Many entrepreneurs require funding for their company or idea. Although funding may not always be a necessity as early on as many founders think the large benefit that it does offer is the fact that with funding, things can be executed either much more quickly, be launched on a much larger scale, or both. Before deciding what type of funding that you may need, it is important to discover what type of funding options you have.
In our Startup Funding Demystified series we uncover the inner workings of one of the most sought after things in entrepreneurship: funding. Whether you are only an aspiring entrepreneur or have already started a company we are presenting some valuable information that will help anyone in their journey.
So what is Traction?
Quick Definition: In a simple definition of traction by Naval Ravikant, Angel investor in Twitter among many other things, he states that it is “Quantitative evidence of market demand.”
Analysis: Traction is a term that is commonly referred to when fundraising or talking to investors. Although “Traction” is different for each company there are general indicators that will show whether or not your company has the type of traction that investors and partners are looking for.
Some great general indicators of traction are:
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Profitability
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Revenue
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Userbase
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Engagement
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Partnerships
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Clients
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Traffic
These all can be great indicators of whether or not your company has traction. Of course, depending on the main function of your company each one will be more or less important, and some may be completely irrelevant.
For instance if you were building a social network your userbase may be the most important thing and profitability may be less important. While if you were building a B2B SaaS company profitability may be much more important. These are all common indicators of traction, but the other thing to keep in mind is that depending on how unique your company is you may have slightly different definitions of traction. Just as long as your traction in some way demonstrates that your business model works and your customers are accepting of your product or service.
Momentum
One of the other most important things pertaining to traction is momentum. If you can show that your company is constantly growing while getting the right types of traction for your situation, this can be a great indicator for investors. For instance if your company is getting traction but has recently hit a plateau or has a slow rate of growth, you are going to have a hard time appealing to investors.
If you can demonstrate both the right types of traction and a momentum you will fall into the category of what most investors look for.
