As we continue our exploration of the Traction Gap Framework® – a step-by-step approach that startup teams can use to go from ideation to preparing to scale – I will walk you through the principles. The first post drilled down into the often-overlooked notion of “market-engineering” and why it’s so critical. In part 2, we covered what exactly the “gap” in the Traction Gap Framework is, why traversing that gap is such a challenging phase for startups and what you can do to give yourself the best chance to accomplish this goal.
In this final post, I’ll review the foundational building blocks that all companies must continuously measure, refine and optimize if they are to avoid hitting the rocks where so many other startups meet their ruin.
Structuring Your Startup for Success.
At Wildcat, we recommend benchmarking your startup against the four core architectural pillars of the Traction Gap Framework: product, revenue, team and systems. Each has specific requirements linked to each stage and value inflection point of the Traction Gap journey. Understanding these requirements will help ensure your success.
For a startup to succeed (aka gain traction and grow), it’s imperative to understand these four pillars and how each relates to its ability to successfully transition from an idea into a thriving company.
Product architecture – the collection of defining technologies, applications and features in your product – is one of the fundamentals critical to achieving traction. Most early stage startups tend to do well in this area because entrepreneurs generally launch their startups believing they have a great product idea. A well-developed product architecture helps a startup to achieve rapid market/product fit by successfully appealing to customers (users).
What happens if a team finds they need to pivot – for example, by building out new product capabilities or changing the positioning or market segmentation – in order to nail market/product fit? What does this mean for their early stage investors?
First off, these pivots are common and healthy because they are made in response to actual market feedback; they are based upon facts, not theories. Second, most early stage investors should be, and will be, open to providing more time and capital – if the team can make a convincing argument that the potential for decent value creation still exists. Vitally, startup teams must be absolutely certain that both customer and market validation have been achieved before declaring market/product fit. And they should resist the urge – and pressure from investors – to expand before market/product fit has been confirmed.
Key components of revenue architecture go beyond simply predicting sales to include: the name and attributes of the startup’s category, a messaging matrix, a pricing strategy, a sales strategy and other business model elements. A comprehensive revenue architecture should be designed to enable a startup to generate and monetize awareness, engagement and usage. Weak revenue architecture poses the greatest near-term risk of failure for most early stage startups.
Whatever the product and business model, entrepreneurs must be prepared to build critical momentum. They need to establish a Minimum Viable Category (MVC), develop thought leadership concepts, and create an “epic story” talk track that is meant to compel the world to use the startup’s product or service. All of this is part of the “market-engineering” that must be performed alongside product-engineering.
Solid market-engineering sets startups up to generate the momentum they need to propel them across and out of the Traction Gap with sustained and significant growth.
One of the biggest causes of startup failure is related to team dynamics. Early stage startups often have small, product-oriented teams. When the time comes to hire a complete management team or other personnel needed to scale, the right personality and experience fit are critical. Often, the wrong people are hired for the wrong roles, or early team members can’t evolve in line with the company. These people can become toxic to the rest of the team.
Other times, the founding team may pull together a good core management team, but lack a comprehensive strategy to address the extended team: the board of directors, customer advisory board, products council, employee advisory group and so on.
Entrepreneurs must systematically build up their teams and dramatically reduce the team dynamic risk. This is quite the balancing act. But, it is essential to do it well because the more you can fill out your team and the longer you work together, the less risk there is in the eyes of investors.
The systems and processes of a startup can either help accelerate or hinder growth. A successful systems architecture must integrate front and back offices, establish performance metrics and cultivate the progressive culture startups need to thrive.
Many early stage startups use a no-frills CRM solution for sales and support, a simple development system and maybe a basic e-commerce platform for the web. They typically outsource back-office functions such as payroll. When we at Wildcat invest in such startups, we ask them to architect – though not necessarily implement – new back- and front-office systems and processes. These are the systems and processes they will eventually require to scale.
Startups must also ensure they have a solid development stack (the suite of applications that a startup uses to manage its development process). We have found that the type of engineering management infrastructure a startup uses can negatively impact margins and hamper the company down the road. We advise founders and teams to build systems and processes with the right foundation early. This allows operational efficiency to fuel, as well as keep pace with, growth – while minimizing the amount of financing required.
Applying the Traction Gap Framework.
How do these four core architectural pillars interact with the Traction Gap Framework?
The Traction Gap begins about a year into a startup’s existence – at Initial Product Release (IPR). It stretches to the value inflection point of Minimum Viable Traction (MVT) – which can occur as much as three years later, when the startup has achieved a certain level of revenue growth, engagement, downloads or usage. These variables signify market validation and positive growth.
It is within this critical 36-month span that a company will blossom or perish. During this period, the four pillars will vary in importance, as follows:
- Team and Product architecture will take a front seat in the period between ideation and Initial Product Release (IPR) – the go-to-product phase.
- Revenue architecture is paramount from IPR to Minimum Viable Repeatability (MVR).
- Systems architecture must take center stage from MVR to Minimum Viable Traction (MVT) as the company prepares for the go-to-scale phase.
In plain language, until your initial product is released, team and product should be your primary concerns. Once you’ve released your initial product, revenue and/or usage becomes your focus, and it should remain your focus until you’ve proven your company has established enough repeatability in core functions that an investor can see demonstrable signs of traction. At this point, the core foundational systems on which the company runs will become the center of your universe. Your company is now ready to scale. If the right foundation was set up early, it will run efficiently, gaining momentum along the way.
Using the Traction Gap Framework with its four architectural pillars and foundational principles is no guarantee for success. But failure to set up this framework early on and to observe early warning signs (e.g., incomplete market-engineering tasks), in our opinion, means you are more likely to fail along the course. Here’s to your success!
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).