Formation
Pitching a business that does not yet have a legal entity, a tax ID number, business bank account, collateral, or team/employees is not as impressive or exciting as a business that has been legally formed and has a team working full time. This shows traction toward legitimacy.
The basic steps of forming a legal entity, creating a basic website, and beginning to create collateral legitimizes your business past the point of ideation. And fortunately, they are fairly easily done.
Without these initial steps, you won’t be taken very seriously. Think of it like the adage that appropriate dress in an interview won’t land you the job, but you won’t even be considered without it. It’s next to impossible to pitch potential customers or investors on a business that only exists in your head.
Customers
While the above example won’t be enough traction to garner much attention from the investment community, it begins to give your startup momentum.
Paying customers that equate to revenue and profitability are the best possible form of traction to demonstrate. If you are able to pull in paying customers without raising capital, your startup is in a very good position. In fact, many startups find that focusing on traction early and acquiring paying users will eliminate much of the need to raise capital in the first place.
In an ideal situation, an entrepreneur can immediately begin developing or manufacturing their product offering for distribution. Unfortunately, for many entrepreneurs, funding is a prerequisite to building a product to sell to customers. In that case, it is not possible to show traction in the form of revenue or profitability, and that is OK.
Playing second fiddle to a paying customer is an interested customer. An entrepreneur who is constrained by not being able to develop the product should hustle potential, interested customers for his or her business. This can come in the form of testimonials or letters of intent, but the key is to find genuinely interested individuals who are hurting for your product and excited to use it.
Though testimonials can be a good tool for demonstrating a need or telling a customer’s story, Brendan Baker of Greylock Partners warns against leaning too heavily on them, as well as labeling publicity as traction.
The final types of customers used to demonstrate traction are free customers, otherwise known as “users.” Not all customers need to pay to demonstrate your product’s worth. The idea of giving away a free sample in order to hook the user into wanting more has been around forever (think mall food courts or even drug trafficking).
Initial beta customers may be granted early access at a discount in order to receive real feedback from customers and begin building a user base. It is rumored that Google’s pitch deck consisted of one slide: user growth.
A recent trend has been to adopt an acquire-users-now-and-try-to-monetize-it-later revenue model. Few businesses have had any measure of success with this model, and time will tell how those few fare in the coming years. However, there is value in demonstrating that you are amassing eyeballs on your product.
