This is the first in a three-installment series that is designed to help you understand the Traction Gap Framework® – a step-by-step survival guide for startups – developed by myself and my partners at Wildcat Venture Partners, an early stage venture capital firm we founded in 2015. If followed, we believe it can help startup teams navigate the critical early stages of development – and avoid joining a majority of early stage companies that end up on the entrepreneurial scrap heap.
Read on to discover why successfully traversing the Traction Gap is critical to early stage companies.
The Path to Startup Success is Littered with Failures.
According to the statistics cited in a variety of industry reports, most startups fail, leaving behind a trail of good ideas that never came to be. Of the 4,000 – 5,000 startups that are founded each year, the vast majority – more than 90 percent – crash and burn. Based on these statistics, perhaps 800 are destined to succeed in raising their Series A investment round, and even fewer – less than 10 percent – will survive long enough to reach their Series C. It’s brutal out there.
However, there are steps you can take to dramatically increase your chances of success. At Wildcat, we’ve organized these steps into the Traction Gap Framework – a centralized strategy that codifies key lessons learned by me and my founding General Partners over the course of our decades-long operating and venture investing experience.
When we initially formed our firm, we reviewed our prior performance as investors. Surprisingly, we discovered that one out of four of the early stage startups that we had backed over the years made it through the challenging go-to-market phase and scaled to a $B or more – well above the industry standard. Looking deeper, we discovered that we had each used similar approaches over the course of our careers. We didn’t have shared vocabulary at the time but we had shared learnings. Clearly, we were onto a successful methodology – one that could help early stage companies build a foundation for success.
And so the Traction Gap Framework was born. What makes it such a game-changer is that it provides target metrics, strategies and tactics that early stage startups can use to guide them through the crucial go-to-market phase. One foundational principle of the framework is the notion of performing “market-engineering” tasks up front, to ensure you have a reasonable chance of what we call “market-product” fit (without a market, there is no need for your product) before beginning the go-to-market phase.
Market-Engineering. What Is It and Why Is It So Critical?
So, what is ”market-engineering”? It’s something that the vast majority of startups overlook. While most do a great job of engineering products, many lack the experience required to engineer a market for those products. Overwhelming industry data suggests that you need both to survive and scale.
Yes, you must have an innovative product. That’s what wins you a seat at the table. But to win the hand, you must also be able to engineer a market for it. Truly disruptive innovation isn’t something the world generally realizes it needs or is willing to risk investing in. Consequently, you must invest in “thought leadership” content that compels people to envision the world differently with your product or solutions in it.
At Wildcat, we’re pretty confident in the principles codified in the Traction Gap Framework because we’ve seen demonstrable proof that they lead to success.
Selling to Investors.
Engineering a product or service for a large and addressable market is essential. But what many entrepreneurs often don’t realize is that they must simultaneously create a financial product: the startup itself. They must learn how to turn their company into an offering that investors will be inclined to support. And selling a financial product to investors is very different from selling a product or service to businesses or consumers.
The Traction Gap Framework gives you a powerful tool you can use to develop your investor-specific “product.” It gives you a prescriptive approach to category creation and market validation, product positioning and acquiring validated market feedback. All of these are absolutely key to increasing your startup’s ability to demonstrate the traction it needs to secure the confidence of investors and the next round of financing.
Charting a course through the unpredictable waters of disruptive innovation is a perilous undertaking. For us at Wildcat and for the management teams of our portfolio companies, the Traction Gap Framework has proved to be an invaluable resource. It has helped us – and more importantly, our portfolio companies – in navigating these waters. And it has served as a communication device to keep us aligned with our portfolio CEOs and their teams. Above all, it has helped our portfolio companies avoid the pitfalls that trip up so many other startups.
In the next article, we’ll explore how to navigate the crucial go-to-market phase – the “gap” in the Traction Gap.
You can learn more about the Traction Gap Framework here.
Bruce Cleveland is a Founding Partner at Wildcat Venture Partners and author of the book “Traversing the Traction Gap“. The book pulls from Bruce’s three decades of experience as an operating executive at once “early-stage startups” Oracle and Siebel, and as an early-stage venture investor in companies such as C3, Doximity, Workday, Marketo, Obo and Greenfig (the latter two he co-founded).