Founders — Stop Leaving This Slide Out of Your Pitch Deck
Can you guess what slide it is?
I don’t know how many pitch decks I’ve seen, but I’ve noticed a common trend. Founders never forget the problem, the solution, the market size, the team, etc. However, the traction slide seems to frequently and conveniently be ignored.
On the one hand, I can understand why founders with little traction may be tempted to try and divert the potential investor’s attention elsewhere. It’s not fun to create a slide that doesn’t have a nice up-and-to-the-right hockey stick. On the other hand, it’s also easy to think that you don’t need traction for your first raise and that you can simply raise off of an idea.
However, not having a traction slide creates a barrier to the potential investor understanding one of the most important questions they are asking themselves as they look through the deck — How far along is this startup? If you do not answer that question, the potential investor will assume you have no traction because you wouldn’t leave a traction slide out if you did have traction. Worse yet, the potential investor will start to question your credibility and may begin to wonder if there are other aspects of the business you aren’t being clear about.
This is a shame because when most investors open a pitch deck, they start with a sense of excitement that this could be their next big investment. However, when founders don’t share important information, the excitement fades as they start to question the startup and lose trust about how far along the startup actually is.
Why traction matters
If you don’t think you need traction and can just raise off an idea — you need a reality check. Unless you are coming from a hot startup where you played an important role (ie, led the Stripe Connect team in its early days) or are a serial entrepreneur, you’re very likely going to need traction. The bottom line is that building products, especially software products, has never been easier or cheaper. It’s not the 1990s where you need a large chunk of change just to spin up a server — you can now start using AWS for free. Investors are no longer underwriting that initial risk because there’s little underwriting that needs to be done in most cases.
Traction is so important because it answers many questions with one answer. If a startup has traction, it answers important questions like: Is this a problem people have in the real world? Is this an important problem that people are willing to pay to solve? Does the team have the necessary skills to build and sell the product? Can the team find people with this problem and persuade them that they have the right solution? Have they experimented with a business model? By having traction, you’re answering these critical questions.
What is traction and how to display it
How you define traction should be relative to your business model. In most cases, it should be revenue, but there are some exceptions.
If you plan to sell your product to people or businesses, then revenue should be how you define traction.
If you plan to give your product away and sell people’s attention (ie, ads), then usage may be a good metric.
If you plan to make money on processing volume or are a marketplace, then Gross Merchandise Volume (GMV) can also be good.
If you’re working on a hardware startup, solving a deep tech problem, or potentially selling to enterprises, it is less realistic to expect revenue right off the bat. However, LOIs, meeting specific industry benchmarks, or having pre-sales can be suitable substitutes. The goal is to show that someone in the world is willing to pay something for what you’re building.
For a more exhaustive list of KPIs, check out this article from YC.
Notably, the traction needs to be displayed over time for all of these metrics, ideally in weeks or months. As Paul Graham famously said, Startup=Growth and growth is relative to the past, so if time is not associated with your metrics, it is hard to determine if you’re growing.
In addition to these core metrics, I think it is a great idea also to add additional data that helps the potential investor understand if people or businesses outside of your startup value what you’re doing. For example, adding in customer testimonials, app store ratings, positive press, and other data points can help drive home the point — but they should not replace your primary traction metric.
What if I really don’t have traction?!
If you’ve dug deep and realized that there are few external validators for your startup (revenue, usage, LOIs, etc.), that may be a good indicator to go back to the drawing board. This is totally normal, very common, and not a bad outcome as it is a good reality check. Very often, not having traction is a symptom of deeper issues such as:
Being unfocused and building too many features (usually features you think are cool or “needed”, but not features customers will pay for)
Not focusing on what matters (building product and talking to users)
Avoiding hard challenges like finding a technical co-founder that can build your product in house
Not building with a particular customer in mind
Not talking to enough users
Although it may be discouraging to realize that this is the case, you should be grateful that you had the realization sooner rather than later. Instead of continuing to raise, you can put your pitch deck on ice, focus on the hard problem you were avoiding, solve the problem and then start to build a business that investors will be excited to invest in.
Key Takeaways
Include a traction slide in your pitch deck.
Pick a metric that represents your business model, which in the vast majority of cases should be revenue.
Display your traction over time, not cumulatively.
Lacking traction is often the symptom of a deeper problem; try to identify the problem and address it head-on.
Post was originally published on Medium in The Startup.
I love seeing the inclusion of what happens if you lack external validation (it’s totally normal, diagnose it and improve). It feels like an often ignored course of action that should be normalized. Failure is not fatal!