A typical pitch deck is used for raising funds for your startup.
A good pitch deck tells a compelling story that follows a logical sequence and shows strong business model validation from experiments and research data.
Why is describing “traction” important?
Traction makes a startup fundable.
Most investors care most about actual traction in a seemingly large market. Traction is a measure of your product’s engagement with its market, a.k.a. product/market fit.
In order of importance, it is demonstrated through profit, revenue, customers, pilot customers, non-paying users, and verified hypotheses about customer problems. And their rates of change.
A story without traction is a work of fiction.
Investors want to invest in startups that will be successful with or without them. And those who succeed don’t wait for investors before they begin to create. They can’t wait to carry their idea forward.
What are the challenges?
Your idea is no more than a bunch of assumptions or hunches about most of the business model, to begin with. Your discovery on getting a sense for theories against reality is what will demonstrate. the amount of customer adoption.
The key is, therefore, to get a sense of customer adoption for your idea when you do not have a product yet.
Incidentally, even when you have a product that investors can see, use, or touch, this may not be enough. They will want to know that there is product market fit and that the product is experiencing actual growth.
What are the solutions?
What does this mean for your fundraising plans? Traction gets you a greater interest from investors, shorter cycles, and better terms.
Your idea’s or product’s market engagement is the key to get investors interest.
In most of the cases, you don’t need much money till you get some traction. Try and get some traction before you start fundraising process.
MVP experiments or small and make smart micro-experiments to test your assumptions will get you to show your idea’s engagement with the market. Other option, when you do not have an MVP, is to go for customer discovery interviews that would uncover if your idea is really matching a pain point for some customers.
How do you present it?
“If you got it, flaunt it”, would be the best way to talk about the traction slide on your overview. In fact, show it early, often since in the absence of other stronger parts of your business, traction trumps theory.
There are many ways an entrepreneur can prove traction to an investor.
Progressively, % growth is the easiest to show if you have small numbers or have numbers other than revenue. The next best is to show the revenue curve (up and to the right hopefully) followed by revenue with some key snapshot metrics.
The thing you are trying to do with the traction slide is to prove that you have validation in the market. Hence, showing traction in the short term with users, or longer term in terms of growth is a good start, but traction with revenue and key metrics is the best place to be.
If your model shows # of advertising revenue spend on your site (for e.g. media property, blog, etc.) then, ad spend on your site with key metrics about user engagement, etc. make sense. For most SaaS businesses, though, showing revenue over a decent period of time (1 year preferably) or at least since the time you started getting revenue along with growth rates helps.
Absolute revenue graphs are good as well, but it’s better to show % growth and keep the numbers private to be shared during your operating plan discussion. You don’t want to give any of your competitors or investors in your competitors, any knowledge of the strength of your business.
Sometimes when your business is fairly recent, and your product depends on user growth initially, not revenue, you could use either the monthly signup graph or bar chart. Above all, focus on your traction slide headline, once you decide which metric to show. The title of your slideshow tells the user about an exciting development in your business from a traction standpoint.
So, instead of using words like traction, revenue, signups etc., it would work better if you say:
- 40% growth in user MoM, for 8 months
- 212% growth in revenue YoY, at $500K
- $150K revenue, 97% Margins, 40% growth in users MoM
That way, investors got the key takeaway that you were trying to convey.
Take away from this
There can be no doubt that the more traction you are able to demonstrate, the more credible you appear. An entrepreneur who pitches an investor without any traction, is likely to be told come back when they have some.
Ultimately, the message is clear. Traction is extremely important to investors so it needs to be important to you. If you want to raise capital, don’t just tell an investor you have a ‘great idea’, tell them you have traction.