Almost every investor you pitch your product to is looking for traction. It is essential to understand what traction really means to your investors and how much is enough? While investor loves your idea, they might not be convinced about your business model unless you show them the primary results of how the market is adapting to your product.
To define traction, it is primary evidence that your product is showing a positive trend of market adoption, and the business model is valid and sustainable future. Your investor is primarily looking for signals that shows scalable future for your startup. The first thing you can do is define what traction means your startup, and then showing those results to your investors.
While most entrepreneurs have their own creative definition of traction, here is a list of some of the parameters that are popular among investors for choosing startups to invest in.
An investor is interested not only in the total sales figure, but also in the previous month sale compared to your predicted sales number. Converting one customer is not a sign of traction. On the other hand, even if you have beta tested with thousands of customers without converting them, it doesn’t guarantee a reliable growth without traction indicator. In your presentation, you need to show that the sales graph is gradually rising upward and your customers are above and beyond your family and friends.
Increasing Signup Rates
Whether you have a free or a premium user base, it is important that your signup rate is higher. Your page views should at least approach 1,000,000 views per month. Most investors like to see at least 10,000 active users before the would take any interest in your startup. Some investors also look out for how quickly your startup doubles its daily active users.
Rapid Market Penetration
Market penetration is also one of the important factors before any investor will take active interest in your startup. You need to cut and have a slice of the market you’re trying to capture. For example, if you are selling video games for adults, an investor would like to see how many adults between the age of 20 and 35 are signing up each month for your product, considering they stay subscribed for a year.
Increase in Transaction Size
Most enterprise level customers try to test new channels by signing up for smaller amounts of transactions before they go all in on using and adapting to your product. A clear indication that your startup is really taking off would be an increase in the average size of your transactions, the number of customers you are converting day by day, and the increase in margin cuts that you take home at the end of each day. Your investors are interested in these numbers.
Decreasing Acquisition Cost
Another factor that interests investors is the customer acquisition cost. If the cost of acquisition of new customers is continuously declining as your user base is growing rapidly, it signals that your product is being adapted and accepted by the market. Showing these numbers to the investors as a positive sign of traction, and preludes the possibilities of your startup idea getting rejected.
Major Distribution Rights
Signups from major customers and distributors can be indicated as a sign of traction to your potential investors. If you have signed contracts with big names like Microsoft, Disney, Apple, Walmart, or other major players in your market, investors would be become clearly interested in your idea. Whichever industry you operate in, being accepted by major players is a clear indicator of traction.
Authority Public Statements
Apart from this, public statements from people who are experts in your industry, or groups that are supporting your idea, can be indicated as traction. Being included and respected by industry research groups like Gartner research, traction can be claimed. If you are involved in consumer groups, you can get a public statement by the authority researchers. These groups offer credibility and help you not end up getting rejected.
Before you can pitch to the investors, start by choosing the main key matrices and try to accurately and positively express that your startup has achieved traction. while traction is necessary, it doesn’t assure your investors are going to flood your bank account with money. It is also important that you have a great team to work on your idea, and your financial health is balanced. The investors will also compare how your offerings are compared to your competitors.
Achieving traction is only an indication which says that you’re offering a shifted from being an idea do a profitable business. Make sure you understand what traction means to you, and how you can communicate it with your investors. Maybe, you can use an elevator pitch to share your traction statics with your customers.