Traction is one of the ways investors used to assess the startup’s momentum? However, startups’ traction metrics will differ based on your business model, the industries and the stage that you are in.
A startup’s traction will be the key, especially during Board meetings and fundraising. Think of traction as the evidence or proof that your products and services have found product/market fit.
However, startups in different stages and markets will have different metrics to measure and monitor their traction.
Here are some examples of metrics from different startups.
Twilio traction metrics:
I love Twilio. In my opinion, they are a great example of a company who understand the changing needs of B2B businesses and how APIs is going to be central to a company’s IT architecture.
In Twilio case, during the early years, they use a mixture of social proofs and business metrics to show their traction.
- Social proofs that users love their products
- Business metrics that show increased conversion and sales
AirBnB traction metrics
In my opinion, AirBnB‘s has been one of the easiest to understand. And with it, they have easily shown what is the one most important metrics that matter to the investors. With these numbers, investors can easily do their ‘back of the envelope’ and decide if it is a good round to invest.
Top 5 metrics for early-stage startups
For early-stage startups, I would suggest that you have a traction model in place on top of some basic financial forecast.
For early-stage startups, here are some metrics that you may consider:
I have put the team right on top. This one goes to the solo founder company. Many investors shun companies that are built by solo founders because of the inherent risks associated with it. So, even finding the right partner for your team is an important milestone and traction for the company.
- Market Opportunity
Many startup founders that we deal with have found that articulating the market size a huge challenge. In our opinion, the most common mistake is that they tend to use a top-down approach to market sizing. A better approach should be a bottoms-up approach for your TAM-SAM-SOM.
- Month-over-Month Growth (MoM)
For early-stage startups, a good MoM will be to show the number of users signed up, the number of active users and how long user used your app or product for.
- Revenue Growth
Even as investors may not be looking at real sales figure during the early-stage. Having revenue always beat none. Correlating to revenue will be the number of leads and prospects that you have in your sales pipeline. This is especially so if you are focus on the B2B market. The leads, prospects and sales will ultimately translate to your quarterly numbers.
- Product Growth / Roadmap
Most founders do not have problems with building new features into their product or platform. However, we think that having too many features for a beachhead market suggests that the customer pain point may not have been clearly identified.
1. Finding the right metrics to showcase your startup’s traction is important.
2. Founders need to understand that VCs prefer to invest in companies that have gain momentum and have good traction.
3. The idea of raising funds is to share with investors how you intend to increase momentum with the funds raised. With the funds raise, are you able to hit your goals earlier? What are the key metrics that you will be working on?