One of the most common questions for startups by investors is about traction.
It's intended to provide insight into adoption, growth, sales, use or potential trajectory of a startup in the current format (knowing that most startups will iterate and adjust).
In recent years, startups have become better at measuring traction metrics, but sometimes, too good, where the information is intended to impress rather than give accurate data.
While tempting to impress, it can lead to startups or investors overlooking problems or challenges that are often easier to solve or fix at the early stage rather.
It's one of many reasons we encourage startups to share the good, bad and yes, even ugly, of any metrics, even if it's not impressive.
Great investors will appreciate reality and startups will benefit long-term.
If you fixate on spreadsheets and traction as an early-stage investor, you’ll annoy good founders. These are craftspeople who love what they do and are trying to build the perfect product for their customer.
If you can put yourself in the shoes of a future customer and appreciate the product, you’re much more likely to recognize and win hot deals.
If you see a company with amazing traction that’s monetizable, has a good founder and is willing to let you do all the spreadsheet analysis you want, ask yourself: “Why am I even getting to see this deal? Why hasn’t a top-tier firm already picked it off at a valuation that’s 10x what I could pay?”
It’s difficult to truly understand metrics
Companies are also getting good at faking and exaggerating traction. At accelerator demo days, companies are trained to present graphs in the best light. They’ll show cumulative graphs rather than incremental ones. They’ll cherry-pick stats. They’ll report explosive growth during an incubator session by selling to their batchmates or doing their sales all at once—these are not sales that are sustainable.
It’s difficult to truly understand their metrics, unless you access their dashboards, know their market and are willing to dig very carefully to separate truth from fiction.
When there’s a hot round and you have no time to decide, that’s when you get taken advantage of with rosy traction stories.
