Welcome to the Dreamit Dose.
Traction is one of the most critical elements to get right
when pitching investors.
The problem is most startups do a poor job describing it.
Investors see thousands of deals each year.
So they want to make sure that everything is working
and headed in the right direction.
This is your chance to give them a reason to believe
that you’re on the path to a very happy ending.
There's just a few things you need to get right, and some
common mistakes to avoid.
Let's dive in.
Traction.
Investors want to hear about it
and startups definitely want to talk about it.
But let's make sure you're talking about the right traction,
at the right times, during your pitch.
As we get into this, remember to talk about traction
over time not just an instance in time.
Investors like to see trend lines, not points.
Let's get into the traction you can cover.
Let's say you're pre product.
Points of traction you can talk about are.
The number of customers you've met with.
The number of design partners you're working with.
Maybe it's the number of customers that said they would
trial or buy your product or customers you've spoken to
that have confirmed your pricing is spot on and they have
a willingness to pay.
One other thing if you're pre product is you can talk about
the traction around the number of sign ups for early access
to your product or beta.
Maybe you want to talk about results from
online ad smoke tests.
So your product, your website, your B2C offering
isn't built out yet, but you're proving interest and intent
to purchase through a smoke test.
A final point you could talk about is intellectual property.
Have you filed patents?
So you could have traction and show growth around the IP within your firm.
Let's say you have product but you're not yet at revenue.
Here the traction points I suggest you address.
You could talk about traction around your pipeline,
showing the number of pilots and trials,
preferably paid, that are in process and or the results
of those pilots and trials.
Let's say you're a B2C Company.
You could highlight the number of user sign ups, downloads, or the engagement.
Now if you're paying for those downloads,
you'll need to be ready to address what you're spending
to get that traction.
Finally, if you're working on a product where you
need regulatory approval, like in the health care industry,
you can discuss where you are on your trials and in your approval pathway
if you need to go after something like an FDA 510(k).
Now let's say you've crossed that magical threshold and you're at revenue.
What's important to highlight for investors?
You could talk about your MRR and ARR and make sure to
discuss your projected CAC to LTV ratio.
You can talk about traction around
the number of customers you have or your user retention.
As well you could talk about traction and data around the
engagement of your customers and your B2C product.
If you're using a freemium model, you can talk about
the traction around your conversion rates.
And if in B2B you're using a land and expand strategy,
you want to show evidence that that's working or will work.
Now that we've covered what traction points you should be covering,
when you talk about it?
I like to see a traction slide about 3/4 of the way through the deck.
So, you've laid out this story and you've started to
describe the problem, the solution, the competition,
total addressable market, go to market strategy,
and then you bring up the traction that shows how it's all coming together.
While you're traction over time around revenue is most important,
you can also walk investors through
your sales pipeline from leads to closed sales.
Cover important items like the number of customers in each phase,
the percent transitioning between phases,
time between phases, and value of each deal.
Whatever you do, make it clear how your sales strategy is progressing.
Pro tip!
You don't need to wait to do a big reveal of your traction.
Instead, you can drip bits of traction throughout your pitch
to give evidence that things are working.
Now, how and where do you Drip?
Maybe when you're talking about your problem statement,
you could drip in a bit of traction around the number of
customers that you've met with who specifically validated that
yes they have that problem.
Maybe when you're talking about your solution you can say
the number of customers that have already moved forward.
You're not telling them the revenue around that,
the full on traction, but you're just giving them an
indication of how many people agree that this is the solution.
Maybe you're going through a competition slide and you could
talk about the top two or three key differentiators and benefits
on your competition slide.
How frequently you're winning based on that.
One last example might be on your go to market strategy.
Are you making progress on your initial customer segment?
Instead of waiting for the big reveal 10 minutes later in your deck,
you could just address lightly the number of customers that you've already secured
in that initial customer segment.
Word of warning, don't overdo the drip.
Use it sparingly.
You want to leave some drama and mystery for your full traction slide
as you tell your story to investors.
Next, I want to hit some power tips and huge mistakes we see startups make.
Realize, for investors, there's a ranking of traction they care about.
What's the number one type of traction most investors care about?
Revenue and profitability.
What do they care about the least?
The number of pitch competitions and Best Places to Work awards you've had.
Look, if you have great revenue growth and you're lighting it on fire
and you want to talk about the Best Places to Work that's terrific.
It's icing on the cake.
But if all you have is the icing on the cake,
realize investors really don't care that much about it.
Some other common startup mistakes that we see
that you definitely want to avoid.
First would be, artificial traction manipulation.
That's where you're already doing a spend with things like
Google AdWords or Facebook ads and then suddenly you goose it.
You jam more cash into your paid spend unnaturally
just to make your traction look better.
If you're doing that, be ready to talk about it with investors
because they're gonna dive in and ask questions if suddenly
there was some artificial manipulation that occurred
to make your traction look better than it actually is.
Next up, the faux traction logo wall.
Look, don't put up a slide of logos trying to pass them off
as paying customers when they're not.
Instead, be transparent and be clear.
Don't commingle a handful of paying customers with a slide
full of logos that are only people you're talking to.
Instead, show your sales pipeline.
Show the different companies that are on the customer journey with you
from leads to closed sales.
Another common mistake, mixing in traction from other products and services.
Do the world a favor.
If your pitch has been focused on one particular product,
don't mix and traction from legacy products or consulting services you've been offering.
When you're talking about traction, be focused on the traction for that product.
Don't try to glom in other traction and make things look
bigger than they actually are.
Last common mistake, revenue traction that's mischaracterized.
Look, if you have a mixture of recurring and non-recurring revenue
make sure to segment that out.
Don't just talk about revenue and try to hide it
and make it look like it's all recurring.
So if you're selling a product that has implementation fees that occur one time,
or one time hardware cost, segment that out
and talk about your recurring versus your non recurring revenue.
Again be clear and transparent with investors.
That's it.
That's how you talk about traction when pitching.
Which traction is important to your business?
Investors like to see trend lines, not points.
So remember to talk about traction over time.
Remember to pick the right traction points based on if your
pre or post product, pre or post revenue,
B2C or B2B, or have regulatory issues.
Drip key traction points throughout your pitch,
and talk about not only your revenue but traction throughout your sales pipeline.
Finally, avoid all the non-transparent B.S. people use
to try to mischaracterize their traction.
That's your Dreamit Dose in way over five minutes.
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