September 16, 2008

Pre-Revenue Traction

You’ll hear the term traction a lot in the start up world.  It is increasingly becoming a standard peice of industry vocabulary but most VC’s and angels I talk to or whos’ blogs I read use it in a slightly different way than the business world as a whole does.  Typically in other fields you would hear people talking about “traction in the market.”  That is customers, sales, marketshare.

From my experience, when discussing a startup company, traction usually means something like progress.  How far along is the business?  What has been accomplished?  Sales, customers and marketshare are probably about the best progress most of us can hope for but it is not the only traction that has value.  Is the business something that came to you in a dream last night or do you have a completed, patented, tested product that is already generating buzz in the marketplace?

As a consultant for FundingUniverse most of the entrepreneurs I work with have some understanding of traction but often only on a superficial level.  If I were geekier I would say “they don’t grok it” but I think you need to be fluent in at least 3 programming languages to use that word and not sound like a complete dork.  I’ve seen this misunderstanding of traction exhibits itself in two ways:

  • “I have a great soup recipe and for only $10m you can get 10% of my company.”  This is a real example of an entrepreneur that, not having any sales, decided his valuaiton should be based on the next best thing, his pro forma financials.  Of course this example can be used to demonstrate a large number of things but for our purposes, he didn’t have sales so he just ignored the idea of traction.
  • “The Unit Manager I worked with at Haliburton said he wants to buy 4 for $2m each as soon as they are ready and will probably buy more latter.  He’s really excited about the idea.”  This piece of information didn’t make it to the first 4 investors my client had talked to.  It wasn’t a real sale so it wasn’t traction, right?

I could go on and on with valuable progress that entrepreneurs don’t think to mention but I hope you get the point.

Entrepreneurs should know that pre revenue traction can be valuable and while you will always do better with investors having actual sales, if it is significant it should be touted.  FundingUniverse rates business plans for our investors on a scale of 0 to 4 stars.  One star is for traction.  It is one of the largest determinates of the value of your company.  When soliciting funds from equity investors the more traction you have the better.  It will help determine how likely you are to get funded, how long it will take and your valuation.  so it is critical for entrepreneurs to have a clear understanding of what actual progress, traction, their idea has.

Spotlight: SeekMobile

It’s a very interesting time in technology, as we watch not only the development of new, and revolutionary technologies, but also the convergence of various pieces being brought together into Mashups. For those not familiar, a Mashup is essentially the taking of various pieces of other applications, and hooking them together in new and exciting ways. Think of it sort of taking all of the best pieces from your favorite toys and snapping them together to create a cyborg Hulk with spidey-sense.

Another type of “trend mashup” involves taking the momentum that a specific type of movement, medium, or social trend and combining their energies together like multiple tidal waves merging into a single massive Tsunami.

SeekMobileA local company, Seek Mobile Interactive, is looking to capitalize on just such a convergence: Mobile Experiences, Social and Persistent Gaming, and Location based interactions.

Whatever your feelings might be with regards to the apple iPhone, it’s hard to deny that it has forever changed the way the world views the mobile device, and at a more fundamental level, the whole mobile experience. No longer is it just about making a call. Your mobile device is now your portable computer, and more: it is your portal to the world. It is the web, your phone, twitter, maps, weather, pictures, the world and where you are in it. With this new horse power, display, and tactile experience so far beyond “hit 1 now,” it has also become an extremely powerful gaming platform.

Speaking of gaming… gaming as an industry and an experience has undergone a massive revolution as well. With the internet and Xbox-live the world became introduced to, and hooked on, gaming as a social experience. It’s not just a place to play, it’s a place to meet new people, and meet-up wit those you already know. It is not just a thing to do, it’s a place to be. This was taken even further with the concept of “persistence” through games like Everquest, and Worlds of Warcraft, and environments like Second Life. Now the things you gained, the groups you’ve joined, and potentially even the buildings you’ve built are all still there in the virtual world when you return.

But what if there were a way to tie this virtual world in wit the real one? A way to meet some of those people, and see some of those places? Something like an “overlay” of virtual on top of the world that surrounds us? This is another social area that technology has continued to advance and facilitate. “Blue Dating” as gained huge momentum, as young people use Bluetooth devices to learn more about those around them. Similarly, with the GPS capabilities of the iPhone this leaps beyond the ability to know who is near to you, but where you both are in the world, and who and what else might be nearby.

Welcome to the social gaming mobile tsunami.

iPhoneSeek Mobile Interactive has spent much of the last year in development on a revolutionary game that allows players in a virtual fantasy world to go on quests, fight monsters, collect gold, and best of all, find each other. With their flagship product, Living Arcana, Seek Mobile allows the players to meet and even battle one another on their iPhones. Additionally, it allows players to create things and even people in this virtual world. Imagine that you could create a person that would show up if someone went to the base of your favorite rock climbing spot. He would interact wit the player, and give them a quest to climb the rock face, then talk to his partner at the top. Upon reaching the top the player would be presented with their reward.

This is but one example of how the persistence of an online game, the ubiquitous access of the handheld, and the targeting of location based services can enable a whole new experience. Imagine a ninja game where you can drive outside of someone’s office building to execute that killer combo and take them out. Imagine a zombie game where those around you become infected, but if you can get to the GPS location of the local Home Depot, and enter the SKU of a chainsaw into the phone you can mow them down for the next several minutes.

But Seek Mobile is more than just cool ideas for games. These guys have some real hands on experience. Seek has been hands-on with Torque, a slick gaming interface design platform for about as long as the concept of the App Store has been out. With the roll of Torque as iTorque directly to the phone, Seek Mobile is now leveraging their jump on the game to quickly put out all of the work they have put into Living Arcana.

Look for these guys to be making some serious waves soon.

iPhone Activation: $199

Game download: $0

Hitting your boss with a fireball from the parking lot: Priceless.

Written by: Steve Spencer , Utah Technology Spotlight.