Fatal (A)Traction - Why Startups Fail Without Customer Demand

"How’s your project in terms of traction?” is one of the most frequently asked questions by investors aiming to differentiate promising startups from less viable ones during presentations. In essence, a startup without traction is not a business; it’s more akin to a fairy tale. And almost no one will invest in tales, no matter how promising they sound.

For a project that involves selling a product, having traction means there are customers purchasing it or that sales are increasing weekly. If the product is free, such as a smartphone application, traction can be gauged by the growth of its user base. Naval Ravikant, founder of AngelList, provides a pragmatic definition: “Traction is basically quantitative evidence of customer demand.”

However, traction metrics can be elusive. Firstly, they vary based on the nature of the business and its growth stage. Secondly, they are often confused with vanity metrics—the impressive but ultimately superficial numbers typically found in press releases or casually mentioned at social gatherings. For instance, when an entrepreneur claims, “It’s going very well; we already have over 50,000 website visitors and 5,000 app downloads,” they are highlighting vanity metrics. A response based on true traction metrics would be more revealing: “It’s going badly; people uninstall the app after three days, and only three out of our 50,000 site visitors made a purchase.” Such honesty can dampen the mood of any gathering.

Many startups succumb to the temptation of developing their product first and only then worrying about traction, presenting an entirely finished product before considering how to generate demand. This approach is often a mistake and can sometimes be fatal. Best practices emphasize the 50/50 rule, which advocates for simultaneous product development and testing of various traction channels. However, many entrepreneurs are reluctant to follow this rule. It’s understandable: the excitement of developing a product or service drives them to focus solely on their “baby.” The idea of dividing their attention and effort to test traction channels is frustrating, which is why many choose to ignore this rule.

Traction channels are the various methods through which one can attract customers to a business. There are typically considered to be 19 channels, including Advertising, SEO, Adwords, Offline Ads, Targeted Blogs, Sales, Trade Shows, Viral Marketing, PR, and Affiliate Programs, Partnership programs, among others. The challenge lies in identifying which channels have the most potential. Once the channels with the highest potential are identified, the next challenge is testing these channels rigorously. Testing should be based on measurable hypotheses and should generate key performance indicators (KPIs) for each channel. Important metrics include the cost of acquiring a new customer or user, the number of customers that can be acquired through a specific channel, and whether these customers are sufficient to meet the business’s objectives.

One final piece of unfortunate news: the traction channels that work during one phase of a business may become ineffective in later stages, necessitating a repeat of the entire process—identifying, testing, and implementing new channels. Failing to adapt can turn the business into a car without traction control, prone to oversteering and ending up in the gravel, with entrepreneurs pushing and investors seeking a smoother ride elsewhere.