Let’s face it, the tech startup world is noisy.  There’s lots and lots of noise in all types of spaces — from social apps to cloud analytics, games to dating sites.  So, how can you be a badass startup?  Well, as Don points out, you want to influence; you want others to reorganize their lives and how they do things to be more like you or to do what you do, use what you use, or buy what you’re selling.  So, how do you do that?

Get out there. Let the world know that they need to pay attention to what you’re doing.  This could mean press releases, blog articles, tweets, Facebook posts, press coverage, pitches, or events.  Whatever is the most relevant mode of communication for your industry and your startup, is what you have to do. Perhaps it will be something new, something no one else is doing.  No matter what your strategy, however, you have to get out there and meet people, as well as engage them through existing media channels.  There is no substitute for networking and it’s not something that ends.  Being a badass and influencing others isn’t a destination, it’s a constant re-examination of how you do things to continue being a bad ass.  How?

Build something great. It should go without saying that what you put out there better be solid and not like everything else out there.  You had better have a unique and rock solid product offering, service offering, or value proposition.  If not, all you’ll do is make more noise, not influence.  To influence you need to not only gain attention but capitalize on it with something that isn’t just another “me too.”

Think outside the box.  Take a risk.  Be bold.  As Don states in his article, you can only lead with the influence you earn.

First, you have to seize the opportunity.  You need to realize that no conversation is a casual conversation.  As a startup, you have to be on a mission to distinguish your startup from all the rest, to have your message rise above the noise and to echo in the ears of everyone who hears it.  Every conversation is an opportunity and every listener is a messenger.  No conversation is happenstance.  Conspicuously recruit the listener to subconsciously propagate your gospel.

As a startup, you have to be on a mission to distinguish your startup from all the rest, to have your message rise above the noise and to echo in the ears of everyone who hears it.

Next, in order to have your message penetrate the listener’s conscience, you have to be concise.  This necessarily means you have to be quick.  Your message must be fully contained in 15-18 carefully crafted words.  The number of words and the word choice matter — the words must resonate with the listener and be genuine to you.  Realize that the question may have come up in an elevator, at a startup event, on an airplane, or over drinks with friends.  You may or may not have the time for a long-winded response.  Regardless, you don’t want to brag, bluster or bore.  You want to intrigue and invite the listener to actively engage in your message, and to ultimately carry your message forward.

Last, once you have crafted your response, you must practice and you must convey that you are practiced without being mechanical.  Your answer must be polished and effortless.  The answer to “what do you do,” should be a mantra that flows off your lips naturally and reflexively.  Your preparedness and knowledge aforethought, as we say in the law, will insure that you don’t turn off the listener and accidentally burn a bridge.  Most importantly, your preparedness and polish will impress your listener and permit you to advance the conversation.  Practice in the shower, practice in front of a mirror, record your “what do you do” answer on your phone, and play it back over and over again until you grow sick of hearing it.

To pull it all together, seize the opportunity, be concise and practice.  Don’t blow like a reed in the wind — don’t allow luck, timing or chance to dictate your success.  Understand that we are all interconnected in this constantly growing smaller world and that you are not just talking to the person that asked you “what do you do?”  You are talking to hundreds of their colleagues and friends.  Organize your past, take charge of your present, and improve your chances for creating your future.

Many of the firms that accept equity would disagree with my statement above that they accept an equity stake in lieu of payment. They would argue that they accept equity as a way to offset risk and not as a form of payment.  I’ll let you decide how credible you think this argument is.  But how did this argument even come to be?

Equity in lieu of cash was designed and implemented mostly by large firms to attract clients, mostly early stage startups, who couldn’t afford the high hourly rates that these firms charged for their services, services that were mostly intended for Fortune 500 companies who could afford them.  In moving upstream to serve the startup market, these large law firms’ high overhead service models didn’t exactly fit with the lean startup movement.  So, they came up with this model and started aggressively marketing it as an alternative fee arrangement.  While equity for services may have been around a long time, it wasn’t always referred to as an “alternative fee arrangement.”  This is pretty much a recent development and is where things stand now — these firms dangle the carrot of decreased initial cash outlay required for a lawyer to do a lot of the company formation and organization work in exchange for taking a small equity stake in the company, most of the time ranging from 2-5%.  So far, so good, right?

Lawyers, perhaps as a startup’s most trusted adviser, can’t afford to be in a situation where their advice and integrity is questioned

Here’s an example of how the whole equity in lieu of cash system works that illustrates the pros and cons of this model:  You’re planning on launching a new tech company but don’t have the cash to pay to hire a lawyer to help you.  Enter a law firm that offers to accept equity to do the work in lieu of cash.  This seems reasonable to you, so you go for it.  Eighteen months down the line, your company is prospering and you get an offer from Google to buy you out.  This means cashing out your company’s shares, a good thing for you, as well as all the shareholders.  So, you go to your lawyer and ask him what you should do.  Selling means his firm gets paid; standing pat means no pay day now or perhaps ever since these offers don’t come around all the time.  So, your lawyer says “sell,” but you’re wondering whether you received the best advice.  Did he tell you to sell because it’s best for you and your company or because the firm gets paid?  This example illustrates how you arrive at a juncture where you might begin to question your lawyer’s motives.  Lawyers, perhaps as a startup’s most trusted adviser, can’t afford to be in a situation where their advice and integrity is questioned and that’s why accepting equity in lieu of cash up front creates an inherent conflict of interest.

