How early-stage startups can close the traction gap

The traction gap is the period between a startup's initial product release and the product's ability to generate market traction. Learn how to close this gap successfully and go to market faster.

As an entrepreneur, the tumultuous early life of your startup can make you underestimate just how challenging building and running a company that lasts is going to be. You might have a promising product, committed co-founders, and a strong venture partner behind you. But traction is what will make or break your startup, and successfully navigating the gap between a cool idea and a profitable idea is key to long-term sustainability.

Known as the traction gap, most startups — especially Silicon Valley startups developing software solutions — never successfully cross it without the right vision or guidance. Understanding the traction gap is critical to defining the right type of product to build, how much time you have to build it before you run out of money, and how you need to align product development, hiring, marketing, sales, and support to reach success.

Flirting with failure: Understanding the traction gap

Early stage companies have notoriously high failure rates. Approximately 80% of startups fail within five years, with two of the top reasons being a lack of product-market fit and running out of capital. Many early-stage startups generate excitement among their initial customers but fail to generate substantial market traction — all while burning through precious capital. This traction gap often lasts for years and can lead to an expensive failure if not overcome quickly.

Coined by the Wildcat Venture Partners team as part of an initiative to combat the high startup failure rate and build successful companies, the traction gap framework breaks down the startup journey into five major milestones:

Minimum Viable Category (MVC)

The minimum viable category is a named and defined category that can turn your startup into a scalable business. For example, Drift has defined an MVC of ‘conversational marketing and sales’ (now folded under ‘revenue acceleration’) while Wynter runs on a ‘message testing’ MVC. Nailing your MVC has implications for your product development roadmap, your positioning and messaging, and your sales and revenue strategy. Your MVC will also determine how much deep domain expertise you or your startup team will need to have to successfully launch your new product.

Initial Product Release (IPR)

Your initial product release is the deployment of your first product iteration — whether the product is fully functional or not. This IPR can be done through online communities (in relevant Slack groups, for example) for feedback and further iteration before you release your MVP.

Minimum Viable Product (MVP)

Your minimum viable product is one that provides the bare minimum amount of functionality for your customers’ needs and has market validation. For example, an early Twitter MVP might’ve allowed users to post Tweets to their feeds, but not necessarily use hashtags or tag other users. Your MVP is not perfect (by definition), but it gives customers and investors a chance to play with your product and determine whether they want to buy or invest in it.

Minimum Viable Repeatability (MVR)

By this point in your startup journey, you’ve earned multiple sales from different clients and have nailed a repeatable sales or marketing strategy. This is the first sign of market traction and represents early product-market fit and higher market validation.

Minimum Viable Traction (MVT)

Minimum viable traction is the holy grail of the early-stage startup journey — when you’ve experienced multiple quarters of growth and confirmed market traction. Achieving MVT signals to investors that you've reached the bare minimum amount of traction needed to justify total commitment to your startup through product marketing, more engineering hires (for early-stage technology companies), building out your management team, etc.

4 key go-to-market strategy pillars

As a startup, it’s imperative to manage your capital wisely to reach each successive milestone and raise fresh funding. There are four key pillars of your go-to-market strategy to measure, refine, and optimize for.

1. Product

Your product is key to achieving market traction because it informs your monetization, sales, and marketing strategy. A well-planned product development strategy uses customer validation and feature iteration to achieve product-market fit faster. Here are some best practices to keep in mind during early-stage product development:

Nail down your MVP. A well-defined minimum viable product allows you to validate your company's assumptions before building a full product.
Ship early, ship often. Release product features and updates frequently to gather feedback and improve your product faster.
Solve one big problem. Address a substantial pain point that impacts a large number of customers to align your focus and maximize your market returns.
Don’t be afraid to pivot. Startups move quickly by nature, and it’s crucial to adopt a growth mentality that enables you to pivot where necessary. For example, if new features aren’t resonating with your customers or your marketing isn’t working as well as you’d like, don’t be afraid to change course and experiment with different levers to dial in a better solution.

2. Optimize your revenue model

Your business model and monetization strategy determine how well and for how long you can run your business. Limited revenue means an inability to fund future development, hire new people, invest in marketing, or support your customers sufficiently.

As such, founders should determine what exactly they’re selling, for how much, and to whom. There are four aspects of revenue to optimize for:

1. Pricing

Product pricing requires a delicate balance between covering the cost of product development with healthy margins while remaining competitively priced. Setting your prices involves testing different pricing models, identifying up-sell opportunities, and building out a customer loyalty program to drive retention.

2. Customer acquisition costs (CAC)

Unless you sell a viral product with great product-market fit, acquiring new customers will likely cost you money. You want this cost to be minimal to help you scale faster, or at the very least correlate to an increase in customer lifetime value. Your CAC is highly dependent on which channels and approaches you take to acquiring new customers, e.g., running paid search ads to capture search intent or sponsoring related events to expose new customers to your brand.

