There are many levels of traction in the software startup journey.
Here are the levels I see most often:
- Idea Traction – You tell people about your idea and they don’t think it’s totally stupid. Doesn’t mean much
- Prototype Traction – You show potential customers a presentation or prototype and they are “interested.” A little better clue, but not likely to be business yet.
- Preorder Traction – Potential customers tell you they will buy it when it’s available, sometimes with a letter of intent level of “commitment.” A very good sign, but it doesn’t guarantee anything.
- Beta/MVP Traction – Your first friendly customers use your first product for free or as a free pilot. They have invested a little time to try it, but not their money to use it.
- First Paid Users Traction – Your first friendly customers have paid you something to use your product and maybe for some of your services. There’s something there, but you’re not sure what exactly that is yet. Still experimenting hard.
- $25K MRR Traction – This is the traction level that most institutional investors outside Silicon Valley want to see before they invest. You have 20-100 customers, so learnings and trends can start to be visible. You have something to iterate on and improve, but it’s still “spray and pray” survival mode.
- $100K MRR Traction – You are over $1M annual recurring revenues, maybe with services revenues on top of that. There’s something here (or multiple things) and it’s getting clear where the business focus could be with your customers, features, messages, and channels. Pre-product-market fit, still winging it.
- $2M-$3M ARR Traction – There’s a business here and a new factory for acquiring customers and delivering value to them. It’s clear where the focus should be – who and what to say No to grow faster focused on your best customers that are the easiest to reach. Big decisions getting made here, with your first management team. Founders start to get inbound funding and acquisition inquiries.
- $10M ARR Traction – This is a real business with a maturing customer acquisition engine, leadership team, culture, operations, pricing, and software development system. Growth rates, churn, pricing and profits can be projected into the future. Funding, growth, and exit strategies are pretty clear too.
After that, it’s not about proving there is enough traction to know this will be a bigger business. You’ve proven irrefutably there’s a serious business. You can’t just “make sh#t up” every day at this level as you did as an early startup.
These levels of traction are increasing proof that a crazy founder with a crazy idea might actually create something big and not crazy.
I don’t equate traction with the amount of funding raised. Funding follows traction.
Most experienced entrepreneurs and investors know that 10% of good ideas will get to 10 paying customers. And 10% of those will get to $1M in revenue.
That’s how I see it.
How do you see it?
