Traction, Traction, Traction
Nothing forgives like growth does. An e-commerce startup was looking for Series A funding. Investors told them to improve their CAC and come back. When they did, the investor felt that the churn was too much. The perplexed founder wisely decided to focus on growth and ran a series of successful growth hacks that took the business to 5x in terms of GMV. When they went back to the investor, they got a warm welcome and the funding. Turns out that once you demonstrate growth, people stop asking too many questions. Growth is the single most important indicator that the idea is sound and so is the execution.
There are of course limits to this argument. Purchasing growth at any cost is not a wise approach in my opinion, notwithstanding the madness that capital markets and the venture capital ecosystem are witnessing today.
More than any claim of ‘potential’, ‘market size’, ‘pathbreaking product’ etc., the surest validation of the idea is actual business. User adoption may be a close proxy but it is not the same as paying customers. There are exceptions. For example, in high tech, the demonstration of a significantly better product itself may be a valuable milestone. In some cases user adoption may indeed be a reliable indicator. But for the most, revenue growth matters.
This is a statement of end result, so from an entrepreneur’s point of view this statement alone does not add much insight. Let us look at some actionable implications of this idea.
- Given multiple paths for product roadmap choose the one that gets you to paying customers the fastest.
- A product feature is only important if the customer sees value in it. This seems self-evident but surprisingly often we build features that the customer ‘ought to find valuable’. This is not to justify neglect of below-the-surface features, like security. These have an implicit value and customers believe that we are taking care of these things even if they are not visible.
- If you are in the user acquisition phase, strategize the fastest path from user adoption to paying customers.
- If customers are happy to use a product when free but drop it when a fee is sought, it means that the product is not valuable enough. The idea is not validated. Again, the exception is where revenue from customer is not the goal rather revenue from data is.
- If customers find value in a product but find it hard to adopt or use, you have a problem. It is your problem to solve. Pay attention to how your product will operate within the customer ecosystem.
- The customer experience must be so good that he becomes an advocate of your product. This is necessary for you to create growth. Customer experience must drive product.
- Look at reaching the repeatability stage. Are you able get to a stage where acquiring and onboarding a customer is not such a huge task that it prevents you from paying attention to existing customers or hurts your ability to convert existing prospects? If not, what can be changed?
- Don’t optimize for inefficiency just yet, unless it is affecting traction. Let growth be North Star for now.
- Raise funds soon enough so that there is no discontinuity in your growth. If valuation seems like a deal breaker, remember that optimizing for valuation in an early funding raise (post Angel round) where you are diluting about 15% to 20%, is not important. It’s more important to raise enough capital.