3. Sales cycle

Your sales cycle defines how fast you go from lead to deal, and a long sales cycle can result in lost deals and the opportunity cost of foregoing other potential prospects. One way to reduce the length of your sales cycle is to improve your prospecting based on a defined user persona and Jobs To Be Done framework. Another way is to improve your messaging to disqualify bad-fit prospects and attract the right ones. For example, if you sold vegan burgers, you’d want to use the right terms and imagery to attract vegans and clearly indicate that your burgers are not for meat-lovers.

4. Conversion rates

Different factors determine how often prospects convert into users. Your conversion rate can be affected by how your website is designed, how your pricing is displayed, the discounts or perks you offer, the copy or graphics of your emails and ads, and the presence or absence of competition. This fact presents ample opportunity to tweak each element of your marketing to improve your conversion rates.

3. Team

Beyond developing your product and optimizing your revenue model, it’s essential to build an effective team. The right people on your team can build a great product but a business with a team that operates in silos, doesn't communicate effectively, or can't agree to and follow processes won't work together efficiently.

Building a great team starts with overhauling the hiring process. You want to hire people who are ‘A’ players in their fields, who are curious about how your industry and product work, and have a strong work ethic and shared values.

Nail down exactly what you expect from each new hire and be flexible in your requirements as rigidity can make you miss out on good candidates. Keep in mind that a startup’s workload is fluid, and what a member starts doing in the beginning may change down the line. Both parties need to be flexible and ready for this change.

After hiring, onboarding is another key factor to ensure your team functions effectively. New hires need time to settle into their roles and learn the ropes, and having a strong support system with constant check-ins is key to making them feel welcome. You can also assign onboarding buddies to each new hire to help them assimilate faster into your team’s workflow.

Ongoing training and staff development is another key factor of building a strong team. Your staff members should have access to courses and training materials that will upskill them, whether this training is delivered or self-administered. Training should also include mentorship where possible — with each team member both giving and receiving opportunities to upskill and learn from others. Team building exercises are another great way to impart knowledge, collect feedback, and build team morale.

A great team is crucial to the success of a startup, and being intentional about the people you invite to join your team pays dividends down the line. To this end, it’s important for startup leaders to adhere to the maxim of “hire slowly, fire quickly.” An employee who’s not a good fit for your team tends to bring down the group’s performance, and it’s important to maintain only the highest-performing members and phase out employees who might be a better fit elsewhere. Lively debates abound about the pros and cons of the "hire slow, fire fast" approach, but each company ultimately needs to make the right decision for its growth and team-building goals.

— GREG MCKEOWN

4. Invest in scalable systems

Business success is a function of running well-oiled systems that integrate the front and back ends of your business. From your hiring process and revenue operations to your internal and external communication policies, good systems are an essential foundation for setting your business up for success from day one.

Part of creating well-functioning systems is defining the metrics you’ll use to judge performance. A culture of accountability goes a long way towards building an efficient and effective business model that values growth and results.

There are numerous connected systems to optimize within a startup, such as:

Hiring: How you source, engage, hire, train, and promote your staff has an outsized effect on the rest of your business.
Customer Relationship Management (CRM): Managing your leads and customers in an organized way leads to better outreach and greater insights into your sales efforts.
Management: Define your organizational structure and lines of communication so that everyone knows how to make and cascade decisions.
Governance: A startup’s board plays an important role in shaping the direction of the company. A great relationship between management and the board results in aligned action and quick course correction where needed.
Product development: Define a lightweight, iterable process for how new features are ideated and introduced, how often new updates will ship out to customers, and how to create a roadmap that aligns with the business’ vision and customer needs.
Customer support: Support plays a huge role in customer satisfaction and retention, and your startup needs to have systems in place to handle customer queries and support tickets, resolve them quickly, and pass on any insights to the product development team to improve the product.
Finance: Managing cash flow is critical to maximizing your runway, and good financial systems ensure that expenses are sufficiently covered and that revenue is allocated efficiently. Having up-to-date books also makes it easy to raise funding from investors where needed.

The traction gap framework offers guard rails and mile markers that startups can use to successfully navigate the early stage of their journey. By focusing on building a great product, nailing your revenue model and monetization strategy, building and training a strong team of A-players, and putting the right systems in place, you boost your startup’s chances of going to market more successfully and raising much-needed funding at critical phases of your business life cycle.

Part of FMP’s work involves working with startup founders to cross this traction gap successfully. Through our comprehensive marketing sprints, we make it easy for you to nail your product development, brand positioning and messaging, and figuring out the Job to Be Done for your customers.