Dead End Users: When Traction is a Trap
Traction is the name of the game in early-stage fundraising; it can also be misleading! Here are three of the most common ways that can happen – and what to dig into during diligence.
Traction Fail #1: Traction as a Vanity Metric
It’s always nice to see high user engagement, surging daily and repeat users, and long retention windows. Yet when that engagement is disconnected from business outcomes, that metric is effectively meaningless.
This happens when users can’t act on the product recommendations, such as in HR Tech or staffing-related platforms. The user loves the shiny dashboard, but they lack the organizational authority to actually hire more people to mitigate the staffing shortages the dashboard highlights.
Traction Fail #2: Traction from Unempowered Champion
A startup offers a free pilot to an individual contributor who uses it daily. The growing number of pilots is a sign of traction the founders pitch.
But because the individual contributor sits three levels below the economic decision-maker (for example, the CFO), they’re not in meetings where they can speak to the ROI. The pilot never converts into a paid engagement.
Traction Fail #3: Traction at the Expense of Revenue
When the short-term goal of increasing traction comes at the expense of everything else – including margins, unit economics, and profit – the underlying business suffers!
One famous example of this is the DoorDash pizza arbitrage that Ranjan Roy wrote about in 2020, where DoorDash decided to get his friend’s restaurant to the platform (without his consent) and then listed their premium $24 pizza for $16! The restaurant owner realized he could literally buy his own pizzas through DoorDash, make an easy profit per pie, and leave DoorDash footing the bill.
The traction metrics for DoorDash and the restaurant looked great on paper. The actual business operations were a disaster!
What to Consider Discussing in Diligence
When evaluating early-stage traction, look beyond the graphs going up and to the right. Consider using these questions to dig into the reality behind high traction.
