Traversing the Traction Gap

by Bruce Cleveland

  Anecdotes—customer stories—are by far the best social proofing tactics. But be careful that your legal and marketing departments don’t sterilize these testaments. They need to be authentic and in the voice of your customers.

  The most powerful voices are those of “influencers”—people who have “street cred” with the target personas you want to reach. These voices are worth their weight in gold. Use whatever legal means you can to get them.

  It’s better to have no social proof than low social proof. For example, if you have blog content on your website with very few likes or shares, eliminate it. Like a bar with few patrons, people look in but then leave. You will see it in your bounce rates. The interpretation is that your content and products are not trustworthy.

  There are several advocacy marketing applications on the market, such as Influitive, and I would encourage you to review several and select at least one.

  The journey between Minimum Viable Repeatability to Minimum Viable Traction must, by definition, be fast and furious. As we’ve discussed, to be on model with the growth rates of the successful startups that came before you, you must roughly triple your customers and your revenue from MVR and reach MVT in about one year.

  To do that, you will need to enlist the help of your best customers using social proofing. Find a way to remind them that it’s in their best interests to help you so that you stay in existence and they can continue to use your products. Don’t be shy about pushing through big-company legal teams, who always want to say no to these requests. Remember, every company, no matter how large today, was a small company at one point, albeit perhaps long ago. Push for the social proofing you need through your internal sponsors! It’s mission critical.

  According to Sean Ellis, CEO of Growthhacker.com, referral marketing, a component of social proofing, is critical:

  “The most important thing about the referral is that no one is going to refer their friends to a product if they don’t actually use it, so make sure [your customers] have a good experience inside the product.”

  One of Sean’s clients was Dropbox. Referral marketing plays a significant role at Dropbox for dramatically increasing growth and revenue:

  “[Dropbox] actually has a kind of popover to sign up for Dropbox or sign in. You can dismiss it and then just access the file, but I know that there’s a large enough percentage of people [who] I’m sure fill out that form that they’re getting a bunch of sign-ups that way. If you refer someone else, you get 250 megabytes and they get 250 additional free megabytes in a free subscription on Dropbox. That’s a kind of double-sided referral program.”

  ■

  USING SOCIAL MEDIA

  Many business people look to Sun Tzu to see potential applications from his theory of war to the business world. And when it comes to social media, we find lots of companies that treat business like a war.

  They think of social media as a cauldron of controversy waiting to bubble over with a negative post that goes viral and sinks the stock of the company overnight.

  Although I certainly understand that sentiment, I think social media is better viewed as customer communities on steroids. That means, once again, this is a select group of people and therefore there is bias, but it also means that key feedback can be gleaned from these groups as well.

  Think of social media as a welcome source of feedback rather than something to be censored or controlled; it can be invaluable for gathering data and sentiments about your product or feature.

  Be ready to acknowledge mistakes, but to also correct misconceptions. Doing both builds trust.

  After all, you must be completely self-aware if you plan to compete and win in the market.

  The following table provides a set of key B2B and B2C metrics that you should target and attain by the time you reach the MVT value inflection point:

  ■ Key Minimum Viable Traction Target Metrics ■

  B2B

  B2C

  Stage Duration

  1 year

  1 year

  Revenue

  $6M ARR

  N/A

  DAU/MAU

  25%

  25%

  CAC Ratio

  < 1.0

  N/A

  Viral Coefficient*

  > .2

  > 1.0

  *For a B2C company, a viral coefficient of less than 1.0 implies no growth and a company destined for failure. However, for a B2B company, viral growth is only one growth source; other sources include traditional marketing programs and techniques.

  Key Takeaways

  Reaching Minimum Viable Traction signals a company’s exit from the Traction Gap. To get there, your team had to rely on the lessons it learned along the way to reach MVR—what worked and what didn’t. After MVT, a startup must be prepared to triple, then double year over year for at least the next 3 years on its way toward a liquidity event, either an IPO or an acquisition.

  Lack of liquidity can significantly impair your ability to hire and retain key personnel so you can continue to grow. The business challenges after MVT are beyond the scope of the Traction Gap Framework, but are well codified in Geoffrey Moore’s classic book, Crossing the Chasm, to which I’ve referred many times and which I highly recommend if you are not familiar with it.

  Upon reaching Minimum Viable Traction, your team should have accomplished the following milestones:

  Product—The product has matured significantly since MVP. It no longer has significant performance or functional deficiencies. All product efforts can be focused on achieving more revenue per account or expanding into new market segments to secure additional market share. The company may elect to acquire, or partner with, a product or team that can complement its offerings.

