Founding partner at Wildcat Venture Partners, Bruce Cleveland understands the genetics of startups – why most flop, and why a few make it across the threshold from product and concept to traction and lasting success.
In his new book, Traversing the Traction Gap, Bruce explains the tools, roadmap and skills entrepreneurs and startups require to traverse the gap and enter into mainstream success.
M.R. Rangaswami: What are a few key components to successfully making the journey between concept and traction?
Bruce Cleveland: The first thing to do is to objectively consider whether you are truly prepared to begin the journey — are you and the team really ready to traverse the “Traction Gap”?
To be ready, you should have completed all market engineering and product engineering tasks. Your market engineering tasks include category creation/definition, statistically valid market research to confirm there is a legitimate and sizeable market, initial messaging matrix and value propositions, initial pricing and your talk tracks – thought leadership, sales leadership and investor. Your product engineering tasks include a comprehensive beta program, NPS scores that indicate market/product fit, daily or weekly usage rates that exceed target expectations, and customer/user testimonials that indicate they are satisfied with the product.
These product engineering and market engineering tasks should be largely complete at Initial Product Release (IPR). This is the official kick-off point of the Traction Gap. The tasks must be entirely complete before declaring Minimum Viable Product (MVP), which is when the first real market engagement begins for most startups.
As you move out of the go-to-product phase and into the go-to-market phase (the Traction Gap), the emphasis must quickly switch from an intense focus on product issues to market issues. That is, creating awareness and interest, and converting that interest into a set of repeatable processes that cost-effectively and reliably drive engagement, downloads, usage and ultimately revenue.
The team needs to realize that if it wants to be in the upper quartile of startups, it only has about two-and-a-half years in total to go from MVP to Minimum Viable Repeatability (MVR) to Minimum Viable Traction (MVT). If it’s a SaaS company, MVT is about $6 million ARR (Annual Recurring Revenue). If it’s a B2C software company, MVT is about 1 million active users.
The product skills that took the team to MVP must be augmented quickly with go-to-market skills. To be clear, this doesn’t mean a lot of people; it means a few people with expertise to take the product initially to market. You don’t want to bolt on execution-oriented marketing and sales teams until you reach MVR or you could burn up a lot of capital for naught. If you don’t reach MVT in two-and-a-half years, you may find yourself languishing and unable to secure additional financing to continue.
M.R.: How early can market need be determined? What can teams do to evaluate this as soon as possible?
Bruce: If the research is done correctly, then market need can usually be established quite early – just after Ideation. The challenge at this early stage – especially with truly innovative offerings – is to not describe the product/solution to the potential buyer/user. Instead, the team should describe the problem or concept and statistically validate there are enough people or companies with enough interest to purchase and/or use the solution at varying price points.
Most startup teams don’t have the internal resources – expertise or capital – to perform statistically valid market research. In fact, most large companies don’t possess these resources either. And even if they do, the pressure from investors or executives to “get on with it” tends to reduce what should be full market research into just customer research (the market is far bigger than your customers, if you have any). Worse still, full market research gives way to research that involves a handful of customers, and this is then presented as statistically valid to the investors or executives expected to finance and support the development.
A recent study of more than 3,000 companies showed that, on average, most of them surveyed 10 or fewer customers. This so-called “market research” then served as the basis for committing these companies to millions of dollars in downstream development, marketing, sales, training and support costs.
Finally, internal arrogance and politics – including decisions made by HIPPO, or the“highest paid person in the organization”– play a significant role in the overall 80 percent product failure rates cited by industry studies. While some senior-level executives have a keen sense for the market, the fact that 80 percent of products fail is proof that most do not.
M.R.: Is achieving traction strictly a science, or is there some art involved? If so, how do the two go hand in hand?
Bruce: No, it’s not all science. There is no substitution for intuition. That unique insight that someone, or some team, has when experience meets inspiration. This is the art. You want to encourage it, but not be a slave to it.
Once you have that intuition, that “feeling,” you need to apply process to validate whether your intuition is correct. CPG (consumer packaged goods) companies have developed very formal processes to validate their intuition. Procter and Gamble are probably the best of the bunch at it. They would never launch a new product idea before doing a lot of market testing.
But for some reason, many companies think they can skip this process – especially tech companies. Perhaps they think they are just smarter than everyone else so they don’t need to do this work. I would argue that since 80 percent or more of the tech startups fail, they don’t really possess some sort of magical skill that allows them to bypass this critical work.
M.R. Rangaswami is the co-founder of Sand Hill Group and publisher of SandHill.com.