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Traction refers to the initial momentum a startup builds. When you have “traction”, you have a clear indicator that your product or service is viable, you’ve found some level of product/market fit, you’re getting attention from your target audience, and you’re growing your brand.
Metrics such as monthly sales, monthly active users, monthly signups, repeat buys, or a decrease in churn rate or cost of customer acquisition, are all indicators that your startup is gaining traction.
Here is what you need to do:
- Start with a great product
- Brand your company
- Interact with influencers
- Price your product correctly
- Market your product using email, social media, google, etc.
- Leverage partnerships and alliances
- Track your marketing performance
- Become a knowledgeable authority in your industry
- Showcase your product at trade shows and conventions
- Recruit an A level sales force
- Invest in your customers’ success
- Iterate or pivot, and scale your sales
Product-Market fit happens when you have the right product for the right market segment. Do people like the benefits offered by your product? Are they willing to pay for your product? What type of people are these? Is there a sizeable demand for your product?
Product-market fit is not a discreet event. It takes several iterations to find it. It does not eliminate competitors. It is not a permanent event.
Discover your potential customer’s needs and pains by conducting interviews, focus groups, user testing, etc. Try different price points and different features. Focus on one customer segment or one industry vertical at a time. Do not try to please everyone. Create buyer personas and user personas. Do a thorough competitor analysis. Calculate the total market demand for your product, and the portion that you can realistically capture. Group your potential customers based on their shared characteristics. B2B market segmentation is very different from B2C market segmentation.
The goal is to make sales repeatable and scalable. Calculate the cost of customer acquisition, customer lifetime value, usage frequency, repeat buys, and ensure that they are favorable. Confirm that your churn rates are low, and profitability targets are achievable.
What value do we deliver to the customer? Which one of our customer’s problems are we solving? Which customer needs are we satisfying? What products and services are we offering to each customer segment?
What type of relationship does each customer segment expect from us? Which ones have we established? How are they integrated with the rest of our business model? What do these relationships require?
Through which channels do our customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which ones are most effective? Which ones are most efficient? How are they integrated with customer routines?
For what value are our customers willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How does each revenue stream contribute to overall revenues?
Who are our key partners? Who are our key suppliers? Which key resources are provided by our partners? Which key activities do partners perform? What do we have to do for this?
What key activities do our value propositions require? What key activities are required by our distribution channels, customer relationships and revenue streams?
What key resources do our value propositions require? What key resources are required by our distribution channels, customer relationships and revenue streams?
What are the most important costs inherent in our business model? How do the key resources costs add up? How do the key activities costs add up?
Structure brainstormed product ideas into a detailed concept. Then design a mock-up, followed by a less expensive version of your product offering, which is called a Prototype. Get user feedback and improve the concept.
Build the Product Roadmap. The Roadmap details the product strategy and goals, the product and features that will be built, who will build them, when they will be built, and high-level priorities. Define the communication and risk management plans.
You can develop the product in the “waterfall” or “agile” fashion. Track the time, efforts and costs against quality deliverables and other metrics. Coordinate with your suppliers, partners and alliances. Get input from your marketing team. Keep the development team motivated. Ensure that the product performance meets high standards.
Once the product has been developed, get customer feedback. Pivot or iterate till you have a product that is ready to be sold.
- Do you have a good business plan or pitch deck?
- Do you have a good management team?
- Have you executed a significant vision in the past?
- Are you perseverant and dedicated?
- Are you capable of pivoting well?
- Are you focused and passionate?
- Do you have any legal or regulatory challenges?
- Are you capable of using your network and advisors?
- Are you capable of working long hours without getting burnt out?
- Are the investors and management team capable of surviving relevant debates and discussions?
- Are you favorably located?
- Is the market need validated?
- Who is going to lead Technology development?
- What stage of development is the product in?
- Who is going to ensure the quality of your product?
- Is the business model lucrative and feasible?
- Who is going to decide the price and timing of your product?
- Who is going to ensure that you beat your competitors?
- Who is going to control the costs along the value chain activities?
- Is there a product-market fit?
- Who is going to lead Marketing?
- Who is going to listen to customers?
- Who is going to lead Sales?
- Who is going to raise funds for this venture?
What do Early Stage VCs look for?
There are three main things that VCs review in a startup: team, product and traction. There are seven things that define an excellent founding team: the intellectual and actual ability to grow the business, intellectual honesty and curiosity, complementary skills and chemistry, a stellar CEO, domain knowledge, relevant experience and defensibility, vision, and product focus.
CEOs need to be masters of execution, able to make tough decisions with poise, and thrive in uncertainty.
What do VCs look for in a startup?
- Leadership ability
- A strong team
- A clean capitalization table
- Innovative product
- Proof-of-concept or traction
- Broad serviceable obtainable market
- Customer conversion proof
- A reasonable cash burn rate
- How the capital will be used
- Favorable terms or downside protection
- 10 times potential
- Investment thesis fit
The most important members of your team are the founders. You and your co-founder have to settle on how decisions will be made within the startup. Then you should identify the positions needed to complete your team. Write down the job titles, job requirements, and qualifications and experience required in the incoming team members.
When starting out, you may not have to hire full-time employees. You could have consultants at the beginning and then moving them to full-time employees. If the founders have a good professional background, it will not be difficult finding good advisors.
Decide what type of work is expected from each team member, who provides backup for whom, how many hours are expected from each person, how flexible the schedule is, milestones each person has to reach, salary requirements or time commitments before quitting, and vacation days.
After the resume review and interview, do some fact-checking and background checks on the potential employees. Have formal employment contracts signed before they begin work.
Discuss important topics during weekly meetings. Share learning insights via email or social media. Have a weekly social activity like going out for drinks. Have a monthly review defining what the company should start, stop or continue doing, and what the top three priorities are for the next month.
The main goals of a startup team are to get funding, build the product/service, build the business model, define the market, promote the business, get customers, generate revenues, and add more team members.
- Leverage of Other People’s Money. If you choose to raise money for your business, you can fund the start-up or growth with investors’ money instead of your own. If you are investing in someone else’s private company, then you are the OPM.
- Leverage of Other People’s Time. You can leverage your employees’ time for your business. If you are working in someone else’s business, then you are the OPT.
- Unlimited payback. The more successful your company becomes, the higher will be the value of your stock, stock options, bonus and salary.
- Tax advantages. Most of the tax law in the United States is geared toward reducing the taxes of business owners.
- Freedom to express yourself. You can express who you are and what you stand for through your business.
- Reputation. You will be well-known as a startup founder.
- Difficult. Operating a business is the most difficult of all the asset classes to sustain. The track record of the management team is very important.
- High failure rate. Nine out of ten businesses fail within the first five years. You may fail at getting the next round of funding or you may fail at exiting successfully.
- Long hours. This isn’t a 9-5 job. You will work nights, weekends and holidays.
- No guarantee. There is no guarantee of a steady paycheck.
- People. You must deal with and manage employees, clients, consultants, vendors, etc. along with their personalities and moods.
Ms. Hetal Shah was born in 1972. She attained a bachelor’s degree in Civil Engineering in 1993. She has lived in the Boston area for over 24 years. She has worked as a white-collar professional for many years. She is experienced, sophisticated and well-read. She is an expert in strategy, innovation, entrepreneurship and product management. She is an Indian American lady. She wants to be a board member of a couple of startups in the Boston area. She can be reached at firstname.lastname@example.org.