Serious promises: If self-funding a scrappy proof of concept is not possible, you need to find some other external validation that doesn’t require your fully funded product vision to be complete. Some industries or business models make it much more difficult to be scrappy with the first ‘product’, but you can still build traction by finding prospective customers that want what you will eventually provide, and build up evidence they trust you can deliver it.
These promises of demand come in a few forms, from most to least compelling are: pre-sales > letters of intent (”LOIs”) > prospective customer interviews.
Pre-sales are where customers give you money today to get the product later.
Pre-sales are great traction because it shows your idea + vision + narrative is so compelling people will pay for it before it’s ready. Kickstarter, IndieGoGo and many other platforms have emerged to help facilitate pre-sales, but you don’t have to limit yourself to just them. Whatever your industry, if you can convince future customers to pay first you’ll have a far better pitch to raise on top of—or forgo raising entirely!
Letters of Intent are promises to buy when the product and/or outcome is delivered.
These are more common in B2B kinds of business models where it is tough for a company to green-light budget on a pre-sale, but if the solution is delivered as described they’d be happy to purchase when it is ready. This is usually rooted in the claim that you can deliver what you promise in terms of value to them, not just that the product exists someday. E.g., “if I deliver you a software solution that increases sales by 10% after use, you’ll pay X for it”. LOIs usually need to be backed by signed agreements to be compelling to investors; just talking to a dozen potential customers that say “yeah I’d totally buy that if it did what you said” isn’t sufficient.
Prospective Customer Interviews are where you demonstrate you not only understand the demand in the market, but you’ve honed in on the exact needs while also developing hundreds of relationships to sell into.
These are more in depth than a simple survey of “Would you buy this great product should it exist?” They have customer development and research rigor to them. Volume is crucial as well. Positive feedback from a few dozen people isn’t enough as sales funnels typically yield single-digit percentage conversion rates—many who say they’d pay won’t. Therefore, having hundreds of leads is usually the minimum requirement, especially for consumer-oriented products.
Gust’s New Corporate Diligence Review Tool can identify preventable corporate structure issues that come up in diligence, and help guide founders towards fixing them.
Working upwards through the three approaches can be a great way to get direction and figure out your best source of traction. Using the above fictional example again:
Say you’re not 100% sure you can pull off sales improvements via just pictures of store layouts. You start an ambitious customer interview process with small business owners, scheduling hundreds of meetings and recording everything you learn. In this process you learn that certain analytics not captured by point of sale systems are actually what most business owners demand to inform their store layouts.
You know just what to build to gather and display that information, but you still don’t have enough resources to build the software to capitalize on it. Instead, you convince a dozen or so stores to sign LOIs that they’d implement your solution should you be able to provide it. Maybe one in particular is really hungry for it and willing to give you partial payment (a pre-sale!) up front just to be the first to get access. Now you have a little cash in the door, 10+ LOIs and a top of funnel of hundreds of potential sales prospects once your product is ready.
The sales funnel is initiated, the use of funds clear, and a far more compelling pitch to investors is possible. You have something to put on your traction slide other than “assembled a great team” or “MVP to be ready next month”.
Many founders feel like “traction” demands are unrealistic for their venture. They struggle mapping traction building approaches to their situation (”the market is different, we’re CPG, there’s an approval cycle, large up front costs” etc.). Mission Control helps founders draw that through-line and find ways to get unblocked. We do so every week through live workshops, educational resources, software tools, pitch practices and more. If you’d like to stop hearing “traction” and start building it, apply here.
We’ve also got some free tools to help get more insight on how investors would view your startup’s progress and set up. Check out our Startup Evaluation tool to see how much you could raise from where, and our Corporate Diligence Report that ensures if investors do get interested, you’re well positioned to take the investment.
