products are sold in, distribution partners |
References
[1] Wilson, F. (n.d.). Traction. Union Square Ventures. Retrieved from http://www.usv.com/posts/traction.
[2] Baker, B. (n.d.). How do you define traction for a start-up? Quora. Retrieved from https://www.quora.com/How-do-you-define-traction-for-a-start-up/answer/Brendan-Baker.
[3] Baker, B. (n.d.). Startups: How to Communicate Traction to Investors. Quora. Retrieved from https://www.quora.com/Brendan-Baker/Posts/Startups-How-to-Communicate-Traction-to-Investors.
[4] Tracy, A. (2016, February 17). Shark Tank’s Daymond John on Finding Investors. Inc. Retrieved from https://www.inc.com/abigail-tracy/shark-tank-daymond-john-on-finding-investors.html.
[5] Weinberg, G. (2010, April 19). In the Pursuit of Traction: Have You Considered All Verticals? Gabriel Weinberg’s Blog. Retrieved from http://www.gabrielweinberg.com/blog/2010/04/in-the-pursuit-of-traction-have-you-considered-all-verticals.html.
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