Traction: Why It Matters, What It Tells Investors, and How to Use It to Build Your Startup

​In the chaotic early stages of building a startup, traction is what cuts through the noise.
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Traction cuts through the noise in the chaotic early stages of building a startup. Investors, advisors, and even your team look to traction as a compass—proof that you’re headed in the right direction. Whether seeking funding or fine-tuning your business, traction is the ultimate validator. It shows that your product solves a real problem, customers respond, and growth is within reach.
In this article, we’ll explore:
1. What traction is and why it’s crucial.
2. The types of traction and how to measure them.
3. How traction reveals insights into your problem, sales process, and growth strategies.
4. Why sales—and traction—solve all startup problems.
What Is Traction?
Naval Ravikant famously described traction as “quantitative evidence of market demand.”
In simple terms, traction is measurable proof that people care about your product, are willing to engage, and—most importantly—are willing to pay for it.
Traction validates your startup idea in the real world, transforming theoretical solutions into tangible outcomes. It’s what separates good ideas from investable businesses.
Why Traction Matters: The Signal in the Noise
For startups, traction is the most critical metric for success, and its importance grows as the startup ecosystem matures. Why? Because traction:
1. Validates the Problem: A lack of traction often signals that the problem isn’t significant enough—or that your solution isn’t solving it.
2. Reduces Investor Risk: Startups are inherently risky, but traction mitigates that risk. It tells investors, “This works.”
3. Demonstrates Scalability: Early traction hints at your ability to scale. It proves that the potential product-market fit foundation is in place.
4. Attracts Customers, Talent, and Partnerships: Momentum and growth naturally draw others to join and support your mission.
As the saying goes:
“Sales solve all problems.”
While fundraising, building your team, or refining your product, revenue—or traction—solves each challenge by providing progress and generating cash flow.
Types of Traction: Choose Metrics That Matter
Traction isn’t one-size-fits-all. The type of traction depends on your industry, product, and business model.
Here are the most common types of traction, broken into categories:
1. Revenue-Based Traction
For SaaS and direct-to-consumer startups, revenue is king.
• Monthly Recurring Revenue (MRR): Consistent and predictable revenue from subscriptions.
• Annual Recurring Revenue (ARR): Yearly revenue from recurring contracts.
• Revenue Growth: Is your revenue increasing month over month (MoM)?
Example: A SaaS company that grows from $10K to $50K MRR in six months signals strong demand and sales execution.
2. Customer-Centric Traction
Are customers responding? This includes:
• Active Users: Daily (DAU) or Monthly Active Users (MAU).
• Customer Growth: New customer acquisition rates.
• Retention and Churn: How many customers are staying versus leaving?
• Customer Lifetime Value (CLV) vs. Customer Acquisition Cost (CAC): How much value you extract compared to what you spend to acquire.
Example: A marketplace startup with 20% MoM user growth and a 90% retention rate indicates deep product-market fit.
3. Transaction-Based Traction
For marketplaces and e-commerce:
• Gross Merchandise Value (GMV): Total value of goods transacted.
• Conversion Rates: Percentage of visitors converting into buyers.
• Average Order Value (AOV): How much customers spend per transaction.
Example: An e-commerce store achieving a 50% increase in GMV through repeat buyers signals strong traction and customer satisfaction.
4. Engagement-Based Traction
For social networks, consumer apps, or platforms:
• Session Time: Are users spending time engaging with your product?
• Frequency of Use: Daily usage, clicks, shares, or other engagement signals.
• Network Effects: Growth tied to new users attracting more users.
Example: A social app with 40% of its users engaging daily shows strong network effects and stickiness.
Why Traction Reveals the Real Story
Traction isn’t just about numbers—it tells a deeper story about how you’re solving the problem and the nature of your sales strategy.
Relationship-Driven Sales vs. Cold Sales
The type of traction you generate gives VCs insight into how your startup is landing customers.
1. Relationship-Driven Sales: Early sales come from your network—warm introductions and referrals. While common early on, scaling beyond your network is crucial.
• Indicator: Revenue growth but low cold outreach conversions.
2. Cold Sales Solving a Problem: If you’re closing cold sales at scale, it signals that your solution solves a clear, urgent problem.
• Indicator: Strong revenue or user growth through cold outreach and paid acquisition.
Why It Matters:
VCs want to know if your business is scalable. Relationship-driven sales can get you started, but growth happens when you solve problems for customers you’ve never met.
Example:
• A cybersecurity SaaS startup closes its first enterprise client through relationships. The second enterprise client closes through a cold email campaign. This signals a product solving a real problem.

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