Got traction? What investors expect before giving you a dime. What Investors Really Want To See Before Writing A Check
Many entrepreneurs confuse a good idea with a good business; they aren’t the same thing. Investors know this and spend a great deal of time evaluating potential investments to ensure that they are putting their money behind a good businenss, not just something that sounds great on paper. For all of their experience, this is still a very difficult distinction to make and most investors get it wrong.
Savvy investors know that the best way to spot a great investment is to look for projects that have traction. This means that there is evidence that: 1. customers are adopting your product; 2. there is a large market; 3. you have a valid business model; 4. your growth is sustainable. That’s not easy. How do you translate these intangible characteristics of traction into tangible, measurable goals?
Martin Zwilling has been advising startups for years. A former corporate executive, advisor and investor, Zwilling is now dedicated to helping entrepreneurs who are in a hurry to succeed. According to Zwilling, the following examples are indicators that a company is gaining traction:
Genuine sales. Having one customer isn’t enough; nor is having many “beta customers” (i.e. non-paying). Show that there are companies are people willing to pay for what you have. If you have a free product that makes money via advertising or another indirect method then you should have at least 10,000 active users and a growth rate that doubles every 3 months or less.
Tracked sales statistics. It’s important to try different price points and distribution channels to see what (if any) combination gains traction. The only way to do this is by meticulously tracking results of each combination of price and channel to determine where additional resources from investors should be directed. As part of this, you should also be aware of your customer acquisition cost to ensure that your business model is sustainable.
Big brands help. If an Fortune 500 company buys your product its very different than if a local mom and pop does so. The larger, more reputable clients carry more weight and credibility. If your business doesn’t target this type of customer then look for other ways that brand name companies can engage with your business.
