News

Identifying the Right Metrics to Measure Traction

February 10, 2015 By Alida Miranda-Wolff

This post is part of the Hyde Park Angels Entrepreneurial Education Series, which brings together successful, influential entrepreneurs and investors to teach entrepreneurs everything they need to know about early-stage investment through events, articles, videos, and more.

Like market size, traction is a term that gets thrown around in investment and entrepreneurial circles all the time, but isn’t always clearly defined. That’s a serious problem. As an entrepreneur, you need to be able to understand your traction backwards and forwards because it’s one of the biggest predictors of future growth and one of the best tools to assess your company’s performance in the market. At its most basic, traction is the adoption rate for a product or service. This seems simple enough, except there are dozens of metrics you can use to measure something as broad as an “adoption rate.” To name a few:

· Monthly Recurring Revenue
· Total Number of Paying Users / Customers
· Total Number of Non-Paying Users / Customers
· Total Number of Products / Units Sold
· Month Over Month User Growth
· Revenue in Last Year
· Total Revenue
· Month over Month Revenue Growth

Depending on the value you’re trying to create, some, all, or none of these metrics matter. This is where it becomes crucial to know your target audience and its needs. None of these metrics means anything without contextualization.

One way to measure traction is to start by asking what behavior you’re trying to change. Medium is a great example of this. The company’s CEO, Evan Williams recently wrote:

“We want to create a platform that enables people to make an impression on others. To make them think. To change their minds. To teach them something or connect emotionally.”

While that’s admittedly very difficult to quantify, Medium has come up with a metric to show traction, total time reading. “TTR” measures how much time people spend on story pages. It’s not perfect, but it’s certainly more meaningful than impressions. If the company’s value is getting people to read the content and engage intellectually and emotionally, the mere fact that a lot of people saw it doesn’t mean much. That they read it, and that they took a long time process it is far more telling. If the “TTR” grows, that means they’re successfully changing behavior — skimmers are slowing down.

The idea behind the strategy is simple: know your value and measure your traction according to what it is.

If you are interested in learning more about whether to raise a fund, register for “Are You Ready to Raise?” on March 5.