Traction — New Book Launch Backed by Exclusive Compass Data Analysis

Justin Mares is the co-author of the bestselling Traction: How Any Startup Can Achieve Explosive Customer Growth, published by Portfolio Penguin, launching October 6th. Get your advance copy in the next 24 hours to get exclusive access to their marketing strategy guide, as well as interviews they’ve conducted with entrepreneurs like Jimmy Wales (Wikipedia), Paul English (Kayak) and 35+ more.

We wrote Traction because we consistently come across entrepreneurs with the same problem: they need more customers!

One of the key findings we found while researching the book (and through our own experience) is that your traction strategy will change as your company grows. What works to get your first $10,000 in revenue or first 1,000 users often won’t get you to your next growth goal.

The story of Dropbox’s growth embodies exactly this phased approach. Early on, they relied heavily on social media and community sites like Hacker News to drive their first few thousand users. Later, once that tapped out, they built a pseudo-viral referral program that drove millions of users. Now, as they’re trying to scale, they’re focusing on business development: partnering with Microsoft, and getting pre-installs on smartphones in emerging markets.

As Dropbox’s story exemplifies, the way you get traction will change over time. After your growth curve flattens, what worked before won’t get you to the next level. On the flip side, traction channels that seemed like long shots before might be worth reconsidering during your next growth phase.

At least, this was our thesis, pulled from many interviews and much anecdotal evidence. And, though we’ve done as much research as we could, we don’t have the hard data that comes from working with thousands of startups and seeing how they’re growing. This is one reason why we’re excited about our emerging collaboration with Compass.

Data Exploration and Analysis

For our first collaboration project, we looked at how revenue is affected by:

– the quantity of functional customer acquisition channels a company has

– how the effectiveness of different customer acquisition channels varies by type of company

– how the effectiveness of different customer acquisition channels varies by revenue threshold

In Traction, we introduce the Bullseye framework, a tool founders and marketers can use to determine what channels make the most sense for their startup. At a high level, the Bullseye framework is a process of brainstorming all 19 traction channels (content marketing, email, trade shows, etc.), running fast and cheap tests in channels that seem promising, and iterating to find the 1 core channel strategy that will propel your business through the next phase of growth.

1. Mapping Traction Phases to Compass’ Startup Lifecycle

Before we dig into the data, we wanted to quickly introduce an important Traction framework and how it relates Compass’ Startup Lifecycle.

In Traction book, we use a 3-phased growth model, as shown below. In Compass’ reports, [1] and [2], originally published under the name Startup Genome, they developed an empirically validated model of a Startup’s Lifecycle, where their first 4 stages of growth are: 1. Discovery 2. Validation 3. Efficiency and 4. Scale.

If we introduce a phase 0 before Traction’s 3 phases, then our two models map seamlessly together, as you can see in the table below:

Traction Phases

Compass Startup Lifecycle Stages

Phase 0 (nothing has been built yet)

Discovery

Phase 1 (making something people want)

Validation

Phase 2 (marketing something people want)

Efficiency

Phase 3 (scaling your business)

Scale

Now, on to what the Compass data shows:

Finding #1) Companies with more functional Customer Acquisition Channels have more revenue


Sources

Median Revenue in USD

2

$4288

3

$7316

4

$14129

5

$60342

6

$104322

7

$272880

The graph shows Median Monthly Revenue on the Y Axis and number of active customer acquisition sources on the X axis. The X axis starts at 2 because nearly all revenue producing companies have at least two channels: 1) some online channel such as search engine marketing or referral and 2) Direct traffic, which is some combination of “Word of Mouth” + other untracked or uncategorized, non-digital activity that drove traffic to the website such as Public Speaking, a Trade Show appearance, or a radio advertisement.

If you’re an early-stage startup, trying to “focus” on multiple channels early on can literally kill you. If you’re trying to do SEO, PR and paid acquisition all at once, you’re spreading yourself too thin, and removing the opportunity to become an expert in a channel that’s working.

This is confirmed by the second finding from Compass data:

Finding #2) Companies in Phase One grow faster if they have one core channel.

In this analysis, we dug deeper into how the distribution of revenue performance across acquisition channels affected revenue growth over time. A core thesis and hypothesis of Traction is that a company should focus on selecting and optimizing one customer acquisition at a time, rather than diffusing energy and efforts across many.

For this analysis, we segmented companies into two buckets:

  1. Companies with a single core acquisition channel;  which is defined as a channel that generates more than 50% of a company’s revenue.

  2. Companies with multiple acquisition channels with diffused revenue distribution.

After examining the data, we found that companies in Phase 1 with less than ~$12,000 in monthly revenue, that had a single core customer acquisition channel grew faster than company’s that had multiple customer acquisition channels.  

Companies in Phase 1 with a single core channel grew ~19% per year, while those that had multiple diffusely effective channels shrunk by ~19% per year.

This bears out our thesis and experience that focusing on a single channel early on is the best way to ensure success. If you have less than $12,000 in monthly revenue, it makes sense to choose a single traction channel and focus on it until you get it working.

This changes somewhat as you move into Phase 2, where you try to reach a broader market after having found Product/Market Fit.

In the next revenue bracket, the data showed that companies with monthly revenues between ~$12,000 and ~$83,000 grew 52% when they focused on a single core channel.

As for those Phase 2 companies that didn’t have a core traction channel? They grew 49% – almost the same rate as those focusing on a single core channel.

