How can a pre-revenue startup show traction?
What exactly is traction, and how on earth can you build traction if you're pre-launch? Don't make the mistake to think this isn't possible, or investors will run a mile.
Founders who believe it's impossible to build traction without first raising money should think again. Given the plethora of free tools, resources, and data available online, there are a whole host of things founders can do to build momentum, even if their product is still in stealth mode and yet to launch.
Does traction mean sales?
The best founders know that successful business building is all about building something people want, and being able to sell it for a profit. Ultimately, then, traction means generating revenue. But this all depends on the stage your business is at. Early-stage startups may still be pre-product. Is it possible for them to demonstrate traction?
Examples of pre-revenue traction.
- User interviews
- Build waiting lists and pre-registrations
- Sign up beta testers
- Signed letters of intent
- Formal partnerships
- Respected advisors
- Respected investors
Examples of post-revenue traction.
- User growth
- Organic user growth
- Revenue growth
- Referral rates
- Negative churn
- Decreasing customer acquisition costs (CAC)
- Positive customer testimonials
What does healthy traction look like post-launch?
If you're an early-stage technology company, you should be growing every week. Ideally your growth will be compounding and the closer you are to launch, the faster you should be expanding (it's a lot easier to achieve 100% growth when you have 5 users compared to when you have 5,000 users).
You should probably to have higher growth if you're a consumer product (especially if it's unpaid) than if you're a paid B2B platform. Nevertheless, whatever type of software you're building, the following metrics may provide a useful rule of thumb for "what good looks like":
- 5-7% weekly growth
- >40% of users still using the product after six months
- LTV:CAC >3:1
- CAC payback <6 months
- Churn <5%/month
If you turn up to an investor pitch with these kind of metrics, you'll be taken seriously. If you don't, you may not get too far.
Image credit
– Stealth photo by Stephen Leonardi.