  Revenue—You’ve had 12 to 18 months of successive quarter-over-quarter growth. If you are a B2B startup, you are generating, based on industry averages, around $6M ARR. The data shows that the company knows what it is doing. You are beginning to explore new markets with new marketing and sales approaches. You may be expanding into new geographies. You are dealing with more sophisticated territories and compensation plans. The company is about to become a lot more complicated to run as it prepares for large-scale growth. You must build a revenue plan—and corresponding operating and financial plans—that ensure that you can continue to scale at the same rate as other comparable companies did at your stage. You probably raised capital at the beginning or just prior to MVR to finance you through to MVT. Now, after this 12- to 18-month period, you are ready to create a new financing, based upon performance, that will compel growth investors to invest in your company.

  Team—At this point, the majority of your management team should be complete, but some team members may be showing signs that they are not able to scale with the company. They may have been great early-stage contributors; but as the complexities of the business amplify, others from outside the company may be more suitable to take on leadership roles. Recognizing this earlier rather than later and taking action is critical to the growth and long-term survival of the company.

  Systems—The systems evaluated and implemented after reaching MVR should be sufficient to power the startup to MVT. (It will take a few more years before the company will need to also set up processes that prepare it to operate as a public entity.) As the company contemplates moving into new geographies or other market segments (e.g., large enterprises), it will need to implement additional accounting, security, and financial controls along with 24/7 service and support systems.

  Traction Gap Architectural Pillars

  FIGURE 30

  Percentage of emphasis during this stage.

  The following are the key principles Wildcat Venture Partners looks for at MVT:

  ■ Traction Gap Principles ■

  MVT

  Product

  Prioritize removing technical debt over new features.<
br />
  Revenue

  Refine pricing models, customer acquisition strategies, hire sales resources slightly ahead of demand.

  Team

  Deliberately construct a high-quality board—and advisers.

  Systems

  Implement advanced front and back office systems.

  Traction Gap Hacks ▶ MVT

  Working with Your Board

  In an ideal world, the most open and least stressful relationships that startup founders have would be with their board of directors. Unfortunately, for many founders, the exact opposite is true.

  According to research that the Velocity Group performed in conjunction with Wildcat Venture Partners and the Traction Gap Institute, less than 50 percent of founders agree very strongly with the statement “I can share my honest worries and concerns with my board.”

  The Velocity Group is led by John Baird. John Baird is a CEO coach in Silicon Valley and has worked—and is currently working—with the CEOs of some very well-known companies. So he knows a thing or two about collaborating with CEOs, management teams, and boards. He and his team are part of the Traction Gap Institute partner ecosystem.

  The feedback they heard is consistent with some of the fastest-growing startups in the Valley, where founders state that managing the board is actually one of the most stressful duties of their jobs.

  Why is this? Maybe it’s because board meetings are the one time every quarter (or every month!) when founders worry about being judged and potentially fired.

  The truth is, board members want to “manage you out” as little as you’d like to go. Your skill at running good board meetings is one of the best ways to keep the board “in the tent pissing out, rather than outside pissing in,” to quote President Lyndon Johnson.

  The following is from a report prepared by Velocity for Wildcat Venture Partners and the Traction Gap Institute. It has some invaluable insights and could help you reduce the stress of working with your board:

  Most of the founders we interviewed said that they find building a new product more straightforward than running a board meeting. Lucky for them (and maybe for you), I am going to share with you a rather simple road map to prepare for and manage board meetings.

  Using this guide, you can have board meetings that actually add value to the company and leave founders and board members alike feeling that the 3 hours were well spent, rather than a meandering, nerve-racking mess.

  The best board/founder relationships are the transparent ones—the ones in which both board members and founders can troubleshoot what’s hard, take shared responsibility for growth, and celebrate incremental successes. Nothing is more satisfying for an investor than looking back at a big exit and saying “We really put our all into that one.”

  HOW TO RUN BOARD MEETINGS

  THAT KEEP BOARD MEMBERS “IN THE TENT”

  TWO WEEKS BEFORE—Call for Agenda Items

  Two weeks shy of the board meeting, reach out to your board members to ask them for topics they’d like to see covered at the meeting. This isn’t asking them for the obvious, or asking them to write the agenda. It’s simply “In addition to our standard agenda, are there other items you’d like to discuss?”

  Think about the following three aspects: the portions of time you want to divide among reporting, leadership, and strategy. Once you review the input of board members, decide which are “boardworthy” topics and which are “subcommittee” topics.

