Battling the “tyranny of traction”March 1, 2013 2013-03-01 10:17
Battling the “tyranny of traction”
Battling the “tyranny of traction”
A practical guide to getting an angel investment without getting caught up with notions of traction prematurely.
This is a follow-up to my previous post lamenting the tyranny of traction. It chronicles how we raised funding for our startup without once having to tout traction.
Before I get into it, I would like to clarify some points that some folks seem to have missed or misunderstood from the previous post:
- I am not saying that traction is not important – what I am saying is that there is a time to focus on traction and that time is not at the time when you raise seed funding. If you already have traction at that point in time, that is great, but not having traction should not disqualify you from being able to raise an angel round (in your own eyes to start off with).
- Having an idea about your business model, market and customers is not the same as having traction – you should have some sort of hypothesis around all of these aspects as early as possible in your startup’s lifecycle but there is a huge difference between having a theory and actually going out and proving it (the latter is traction, the former is not)
- The founder of the company that I referenced as an illustrative example seems to have taken offence at being called out (despite my not mentioning him by name) and has responded spitefully by calling me names without actually materially addressing the points that I made about conflating users with customers to project an image of being far bigger than you actually are. The irony in all of this is that the defence he puts up for showing that the company does indeed have traction is the exact same point that I had already mentioned (namely what matters is not false proxies like user/customer numbers but rather a meaningful proxy of the value that their customers are getting out of the solution – in this case, the fact that all the major travel and e-commerce companies are using the solution). Despite this petty diatribe, I am not offended in any way (one of the side-effects of being an entrepreneur for any length of time is that you develop a thick skin and a non-existent ego!) and I truly wish him well and hope that his company achieves great, and true, traction. We need more true startup successes in India and fewer media-manufactured ones.
- Finally, I am not ticked off/pissed off/jealous/angry about the unnamed company that I referenced or indeed any other startup – I call myself an Average Joe Entrepreneur primarily because I have no delusions of grandeur or aspirations to be counted among the likes of this company. The post was intended primarily to provide a contrarian view to something that was increasingly being regarded as gospel in an uninformed manner.
Anyways, enough of that – lets move on to more constructive things.
Here is how we thought about and successfully raised angel investment for our startup:
Purpose, not Passion
The precursor to getting funded is to find a purpose for your company. What does this mean? Pretty much everyone that you meet in the startup environment advocates that you, the entrepreneur, needs to be passionate about something – problem, solution, market etc. Our view is that passion is actually a bad thing – it means that you deal with situations and goals emotionally rather than rationally. Passion is a drug…it seduces, hypnotizes and blinds you in a manner that is detrimental in many ways. Also, for many startups, it is incongruous to state that you are passionate about, say, customer support (if for instance, you are offering a helpdesk solution).
Instead, we advocate that you find the “purpose” of your startup. This means that you have identified an arena and set a goal for what you want to do for the next ten years of your life and step by step, you works towards achieving that, dispassionately and in a focused manner. How do you find a purpose? Well, it varies – you could for instance, identify a macrotrend, a market of the future, if you will, and work towards building a solution that fits into that thesis. Or you could come across a problem that stymies you and you figure out a sustainable solution that you and others like you will benefit from. Try to identify the purpose your startup as early as you possibly can – during the course of your startup journey, everything will change but if you have a meaningful purpose, nothing will deter you.
Find the believers
Finding a purpose often requires you to have a subjective, and usually strong, opinion about what you are attempting. Now, one of the intrinsic facets of having a subjective opinion is that it could potentially be wrong, and completely wrong at that – this is perfectly fine. You don’t need to convince the world at large that your opinion is the right one. What you need to do is “find the believers”.
Keep in mind that your startup is essentially an extension of you and your subjective biases – so, find kindred souls who share the same broad opinions as you do. These are the folks who are most likely to back you. So how does one do this? There is no hard and fast rule but one thing that worked for us is seek out people who have strong opinions and try to discover if their views align with yours. In our case, we identified an NRI, a minor celebrity of sorts, as our kindred soul – we read his interviews and noticed that a lot of the things he spoke about resonated exactly with what we felt. So we decided to try to get him on board.
There is an aphorism that the first funding round usually involves F & F – friends and family. Why is this the case? Quite simply, because these folks have a relationship with you and for primarily this reason, good or bad, they are ready to back you. You need to emulate this with the believers that you have identified and you can do that by building a relationship with him. In our case, we managed to contact our “believer” after a lot of effort but we didn’t pitch anything to him when we met him for the first time. Instead, we engaged with him – we exchanged mails, met up often and even helped out in some of the other projects that he was involved with. All of this took nearly a year. Only then, did we actually pitch him to back us with his funds. At this point of time, we didn’t even have a PowerPoint, much less a working product or customers, but the decision to come on board was made on the spot by our investor.
Not only did he back us then, he has backed us in everything else that we have attempted since then – many of these attempts have been failures but he continues to back us nevertheless because we started off with a strong foundation based on a relationship of mutual trust and respect.
Leverage platforms for the fund-raising bookends
The advent of angel funding platforms like AngelList and closer home, the emergence of angel networks like Mumbai Angels and the Indian Angel Network has opened up great new vistas for getting your startup funded. But you need to use these in an intelligent manner. One strategy that looks like it works is using these platform for the “fund-raising bookends” of your process. AngelList for instance is a great place to get discovered – so if you wish to have visibility amongst an audience of investors looking to find new deals, go ahead and have a strong presence there.
But your best bet to leverage these platforms meaningfully is to use them at the tail-end of your funding process – once you have a believer aka a lead investor, it is far easier to use a platform like this to fill out your round. If you don’t have a lead a priori, it is far more difficult to traverse this path successfully as the dynamics of your interactions are completely different.
Use startup competitions opportunistically
This is something that has worked for us – there are a number of startup competitions that are organized periodically by the tech majors. Some of them have meaningful prize monies on offer for the winners – in the range of tens to hundreds of thousands of dollars. You have little to lose and a lot to gain by participating in such contests. I know of at least one company that used its competition victory to go forth and land millions of dollars in funding subsequently.
Do they practice what they preach?
Finally, don’t take it at face value when an investor insists in the public domain that “traction trumps everything” – if you dig a bit deeper, you might be surprised to find that many, if not, most of the companies that investors like these back have little more than working prototypes to show. For instance, I know of at least a couple of startups who hadn’t even launched their products but managed to get backed by the very same investors who ostensibly see traction as the most important facet.
So don’t get caught up with trying to prematurely show that you have traction – it is a hamster’s wheel that will take you nowhere very quickly. Instead, map out your funding process and tick off the items one after another to get to where you want to be – it won’t be easy and it will in all probability take far longer than you would have hoped for but if you believe in what you are doing, then it is worth fighting for. Best of luck!