May Samali and Jeff Carlson suggest ways for early-stage startups to show traction in the market
Before handing checks to startups, investors want proof of business concept.
As we mentioned in an earlier post on preparing for investor pitches, showing market traction should be a key part of the message communicated to investors. In simple terms, entrepreneurs must demonstrate actual market interest in their product.
For most businesses, producing sales and revenue is the best way to show traction. But in our experience, many entrepreneurs struggle to demonstrate meaningful traction, particularly at the pre-revenue stage.
To assist early-stage startups, we’ve compiled a list of three ways to prove market traction:
- Collect pre-orders for your product: Before building your product, connect with potential customers to gauge interest. If early conversations go well, invite them to pre-order your product. The more people willing to put money and weight behind a proposed product, the stronger the evidence of product-market fit. One way of collecting pre-product sales is via crowd-funding platforms such as KickStarter or Indiegogo. These platforms provide quick access to a large pool of potential customers and can be a powerful way to demonstrate that your idea has merit. Pre-orders can also give your business a cash infusion to finish product development. If customers are initially reluctant to pay, suggest they try a pilot.
- Show that you have a large user base: For many early-stage technology platforms, growing a user base should be a priority. This is because rampant user growth is a powerful early signal to investors that your product resonates with the market. For example, from May 2011 to Jan 2012, Pinterest’s number of unique users skyrocketed 30-fold. But how can an early-stage company demonstrate user growth? Use off-the-shelf tools like LaunchRock to lower the barriers to signing up. Allow your users to register through Facebook. Encourage users to recommend that their friends join them on your platform. You can focus on monetizing your product once you’ve established a strong following.
- Demonstrate that your users are engaged: Even if your user growth hasn’t yet exploded, you can still show traction. Focus on the users you do have, and prove that they love your product. Demonstrate that users come back to your product (number of repeat use), or that they are hesitant to leave (low churn). Send customers a quick Net Promoter Score (NPS) survey to quantify their loyalty. Goodreads is a great example — it took nearly five years for the company to reach 5 million users, but with a base of passionate users it was able to court investment.
One last tip: Let metrics be your driver! Tracking metrics over time gives you and your potential investors insight into how well your product is performing. But you need to be intentional about measuring your progress. First, identify what you need to measure. Every product and market is unique, so decide thoughtfully. And avoid generic or vanity metrics. Then build tracking tools into your product and report your findings. After all, as AngelList co-Founder Naval Ravikant says, traction is “quantitative evidence of market demand.”
Tumml is an urban ventures accelerator with the mission of empowering entrepreneurs to solve urban problems. A nonprofit, Tumml is working with and supporting startups including HandUp (a crowdfunding platform for the homeless), Chariot (a crowdsourced commuter shuttle service), and Valor Water Analytics (a big data solution for water utilities). Through a customized, four month program, Tumml invites early-stage companies into its office space to receive hands-on support, seed funding, and services to help grow their businesses and make significant impact on their communities.