  Some board members want to micromanage and discuss every hire. You’ll want to set very clear standards for what kinds of topics are added to your agenda. When you do not include a board member-requested topic on the agenda, let him/her know “why” you are covering some topics and not others.

  ■ Board Topics ■

  BOARD MEETING

  WORTHY TOPICS

  NONBOARD MEETING

  WORTHY TOPICS

  Growth Forecasts and Progress

  Specific Growth Tactics

  Product Strategy

  Individual Product Features

  Hiring Plan

  Nonexecutive Level Hires

  Employee Equity Pool Size

  Individual Comp Packages

  Fundraising Plan

  Day-to-Day Budget

  ONE WEEK BEFORE—Share the Board Pack

  Four or five business days before the board meeting, send out a four- or five-page document with all relevant information to cover key topics and make important decisions.

  Make sure the pack has a cover page that indicates:

  The topics to be covered/discussed

  Why each topic is important

  What action/decision/outcome you want from the discussion

  Frame three or four questions for the board to think about as they are reading the board pack.

  Mike Maples from Floodgate Capital says there are really only five questions that need to be answered at a board meeting:5

  Has the market changed since we last met?

  If so, did it affect us negatively or positively?

  Has the team changed? For better or worse?

  Has our position in the market changed?

  Did we do what we said we would?

  We would add three more questions:

  What’s next?

  What keeps you up at night?

  What do you think/hope the board can do to help?

  Board Pack

  FIGURE 316

  Left Side: Ugly PowerPoint slides that need lots of explanation.

  Right Side: An elegant board pack that has all relevant info, but is still easy to read.

  In consideration of all the above, your board packet should contain the following sections:

  Executive Summary

  Top Highlights (Big Sales, Product News, Customer Stories)

  Top Challenges (Sales, Team, Product, Market Forces)

  By-the-Numbers

  Cash-on-Hand and Runway

  User Growth & Retention

  Relevant Funnel Metrics

  NPS/Customer Feedback

  Changes in the Landscape

  Macro-Level Forces

  Competitive Forces

  Supplier/Vendor Forces

  Product Update

  Status

  What’s Working/What’s Not?

  Team Update

  Major Hires

  Major Changes to Org Chart

  Major Topic 1

  Summary of the first item you want support/decisions on

  Major Topic 2

  Summary of the second item you want support/decisions on

  DURING THE WEEK BEFORE—Board Member 1-on-1s

  Meet with or have a call with every board member to discuss what’s most important to each of you and get clear on how they will vote on any difficult or uncertain issues. We can’t underscore this enough. A board meeting is no place for surprises. So make an effort to get clarity on everyone’s positions before you head into the meeting.

  TWO DAYS BEFORE—Final Agenda Construction

  Board packs are out and being read. You’ve had pre-meeting meetings with each board member to get clarity on his/her positions on contentious issues. Now it’s time to make the final agenda.

  MANAGING THE MEETING ITSELF

  At the outset, as part of your “Big Picture CEO Update,” be sure to overview the agenda, the specific outcomes you would like to achieve, and decisions you would like made. State your interest in having lively and healthy debate. We call these “left-hand column” comments. The right-hand column is the stuff that is easy to say. The left-hand column is harder to say, but that’s what makes it important.

  Throughout the meeting, capture action items and key decisions made. Don’t be afraid to assign specific tasks to specific board members. As stated before, board members are much more likely to remain involv
ed and be helpful when they feel like they are more than just an ATM. Lean on them for actions, not just money and advice.

  At the end of the meeting, get feedback from the board on “what worked” and “what didn’t work.” Make note of their comments and make changes that make sense to you for the next meeting.

  MANAGING YOURSELF DURING THE MEETING

  First off, sit down at the table with your fellow board members. If you stand at the head, you are mimicking the “founder pitch” scenario and putting the board in the position of listening and judging. Sit down in the middle of the long side of your conference table, so you are as close to as many board members as possible.

  Second, try to demonstrate “active listening” as much as possible by letting board members know that you have heard and understood their comments.

  Third, don’t waste time reviewing information that is in the board packet. If a board member asks for a piece of data that’s in the board pack, gently remind him/her that it is in there. It will be obvious to the rest of the board that said board member came ill-prepared, and it will be less likely to happen again.

  Fourth, keep an eye on the clock. Be sure to manage your time as you navigate movement between updates, leadership, and more strategic deep dives.

  And finally, don’t feel you have to have all the answers; use board members during the meeting as needed.

  AFTER THE MEETING (Follow-up email)

  Although it goes without saying, you should follow up with a summary email after every board meeting. This should include:

  Decisions made