17 Feb 2016

Traction: What it is and why it’s important

By Guest

Joe Ludlow delivers a workshop on what investors want

In the last couple of weeks here at BGV HQ we’ve been holding a series of talks around investment with the likes of Joe Ludlow and Will Gibbs. It’s become clear that one of the key things that investors are looking for in businesses they invest in is traction. We decided we wanted to dig into what traction actually means, and examine why it’s important. Demonstrating momentum based on hard numbers and proving that there is a sizeable market for your product (or proposed product) will send the right signal to investors.

What is traction?

There is no one way to measure traction, and it can often seem like an abstract concept. Traction in business however can generally be defined as evidence of progress to date and momentum.

Investors clearly understand that statistically, most startups will fail. In order to try and mitigate this, they want to see that their potential investees are able to prove that they’ve been able to acquire paying customers, and there is a clear path to success in the future based on evidence of a sizeable market.

Failing actual sales, the next best thing you can use to demonstrate traction are active users, correspondence from potential users or signups on a landing page to your website. Given that social ventures are primarily focused with the impact their businesses can have on people’s lives, showing tangible impact amongst the users of your service and selling that narrative to an impact investor is another way to show traction.

The clear thing to remember is that evidence trumps assumption every time, so being able to present key data and metrics that backs up your core hypothesis is key.

Why is traction important?

Entrepreneurs are often spread thinly between a number of different areas including product design, development, marketing and sales. At the end of the day though, entrepreneurs need to demonstrate that there is demand for their product and that this demand will continue to grow.

If a business is able to show for example that it is growing 50% month on month, then investors are able to infer from this a number of things. It shows that people are actually using your product, that your price point is working. Will Gibbs argues that it’s hard to grow like that if you don’t understand what your users want or value.

Traction is so important as it sends signals to investors that your business is moving in the right direction, and with the right support could prove a scalable opportunity.

Want to know more about how to close a successful seed round? Check out this video on YouTube, featuring TechforGood founders and investors talking on the topic.