What is traction and why is it important for startups when attracting investment?

Traction has become one of the most important concepts in the world of startups and investments. If you want to convince investors to invest in your project, a well-thought-out business plan alone is not enough — they need proof that your idea works. Traction is that proof. In this article, we will explain what traction is, how to measure it correctly, and why it is so crucial for successfully attracting investments.

1. Definition of “traction”

Traction is measured through metrics that reflect the growth of the business. Metrics serve as tools to measure this growth and success. These could include metrics such as the number of active users, revenue, customer retention rates, successful partnerships, and others. Every startup should determine the key performance indicators (KPIs) that are most relevant to its business model.

Traction typically demonstrates intermediate results, such as the growth of the user base or increased revenue, rather than final results like profit or dividends. Good traction indicates positive progress, even if the final goal has not yet been achieved. In other words, even if your project has not yet generated profit or can’t provide dividends, demonstrating traction becomes the main argument for showing investors the positive momentum of the project.

2. Why traction is important for investors

For investors, traction is an indicator that the startup has already proven its viability and has the potential for further growth. Let’s examine three key reasons why investors value traction:

• Proof of market demand: If your idea is genuinely appealing to the market, it will be evident in your traction — for example, through the growth of customers or users. Investors fund proven solutions, not hypotheses, so your traction is proof that the market supports your idea.
• Risk minimization: Traction reduces risk for investors. The more traction a startup has, the less risk there is that it will fail. This confirms that you can successfully attract and retain customers, manage operations, and scale.
• Growth potential: Investors invest in the future, not the past. Strong traction indicates that the startup is capable of growing and provides insight into what that growth could look like in the coming years.

It’s also important to note that for non-professional investors, who often make decisions based on emotional appeal, traction can play an even more significant role. Such investors may rely on emotion and intuition rather than thorough analytics. In this case, traction can temporarily compensate for the absence of profit or dividends, showing progress and dynamics, which reassures investors and sustains their confidence. This helps maintain their engagement, even if the outcome has not yet been achieved.

3. Ways to demonstrate traction

Traction can be demonstrated in various ways depending on the stage of the startup and its business model. Here are a few key metrics often used to show traction:

• Product metrics: Active users, retention rate, repeat purchases. These indicators show how much demand there is for the product and how long customers stay with you.
• Financial metrics: Revenue, revenue growth rate, profitability. These metrics show how the startup is generating revenue and how steadily it is growing.
• Marketing metrics: Audience reach, customer acquisition cost (CAC), conversion rate. These metrics are important for understanding how effectively the startup attracts and retains customers.
• Social proof: Media mentions, reviews, and partnerships with major companies. This not only confirms interest in the product but also increases trust in the brand.

Sometimes, the choice of traction markers can be manipulative. A startup might focus on metrics that show positive dynamics and hide less successful results. For example, it might show user growth but hide low retention rates, or show revenue growth without mentioning that expenses exceed income.

Such practices can create a favorable but incomplete picture of the project’s success. Investors need to understand that traction is only one aspect of assessing a business and that the project as a whole should be analyzed, not just the metrics that conveniently demonstrate progress.

4. The role of traction at different stages of investment

At different stages of a startup’s development, the importance of traction varies. The more mature the project, the more investors will focus on its financial and product metrics. Let’s look at a few stages:

• Early stage (pre-seed and seed): At this stage, investors expect to see minimal traction. This could include launching a minimum viable product (MVP), having the first customers or active users, or positive market testing dynamics.
• Growth stage (series A and beyond): Here, deeper traction is required. Investors want to see sustainable revenue streams, a rapidly growing user base, proof of business scalability, and strategic partnerships.

For example, an online education startup at the seed stage might attract investors by demonstrating that it has acquired 500 active users and partnered with five schools within six months. At the Series A stage, the same startup must show tenfold growth, a working business model, and significant revenue.

5. How startups can develop and showcase traction

To successfully develop traction, it’s important to follow a consistent strategy:

• Build an MVP: A minimum viable product is the first step in demonstrating traction. Show investors that you’ve already built something and it works.
• Focus on key metrics: Identify which metrics are important for your startup. If you’re using a subscription model, you need to show investors the growth of active users and low churn rates.
• Use analytics tools: It’s important not only to have traction but also to track and interpret it correctly. Analytics tools can help you understand which actions are driving improvements in key metrics.

An example of successful traction: A food delivery startup showed that in three months, it reached 10,000 active users with a 30% customer return rate thanks to effective marketing campaigns and partnerships with restaurants.

Traction is closely tied to the goals and objectives of the project. Essentially, it is an indicator of how successfully the startup is moving towards achieving these goals. The roadmap of the project should align with the pace of traction growth. If the startup falls behind schedule, this can be a red flag for investors. On the other hand, if traction growth outpaces the plan, it can be a positive signal.

6. Mistakes in demonstrating traction

It’s not only important to have traction but also to demonstrate it correctly. Here are a few common mistakes:

• Inflating metrics: If investors suspect you are exaggerating success or manipulating metrics, it will seriously undermine trust in your startup.
• Ignoring qualitative aspects: If you have many users but a poor-quality product, it will soon become evident. Ensure that real value lies behind your traction.
• Focusing on the wrong metrics: The chosen metrics should be relevant to your business model. For example, if your startup focuses on long-term customer retention, investors will be more interested in repeat purchases than just registration numbers.

It’s also crucial to avoid manipulating metric selection. Transparency and honesty in presenting traction will help build trust with investors and increase your chances of successfully attracting funding.

Conclusion

Traction is not just a buzzword but the foundation for attracting investment. It indicates that your startup is already functioning and has the potential to scale. You need to show ideas and concrete results to convince investors to back your project.

Our team is ready to help you identify key traction metrics, create a roadmap for growth, and prepare reports and materials that will impress investors. We can develop strategies for attracting your first customers and improve your presentation skills to make your project attractive at all stages of investor communication. We would be happy to discuss how we can contribute to your success!