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Startups: How to Communicate Traction to Investors

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An interesting post by Brendan Baker from 2011, but it's outdated.

No investor is excited about 5000 users anymore.

Nonetheless this is a good piece of advice on how to present a graph:

1) Compress your X Axis

The X axis is how long you've been working. The shorter, the better.

Consider two startups below, both at the same number of users:

startup exponential growth graph

As an investor, who would you bet on? Blue, of course, because they've moved faster.

So as a startup, how can you show that you're moving fast?

Set reference points to effectively shorten the period.

Consider these two messages, for the same consumer web product:

"We started in 2008, and have 5000 users."

Here, an investor's thinking: '5000 users/36 months = painfully slow growth.' 

"We started to experiment in 2008. We built the alpha of our current product in late 2010, and just launched the beta in February. We already have 5000 users." 

Here, she's likely to think 'they took awhile to find the right fit, but now they're moving fast - 5000 users in beta is pretty good!'

Same progress, different message. Psychologically, you're anchoring a better reference point in their minds. In the second example you're anchoring them around the beta launch, not the beginning of your startup.

More examples:

"We started experimenting with this in 2008, and took a year to understand the space. Last September we quit our jobs to build this full time. Since then, we've built the alpha and then launched a second beta version, now with 5000 users." 

That's anchoring them around the point that the team fully committed.

"We started experimenting in 2008, and built a couple iterations of the product. We found product-market fit with this version in August, and are now in beta, with 5000 users." 

That's anchoring around this product version.

Reminder: no investor in 2013 cares about 5000 users.

You can wait to call them until you're past 5 MILLION users.

Unless, of course, that's 5000 PAYING users. Paying users are always more interesting. :)

By the way, the tips in Brendan's post are worth reading:!

Especially traction in the order that excites him:

- Profitability

- Revenues

- Active users

- Registered users

- Engagement

- Partnerships/clients

- Traffic

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