Defining Traction

I get this question all the time:

For an early stage venture, what counts as ‘traction’?

The answer you’ll commonly get from many entrepreneurs is the same as the one people use for porn: I don’t know how to define it but I know it when I see it.

For those of us out in the trenches, this isn’t good enough. It’s surprising to me how few entrepreneurs have a working definition in mind when they set out.

Clearly, a more sophisticated answer is tricky and will vary significantly for each business. I should also say that different investors and entrepreneurs have different definitions, and that each one will have a different definition of what constitutes “an acceptable level” of traction for a venture, based on their own criteria and the time under which such traction has been gained. Still, what follows is my attempt to synthesize what I’ve learned from the multiplicity of sources I’ve encountered.

If I had to boil it down I’d say this:

Traction is the accumulation over time of commitments from paying customers and/or monetizable users obtained from the public marketplace as a result of conscious, repeatable and quantifiable methods or techniques.

Let me break that down:

Commitments from paying customers...

This can take a few forms, listed here in decreasing order of value:

  1. Sales. Customers happily paying you today for a service they receive from you today. Bonus points if they have had a chance to renew or repeat their sale and they have done so. This is clearly the best demonstration that you have achieved a degree of product/market fit.
  2. Trials. A commitment to pay later for a service they receive today. Not as good as actual sales, but pretty close. This demonstrates that you have something the market wants, and you’ve found a way to sell it to them. The biggest risk factor here is whether you can deliver long and well enough to turn trials into sales.
  3. Presales. A commitment to pay later for a service they have not yet received. Not as good as sales or trials, but one of the better substitutes. Of course if you don’t have a functional product the first two are off limits anyway, so this is your next best option.
  4. Beta customers. A commitment to consider being a paying customer. Not as good as the preceding options but better than nothing. This demonstrates that you have something the market wants but haven’t yet demonstrated that they will pay for it. The risk factor here is that even if you are meet a market need the market may not find it valuable enough to pay for.

** Here’s what doesn’t count: survey data, anecdotal feedback from potential customers, anecdotal encouragement from investors, friends, or family, or market data.

… and/or monetizable users...

In multi-sided business models, revenue is dependent upon users who don’t pay you directly. The most obvious example is the number of eyeballs watching a YouTube video or the number of search queries that pass through Google. In this case, a monetizable user is one whose engagement is tied directly to your business model: the more eyeballs, the more value to YouTube’s advertisers, the more searches the more ad inventory Google has to sell, etc.

Monetizable users are not as valuable as paying customers, unless A) the path to monetization is well established or B) there are a huge amount of them. When the presence of monetizable users is a prerequisite to customers, then their presence is mandatory to meet the definition of traction. A recruiting site that charges recruiters will only succeed if there are lots of candidates on board, for example.

… obtained from the public marketplace

Effectively this means ‘users who chose you on purpose’. For early stage ventures this is an important caveat: it should be presumed that you can get friends or business colleagues to try out – or even pay for – your service out of loyalty, novelty, etc. This is not the same as an actual customer who chose your product as part of a commercial decision.

… as a result of conscious, repeatable and quantifiable methods.

This is the crux of the traction definition: you have to be able to do whatever you did again. Let’s take each adjective in turn:

  1. Conscious. You have to have done it deliberately. Efforts to obtain customers can’t be accidental or a result of unanticipated acts. If the acquisition of customers was dependent upon someone else’s efforts and those efforts were not tied to something you did, it doesn’t count.
  2. Repeatable. You have to be able to do it again. A few years ago someone came up with the idea of a “cash mob” – essentially a mobile technology-enabled rush of customers to a business in a very short period of time. Cash mobs are an awesome creation, but they don’t count as repeatable.
  3. Quantifiable. You have to be able to define what you did to get your result. Quantifiable is demonstrating that you paid $500 for Google Adwords placements and got 100 customers. Quantifiable is a ‘recipe’ of social calendar posts that can be tracked to user acquisition. Quantifiable is the first step on the road to achieving a compelling ‘cost to acquire,’ which is the gold currency of any sustainable business. If you can’t quantify what you did that worked you can’t calculate what it would take to scale it and it doesn’t count.

Accumulation over time. Any traction definition carries with it an implicit time component. Obtaining 1000 customers in a week is clearly different than accumulating them over a year. It is usually true that more/quicker is better, but not always. The deliberate, steady ability to acquire customers is often considered an indicator of discipline and mastery. That said, the longer you’ve been trying the higher the expectation. If you’ve been out for a year and only have a dozen customers, red flags go up. But if those customers all came in over the past month as a result of something you changed or attempted, it can be a good thing. It’s the momentum that matters.

What traction looks like

I’ll try to indicate this graphically:

Flat acquisition = no traction
Steep positive acquisition = better
Slow acquisition with recent upward surge = good
Initial surge with a long plateau = not good enough
Initial spike of acquisition = not good enough
Steady acquisition as a result of your activity = good

These graphs get a bit more complex when you start adding in different classes of customers, monetizable users, etc., but it all boils down to your vector: the balance between magnitude and direction. The more strongly you can move up and to the right, the better you’ll be able to satisfy someone’s definition of traction.

Once you’ve been out for a bit, figure out which graph you’re able to honestly draw and then react accordingly.

Bonus Points: Surprise Users.

In the era of the social graph, the connections between people are becoming clearer, but they still run deep outside the realm of technology. One early sign of traction is when you start obtaining users whose origin is not immediately apparent. This is an indicator that your product/market definition is traveling independently of your marketing efforts and making its way back to you. Open the champagne when that happens.

Michael Sattler

With a career spent in founding and technical leadership roles with new and enterprise-level organizations, Michael Sattler is a veteran in technology strategy, operations, and product management. He’s spent decades in B2B and B2C SaaS product development, software and application design, engineering operations, new venture creation, and innovation practices.

He has scaled and managed technical teams from 2-50+ across three continents, led large-scale cross-functional program management, and founded or co-founded six companies.