What did venture capitalists invest in first, the chicken or the egg? The chicken, of course, because it showed more traction. Great for the chicken, disheartening for the egg.
Modern startups are very much like eggs. They need to be incubated and nurtured before they can turn into a profitable company. Unfortunately, investors are slow to spend money on anything that has an uncertain survival rate, so they look for traction. For most startups, however, traction is difficult to obtain without funding. It’s a standard catch-22 situation. You can’t gain traction without funding, and you can’t get funding without traction. How is a startup supposed to break out of such a paradoxical cycle?
Actually, it’s quite easy. All it takes is a bit of a realization: You don’t need funding to gain traction. That’s a common misconception resulting from rigid adherence to a definition. True traction can be quite fluid and much less difficult to demonstrate. Here are four ways to prove traction without funding.
Traction ≠ Gaining Customers
The first thing that seed companies need to realize is that there is so much more to traction than customer count. Don’t get me wrong, customers are an important part of traction. They’re just not the only part. If you want to demonstrate traction without diving into what could turn into an overly critical evaluation of the customers you were able to attract sans seed money, focus on formation and development.
Formation: Taking the necessary steps to show you are serious about your product or service can go a long way in the eyes of a potential investor. Establishing a legal identity for your business demonstrates personal investment, which then makes you appear more motivated to succeed. Real tax IDs, business bank accounts, and collateral provide more traction than an entire slew of clients pledging their allegiance to a hypothetical entity.
Development: Documented development is an excellent way to demonstrate traction without any money at all. Most products or services don’t emerge from the mind fully-formed and without kinks or bugs. You’ll likely need to progress your idea through several stages before it’s ready for presentation to an investor, and that’s normal. Why not use that progression to your advantage?
Keep detailed notes of each developmental stage, and record the reasons behind each product iteration. But don’t limit your notes to your product or service. If you add another employee, document why. If you moved to a bigger workspace, document why. Progress, no matter how small, and the sound logic behind it, are always valuable to potential investors.
Traction ≠ Paid Marketing
Once you’ve established a legal business presence and progressed your product and team to a healthy, presentable point, it’s okay to begin thinking about people outside of your business. To demonstrate traction, you’ll need access to a few different types of people that support your goals. The good news is that these individuals are relatively easy to find as long as you know your product — and your brand — well.
Recruitment: Putting yourself out there is the best way to find other people that believe in your idea. It’s important to remember, however, that some people are much more likely to show support if they’re not being asked for money. Talk about your product or service with other people in your industry. Talk about it with others in complementary industries. Draft a press release for your local news outlets to see if the media will do some of the talking for you. Your goal here is not to solicit funds; it’s to garner interest.
If someone in your industry likes your idea, ask them to participate in an advisory role. If someone in a complementary industry likes your idea, discuss the opportunity for future partnerships. Investors are much more likely to look kindly on a concept that is supported by other well-established entities and individuals. Their support serves as a form of traction.
Attention: Once you’ve gotten the attention of industry allies and media, turn your sights on clients and customers. Remember, you’re not looking for commitments. You’re just looking for interest, which is far easier to attract. The effective and free art of content marketing is a great place to start. Create a blog to discuss your company, and blast it across social platforms. Track who is reading your posts, and use that data to craft content that is both relevant (to your business) and interesting (to your readers). Survey your readers to find out what they like, and use that information to create additional content that keeps them coming back to your brand.
Social media is one of the best tools a startup can leverage. Not only is the internet everywhere, but everyone is using it. Let it bear the burden of social proof. As long as you are methodical in your tracking and consistent in your branding, you should gain a natural following over time. Eventually, your followers will serve as proof that your business has enough merit to gain organic interest online. And provable interest is another form of traction.
For a Startup, Traction = Trial and Error
Once you realize that traction is more perception based on presentation rather than fact based on definition, you are better able to identify opportunities to demonstrate it. There’s a book that I hand out to every company I work with. It’s called Traction, and it’s immensely helpful for executives trying to survive in the startup world. The content is both relevant and useful, teaching readers not only how to identify traction channels — there are at least 19 of them — but also how to test them.
Not every channel is going to be a good fit for every company. Finding the right one for your startup requires a vigilant eye for the cutting edge, the patience to run A/B tests until you get it right, and the wherewithal to quantify your results in a way that makes sense to others. The trick is not to “overlook underutilized channels,” Traction author Gabriel Weinberg writes, as these are most likely the ones that are going to provide you with the information you need to sway potential investors, earning you the funding you need to create forward progress.
Realigning your interpretation of traction can make your funding goals seem much more attainable. By focusing on the formation and development of your company, you’re proving to investors that you’re serious about the future of your work. By taking the time to market your brand on social media and attract interest that isn’t compensation-dependent, you’re showing investors you have the know-how to take your company to the next level. Conduct your due diligence the right way, and you just may shatter the traction-funding paradox. And that, friends, is good news for the egg.
Brent Beckley is skilled in management consulting and opened his own firm, Beckley & Co., to specialize in upscale, boutique clientele where he uses his extensive knowledge and experience to help his clients navigate the fast-paced world of business. Connect with @brentbeckley on Twitter.