Why gaining traction is critical for start-ups.
The level of scrutiny that start-ups are being subjected to has increased in recent years as the path to early profitability becomes more important than growth alone.
A successful start-up will traverse various stages as it goes from the initial idea and business plan development to ultimately producing the product or service and taking it to market. One of the key questions from the very beginning is how quickly the business can reach profitability.
To raise investment and grow, start-ups need to convince investors of the attractiveness of the market opportunity but they also need to show concrete evidence of demand. Investors will evaluate the long-term viability of the business on its ability to acquire customers with a view to driving towards profitability.
Start-ups need to show how they will attract customers and gain traction in the market even at the product concept stage. Investors will expect to see where you will promote your product and what the sales funnel will look like at each stage of the business’s growth. Solid evidence of a demand generation plan will indicate that the business has the potential to build and sustain momentum to reach profitability.
While start-ups need to get the word out about their product or service, awareness is not enough. They will also need to educate potential customers about the new product which takes time and effort. This is particularly relevant as the business moves beyond the innovators and early adopters, who might be wowed by the technology, and begins to target the early majority. The mass market is more cautious and less easily swayed by innovation. They will need to be persuaded of the product benefits. The marketing message and content will need to change to suit these different audiences. Showing how you will do this to acquire new customers in a systematic way must be part of the business plan.
Investors want to know that you can repeatedly and predictably acquire new customers. Predictability is important to show that you understand the effect that certain marketing activities will have on sales.
Testing and measuring the effect of marketing tactics on the target audience will give the evidence needed to build confidence in your marketing plan.
Traction has become increasingly important because the lack of traction is one of the leading reasons why start-ups fail (after poor business models and running out of money).
But how is traction defined? Sales traction is the strength of demand which will translate into ongoing revenue for your business. It relies on a strong sales funnel which comes from 2 key factors:
Effective demand generation activities, which are usually driven by marketing activities and
Efficient lead to sales conversion i.e. having someone in the organisation who can close deals, usually a founder or a sales person or for larger start-ups, the sales team.
Why do businesses struggle to gain traction?
Assuming for the moment that you have a product that serves the needs of a large enough number of potential customers at a price that they find acceptable and are prepared to pay for the product, then the main reasons for lack of traction are:
1. Not having a clear understanding of what the sales funnel needs to look like at each stage of the customer purchase journey (e.g. contact, engagement, opportunities, leads, sales) to deliver the sales target;
2. Insufficient, effective demand generating activity to build and keep the sales funnel stocked with leads. The sales funnel will need constant refilling and it’s marketing that will ensure that sufficient potential customers are contacted, persuaded to engage and nurtured until they are ready to buy. It’s critical that someone in the organisation is tasked with marketing as it’s easily overlooked or assumed to be the responsibility of sales;
3. Sales and marketing not clearly articulating the value proposition i.e. the story of how you will solve a customer’s biggest unmet need better than all available alternatives. Without a strong value proposition, sales will construct their own story to explain the product benefits, which is likely to vary depending on the customer. Without the ability to demonstrate the value that the product brings, they will resort to using price or relationship selling to close the deal. Relationships take a very long time to build leading to protracted sales cycles. It’s far more efficient to have a compelling value proposition and allow that to do the talking for you;
4. Marketing campaigns and lead nurturing that are not focused on the customer purchase journey – organisations often spending a lot of time and marketing effort on the early stages of the customer purchase journey to create awareness and then diving in with the sales offer before the customer is ready. Or they neglect those customers who showed an interest but are not ready or able to purchase immediately. Effective marketing campaigns need to encompass all stages of the purchase journey;
5. Poor selling process and/or not the right skills in the sales team. The type of sales person who can be effective in a start-up is quite different to someone who is used to working in a more established organisation. The start-up sales person needs to know how to work independently and make deals happen. They need to be able to chase down and convert opportunities and will often have to perform some marketing tasks if there isn’t a dedicated marketing person.
A lack of sales traction can arise from a combination of the factors outlined above. Start-ups frequently lack the time and perspective to find the root cause themselves. However, failing to identify the barriers to growth limits the ability to attract ongoing investment.
