When pitching your business for funding, a common question that investors will ask is “Have you achieved market traction?” Market traction is just one factor that that will determine a VC or Angel’s interest in funding your company, but it can be very important. One simple definition of market traction, credited to Angel List co-Founder Naval Ravikant, is “quantitative evidence of market demand.”
I spoke to serial entrepreneur and angel investor David Beatty about finding quantitative evidence. “What I like to see is a story that shows me you have traction. One investment I have now where they make a physical product, their clients were going to use the product throughout the US in all their store locations. In order to get to that level it was going to take 6 months to 2 years. In order for my investment’s product to be specified, their client had to get the product, sample it in one of their locations, then test it in multiple store locations, purchase some units, and finally be accepted into their corporate purchasing pipeline. There can be any number of steps.”
Recently, I participated on a panel at Astia's New York Chapter with Maia Benson, who agrees. “For companies with products/services they want to bring to market, I think having a 'virtual pipeline' is key. A 'virtual pipeline' is a set of prospective customers that would 'trial' your offering once it is available for alpha or beta release. It demonstrates that the entrepreneur is customer-centric, can network their way to the right decision makers and has identified a true customer 'pain point' that would make their solution a need-to-have versus a nice-to-have.”
Long time venture capitalist Bob Greene, General Partner at Contour Venture Partners was also on this panel, and he wants to see customer acquisition. “Whatever sector, it is great to see tangible evidence of how you’re going to acquire customers – and that should be consistent with your business plan.” But if the company is early stage, they may not have that evidence. “Pre-launch they should have an experience base on the team, so that their assertion of how they’ll acquire customers carries weight and makes sense to us. We also typically would have a feel for some of the target customers, and we’ll do our own spot checks with them as to the value proposition of product or service.”
Beatty also does due diligence, talking to the users of the product in the market to get their side of the story. However, he wants to see promises fulfilled. “If we hear about a 1MM deal for your product but 6 weeks later you don’t have a signed contract, we’re going to get scared. Investors and angels are optimists and entrepreneurs are optimists, so the numbers help ground your over-optimistic projections.”
Entrepreneurs want to create a business and marketing plan that sets your company up for a virtual pipeline. Fellow panelist and Founder/CEO of strategic marketing firm the Geppetto Group Julie Halpin noted "When we are helping clients build a proposition that is hard-wired for market traction, we ask ourselves four key questions: What is the benefit this proposition delivers and to whom? Why is this the right time in our culture for this proposition to work? What unique technology, R&D, attribute does this idea bring to the market? And finally, what is the business model that ensures this idea will make money both now and into the future? If the answers to these questions are precise, thoughtful and vetted, then the new idea is wired for success and traction."
Setting up your story, researching the market elements that will make it successful, plotting your pipeline, getting customers and showing you can grow them from trial to purchase are all ways that you’ll help potential investors decide whether your company has traction and potential. Let us know your tips and ideas below.