Many entrepreneurs attempting to build startups have intuitive faith in the saying, If you build it, they will come. Once investors see a good product or idea, they feel, they will line up. In truth, though, while good ideas and products are important to success, they don’t guarantee it.
Succeeding as a business requires a vast range of inputs. It needs entrepreneurs who possess leadership qualities, perseverance, patience for paperwork, an ability to understand the consumer, financial skills, social adeptness and myriad other talents. A number of other factors can affect the chance of success that a business has. The law and the readiness of the market to accept an idea are two important determinants.
Investors know from experience that an entrepreneur with an excellent idea may have none of the qualities necessary for business success. Before they even consider investing in a startup, they usually need to see that it has gained traction: Evidence that it has thrived as a business in the real world.
Traction can be demonstrated in different ways
Some startups try to convince investors of their success in simple ways: with references to good reports in the press and glowing customer testimonials. Unfortunately, investors usually do not take such reassurances seriously. Nearly every company, good or bad, usually manages to get at least some good press and a few positive customer reviews. Investors need more tangible proof of traction.
In the fashion, software and retail businesses, proof of an ability to generate virality (or general excitement) is an important way of judging how viable a business is. For enterprise startups, the ability to attract even one letter of interest from a name-brand partner or client can be a huge deal. In others, sales numbers, customer numbers, sustained success on social networks and revenue growth are all seen as reliable indicators of viability.
In businesses that need significant investment to even generate one sale, investors look for traction in other ways. Employee quality is considered a reliable indicator. When a startup has been able to attract a few highly qualified employees, investors consider it proof that a business is run well and has a future.
Building proof of traction if you’re just getting started
Investors often look for more than just good sales numbers and other major indicators of traction. They often need other supporting evidence. Startups need to invest in preparing it. How?
1. Go after quality data
Whether it is an inefficient marketing method or unnecessary costs, it is usually data that is able to offer businesses a heads up. The more data you have on your business, the better you come to know it. Investors tend to be impressed with businesses that deeply research their operations.
2. Identify your most important metrics
If you have a dozen metrics to measure your business by, you won’t be able to focus on all of them at the same time. It makes sense to identify five or six key metrics to track the performance of your business by each day. These metrics should be able to help investors understand your business well, too.
3. Begin charging your customers early
Conducting market research on your product is one thing; testing with paying customers is another. Even if it makes you anxious to do so, you need to begin charging your customers as early as possible so that you have sales figures to show investors. Nothing impresses investors the way actual sales does.
4. Get social proof
While stand-alone testimonials do not impress investors, proof of long-term audience engagement on your blog, website, YouTube account, newspaper column, Facebook, Twitter, LinkedIn and Google+ do very well. As an example, at the successful emergency preparedness and survival products marketing business 4Patriots LLC, partner Allen Baler has a very engaged Facebook audience.
5. Invest in PR
A long-standing relationship with journalists at important professional trade magazines and consumer magazines can be a good indicator of potential for business success. A reputation as a professional guest speaker in matters to do with your business can be useful, too. You need to get written up on a continuing basis. Proof of successful PR can be effective: successful community leadership, publicity stunts and guerrilla marketing tactics all have their place in building an image of traction.
6. Being a registered business
Finally, sometimes, merely being a registered business can bring an air of legitimacy to a business and help it attract serious consideration by investors. Incorporating, receiving a tax ID number, and officially paying salaries out of a business bank account are all good ways of gaining an aura of credibility.