Clearly, in the earlier stages of your company, it pays to focus on a single channel. Then, as your company grows and scales, you’ll go through the Bullseye process we cover in Traction to find the next channel that will allow your company to grow.

Finding #3) Companies in Phase 3 leverage multiple channels

Once a company is at scale (greater than $83,000 in monthly revenue), we find that companies that grow through multiple traction channels grow 30%, while those that still get >50% of their revenue from a single channel grow 23%.

When Revenue is greater than $83,315/month:

Growth with Core Channel

23%

Growth with Multiple Channels

30%

There are a few things that are likely going on here. As we talk about in the book, often a channel will become saturated after you’ve doubled down on it, thus creating the need to look for new acquisition channels.

There’s also the fact that, as a company matures, their marketing gets more sophisticated. In many cases, focusing on a single core channel (like SEO) will involve multiple channels that feed into the core channel strategy.

For example, a focus on content marketing requires getting people to see your awesome content, and some good tactics for doing so are getting publicity, using social ads, and doing search engine optimization (other traction channels). Similarly, viral marketing is often built on email marketing or existing platforms like Facebook (two other traction channels). Yet in both these situations one channel is dominant in that it is your core traction strategy. You’re using these other channels to support that strategy, as opposed to pursuing multiple traction channels at once.

Another explanation is that when companies get more successful they have a lot of extra money, and they are using multiple channels to either a) experiment to find their next growth channel; b) experiment as a hedge on their current stage of growth; or c) fail to get rid of earlier strategies that don’t move the needle, but they don’t care as much since they are less price sensitive and don’t need to focus as relentlessly on a single channel.

2. Channels for Different Types of Companies

Traction makes a strong argument that companies should look for under-utilized channels and tactics because they have the highest potential competitive advantage. If everyone in an industry is using search engine marketing, it is probably best to not use search engine marketing because it will be saturated (and thus far more expensive).

Finding #4) Different types of companies primarily use different acquisition channels.

Here is a short table highlighting the most profitable source of traffic on average for different types of companies:

Company Type

Primary Channel

Marketplaces

Organic Search

SAAS, Ecommerce

Paid Search Ads

Ad-driven/Leadgen

Direct/Offline

The data confirms that certain types of companies tend to use similar channels, as one would expect. There are two initial conclusions one could draw from this:

One, that certain channels may be more suited to different types of companies. For example, if the value of each customer is high (enterprise software, B2B, etc.), then paid advertising can be a viable channel. However, if the value of each new customer is low (free mobile apps, many consumer sites), paid advertising becomes much harder to do well.

The second potential conclusion is that there could be a clustering effect, where companies copy one another’s marketing until they’re all using very similar strategies.

This is why Traction strongly recommends you consider all 19 traction channels before deciding which channels to focus on. This allows you to discover channels that are not yet saturated, and build a marketing competitive advantage.

We need to do more analysis to uncover whether companies using under-utilized channels are doing better, as Traction suggests. In any case, this table can serve as an additional data point to support in the prioritized weighting and pruning of the possibility space when considering the channels to actively pursue.

3. Channels for Different Company Phases

As suggested in Traction, we wanted to also see how companies use different channels as they grow. The book predicts that what moves the needle early on will shift at later stages, and so we looked to see if channel use tended to shift as companies started generating more revenue.

Finding #5) Different Acquisition Channels work best at different stages of the Startup Lifecycle

Here is a table that shows what types of channels work best at increasing levels of Company’ revenue.

Company Monthly Revenue

Primary Channel

Revenue less than $5,000 per month

Referral

Revenue of $5,000 – $20,000 per month

Paid Search Ads

Revenue of $20,000 – $300,000 per month

Organic Search

Revenue >$300,000 per month

Direct/Word of Mouth/Offline

This table supports Traction’s thesis that at each phase of a company’s growth, the channel that is most powerful and potent changes.

To reiterate, what drives the need for new acquisition channels are variables like channel volume, channel saturation, channel customer acquisition cost, and company resources available. For instance, public speaking may drive sufficient volume in phase one,  but SEO may be required in later phases.

4. Conclusion

Though more data is clearly needed, the data that we did explore tends to confirm the core Traction theses that, when first starting out, you should find one core channel that will get you to your traction goal. The data also confirmed that, as your company grows, you will probably have to find new channels that work to get to reach your next growth goal.

We hope you enjoyed this first collaborative effort between Traction and Compass, and we hope to have some more findings to share with you soon!

If you are looking to get more traction for your business, we recommend getting a copy of Traction: How Any Startup Can Achieve Explosive Customer Growth.

Justin Mares is the co-author of the bestselling Traction: How Any Startup Can Achieve Explosive Customer Growth, published by Portfolio Penguin. As an additional bonus, if you purchase your advance copy of Traction before October 8th you’ll get exclusive access to their marketing strategy guide, as well as interviews they’ve conducted with entrepreneurs like Jimmy Wales (Wikipedia), Paul English (Kayak) and 35+ more.

  • Steven

    How is this different to the original Traction book? Do I need to buy this one if I own the original?

  • Hi Steven,

    We’ve updated the measurement framework, added several new sections, and updated many of the tests and channels we cover in the book.

    Up to you if you want to buy it or not! Most people we’ve given the new edition to say it’s much clearer which is useful.

    Thanks for the support with the first edition!

    Justin