Startup CEOs are often asked about traction by VCs. What can you learn from their question and your answer? Here are three thoughts, plus a tip. 1. DEALS = RELATIONSHIPS. VC investments are like marriages, not houses. While it's fine to buy a derelict building to convert into your dream home, you shouldn't marry someone you think needs fixing -- that's a recipe for unhappiness. Likewise, it's rarely a good VC strategy to buy into a fixer-upper. I've learned this myself the hard way: the problems are often deeper than they look during DD. When VCs tell you they need more traction, that's often just a polite way of saying there's stuff to fix before they can consider investing. 2. THE MOMENTUM STRATEGY. That may seem weird given how many VCs boast about their value-add (and the large teams of portfolio-support people shown on their websites). But the future is like the past more often than we'd like to admit. Tier-one VCs, with the pick of the world's startups, usually choose businesses that are already growing fast with strong unit economics. A perfect example is Roelof Botha's investment in YouTube for Sequoia. As his deal memo showed, the company was already growing much faster than its competitors pre-deal. He was backing proven momentum. Likewise, when preparing the SEC documents for the NASDAQ IPO of my own startup, I searched the sales growth chart for an inflection point in the curve where things took off -- but couldn't find it When I replotted the sales on a log scale, it was a straight line over multiple years -- showing a steady growth rate. 3. SKID MARKS. As you'll know from driving on mud or snow, skidding is a sign of wasted energy -- the engine's turning, but the wheels are spinning. Traction's not just about your sales growth rate; it's about how efficiently you're converting the fuel (funding) into forward motion (growth). For many companies, lack of traction simply means burning too much cash for the level of growth. THE LESSON. CEOs often ask me what dollar value of sales, or what growth rate, they need to demonstrate traction. Often, they're asking the wrong question. Unless sales and marketing is being done badly, slow and inefficient growth is usually the result of a product problem. It's galling to admit this when you've just hired a fancy CRO or have a team of SDRs making calls. But often, the way to get the traction that VCs will demand of you is to make sure that what you're selling is something your clients urgently need and are eager to pay for. Links and references in the comments.
