9Mile Labs is hosting Milestone9, our Demo Day on Thursday, May 14, 9:30AM at Showbox SoDo. To attend one of the most exciting startup events in Seattle, register at http://m9.9MileLabs.com with promo code STARTUPS. You know you have a winning idea. Yet, everyone wants to know about customer traction. Why is it that you can't get through one investor or mentor conversation without this cropping up? Why does it matter?
1) Personal Affirmation. You, the entrepreneur, conceived the idea, it keeps you awake at night, you jump out of bed in the morning to work on it, you have deep conviction around it and are passionate about seeing it succeed. However, here's the rub. Just because you think or believe it's a good idea does not mean it actually is a viable business. And you can build the best product in the world, but if no one wants it, it remains a science project.
Finding customers who will try your product, pay for it and tell others about it is a good way to prove to yourself that your idea has legs and can potentially turn into more than a hobby.
2) Communicating Momentum to Investors. You probably need investment to see your idea through to fruition. Now let's get this straight, there are only two experts on your product, you and your potential customers. Most experienced investors are very good at asking you incisive questions to elicit valuable information about the viability of your business. Sometimes, it may even appear that the investor is only interested in tripping the entrepreneur up or show off their own smarts. I would argue that this is not typically true; investors are merely attempting to be responsible stewards of their personal or their fund investors' wealth.
However, the best way to shortcut all of these long-drawn and sometimes painful conversations with investors is to show them customer traction. You'll notice that once you show customer acquisition, product usage and customer growth, the line of questioning changes from the viability of the idea to scaling, team-building and even investment terms.
3) Benchmark your business. You started your business with a number of assumptions such as customer problem, product features, pricing, sales cycle, SEO, SEM, social media marketing costs, cost of customer acquisition, lifetime value of customer etc. Regardless of your personal conviction about these assumptions, most of them are —at least initially — wrong. By continuously validating these assumptions with customers, you gain a deeper level of insight which allow you to make course corrections on product roadmap or business strategy.
Your customer traction demonstrates that you're testing and validating your assumptions, it gives you a working hypothesis around what works and reassures investors that you're learning as you go along