June 07, 2021
New businesses and startups all face the challenge of getting enough funds to generate business opportunities and build sustained business traction. Ultimately, companies must generate significant and sustainable business traction to prove themselves in the marketplace, attract additional investors, and stay ahead of their competition.
Business traction is commonly defined as the progress and momentum of a startup company. Further, clear indicators of the startup’s growth tendencies and the speed and acceleration of this growth help indicate business traction. Of course, there is more than one way to measure growth, which suggests a wide variety of how traction is earned and measured. However, established measurements of success, such as revenue and support from the customers, help determine the existence and scope of business traction.
The importance of traction for startups lies mainly in the necessity to generate trust. This includes the internal trust within a business as well as the external trust established, built, and maintained between a startup, its customers, its industry, and any potential investors.
Investors look for the signs of the company’s growth to determine potential and be reassured that the people behind have more than just a good idea. In fact, 9 out of 10 startups fail, the third of which fail due to lack of product-market fit. Therefore, no wonder that investors want to see clear indications of progress before each funding round. Business traction is what defines these signs of progress. Here are some ways startups are able to gain business traction:
Business traction is achieved when a business discovers a repeatable, financially sustainable at scale process for revenue growth. Traction usually comes from repeated experimentations with different offerings and exploring various markets, but can also come from brainstorming, outside suggestions, or plain luck.
- Adrian Mak, CEO of Advisor Smith
There is no single metric for traction. But there are a few ways of measuring it which translate to different types of traction. Referring to these types makes it easier to see how business traction can be achieved in particular cases.
Naturally, the best indicator of success in business is profit. However, no matter how the profit is measured, it’s generally agreed that you should not expect it for at least a couple of years. Luckily, one does not need to turn in profit in order to get business traction. For that, revenue is enough. Seeing money coming in and being reinvested will raise the trust of existing and potential investors.
Another way to signal constant growth is by innovating, improving the products and services, or updating the procedures. However, for it to truly translate into startup traction, investors and the public need to be notified. Thus, it’s important to keep them informed of all new developments that are being introduced. This will show that things are constantly moving forward and in the right direction.
Given the importance of the internet for modern life, web page visits, social media followers, and other online activity strongly indicate business traction. It’s also crucial whether the traffic leads to engagement with potential customers. Comments, e-mails, and inquiries from the customers demonstrate a clear interest in the company’s product or service, one of the essential measurements of business traction.
Getting positive media coverage or even neutral attention might mean business traction as well. While this might be hard at first, it can be boosted by contacting online media agents and people covering the specific fields related to the products or services the startup is offering. Thus, knowing the field well is crucial. In addition, thorough research would allow identifying the media outlets that are playing the main roles in forming the understanding of this field.
Business partnerships are also a metric by which can measure traction. Managing to partner up with established, reputable companies shows credibility and potential for future growth. For this, it’s necessary to seek out potential partners and have trustworthy information about them. Such alternative data as company funding information, firmographics, and online jobs posting data may be of service for this purpose. Having this knowledge about the businesses would allow us to identify the potential partners and present them with tailor-made offers.
While viewed from different perspectives of industry professionals, business traction might mean many things and be important for various reasons.
For investors, reviewing the business traction of the startups means being aware of investment opportunities. To be able to identify important variables signaling business traction, investors look at various types of data. This especially includes alternative data, such as social media data, as it helps to see signs of traction as soon as they appear. Therefore, startups looking to boost their traction and get the necessary funding in the upcoming investment rounds should also be consulting alternative data to see what works and what does not. Seeing what the investors are most likely looking at will help to adjust and further develop plans for generating traction.
Business clients are professionals looking to work with someone they can trust. Therefore, they will look at business traction for indications of credibility and ability to deliver on established commitments. In order to find such clients, it’s necessary to understand the industry. This can be achieved by analyzing information about the firms in the industry. In addition to firmographic data for tech startups, it’s also especially important to look at the technographic data. Once agreements are reached with business clients, it’s a good idea to get the letter of intent. This kind of traction will help demonstrate a company’s credibility to investors and other businesses, building a solid reputation.
Before profit or even revenue comes in, the most important measurement of business traction for B2C is the awareness of the product and the brand. This is achieved by employing targeted, well-developed campaigns. Social media is a great place where the buzz can be started, and the needed startup traction generated. For example, engaging with customers online might lead to subscriptions to the newsletter or sign-ups to the webpage, which would allow the public to stay informed about the developments. This, in turn, would translate to more business traction. Utilizing alternative data on web traffic would help design a strategy for such beneficial usage of the internet.
Traction is the signal that cuts through the noise; the proof that you have something worth building.
- Bruno Pešec, President of Pesec Global
Business traction is an elusive term that assumes various meanings in different situations. But the underlying idea is always the necessity to have something to show for all the work that is put into the building of a business. It’s then possible to work with the self-validation and reputation that comes with measurable business traction, using it as a stepping stone to move forward.
When starting a business, it is important to dedicate time to planning, managing, and creating new avenues for creating business traction. Frequently, business plans will include a “traction” section that highlights milestones and business markers that indicate successful traction within a particular industry.
Traction for startups is essentially proof that the startup will develop and grow into a successful and sustainable business.
Businesses measure traction with metrics such as revenue, projected profit, current users or customers, funding, and industry partnerships.
There is no set traction-related “number” that investors use to evaluate if a startup is worth investing in. However, many investors rely on the aforementioned traction metrics, customer acquisition cost, industry or expert support, and market opportunities.