There are quite a few firms that accept equity, but they have put in place structures intended to eliminate this ethical dilemma.  The question is do they eliminate the lingering suspicions in the back of founders’ minds?  Here’s what’s been done:  Law firms create separate funds, similar to a venture capital fund, that make these “investments” and hold them separate and apart from the law firm generating operating accounts.  These funds are managed by non-lawyers, mostly experienced investment managers, but they ultimately report to the firm’s management who are lawyers (lawyers are not ethically permitted to report to non-lawyers or fee split with non-lawyers).  This creates a form of “chinese wall” that permits the fund to manage the investments while permitting the lawyers to manage the clients.  At the end of the day though, the firm benefits when the startup in which they hold a stake is sold.  What’s an absolute fact in all this is that there is an extra infrastructural layer that costs these firms money to operate, which also pushes up their overhead, which pushes up their hourly rates, which causes a greater need to continue accepting equity.  It’s a self-feeding cycle.

The ultimate question to ask in assessing these equity in lieu of cash models, as well as any other alternative fee arrangement model is does it serve the best interests of clients?  If the answer to this is no or maybe, equity should not be accepted and should be eliminated altogether.  If the answer is yes, then it’s worth exploring.  And as you explore keep in mind that granting equity to your startup company’s attorney is a business transaction for which you are entitled to independent and objective legal advice.  If you are not advised to seek this independent legal advice, know that you should seriously consider doing so.  Don’t be penny wise and pound foolish.

Personally, I do not believe that there is any level of structure that can be put in place to mitigate the suspicions and lingering questions that may arise in agreeing to accept equity.  As a lawyer, I have an unequivocal obligation and ethical duty to do what is in the best interest of each and every one of my clients; it is a position of high trust.  I don’t take the obligations I have to my clients lightly and I want all my practices, including my billing practices, to reflect this.  My integrity is not for sale.  So, I refuse to do anything that will bring it or the trust my clients have in me into question.  Obviously, accepting equity in lieu of cash works for many lawyers and firms and that’s great.  It just doesn’t work for me and hopefully this article highlights some of the reasons why.

Types of NDA. There are two basic types of NDA — a unilateral NDA and a mutual/reciprocal NDA.  The former is where one party is going to be doing most of the sharing and the other party agrees not to share what they see or hear.  A mutual NDA is where there are more fluid discussions, usually around strategic partnerships, where both parties are sharing information that they would prefer wasn’t public.

As a startup, you don’t want to be in a situation that requires a lawsuit, but if someone does steal the information you shared with them, you will obtain the quickest and best result if you had previously signed and NDA with that party.

Definition of Confidential Information. An NDA is typically comprised of a promise not to share the information you obtain from another party in exchange for that party promising the same (a mutual NDA, as discussed above).  This information can range from schematics and photographs, to strategic plans, customer lists and financial data and is usually referred to as “confidential information” or “proprietary information.”  In short, each NDA will include a definition of the types of information the parties prefer to maintain just between the two of them.  Very frequently, this definition includes some catch-all language like this:

All of the Disclosing Party’s business plans, present or future, or potential customers (including the names, addresses, needs and/or any other information concerning any customer or consumer), marketing, marketing strategies, pricing and financial information, research, training, know-how, operations, processes, products, inventions, business practices, databases and information contained therein, its wage rates, margins, mark-ups, finances, banking, books, records, contracts, agreements, principals, vendors, suppliers, contractors, employees, applicants, skill sets of applicants, sales methods, marketing methods, costs, prices, price structures, methods for calculating and/or determining prices, contractual relationships, business relationships, compensation paid to employees and/or contractors, and/or other terms of employment, employee evaluations, and/or employee skill sets.

This can be narrowly tailored to specifically address the types of information that is actually being shared, if you know it in advance.  If you are not sure of everything that is going to be shared, then it’s best to keep the definition of confidential information as broad as possible.

Obligations of the Recipient. Once you know what type of NDA you need and what type of information you will be sharing or exchanging, you need to focus on the obligations of the receiving party once they obtain that information.  These obligations include:

• Not sharing the information with third parties, unless required to by law, for a minimum period of time, typically 1-5 years, depending on the industry;
• Taking reasonable precautions to safeguard the information they receive that are at least as stringent as the safeguards they use to protect their own information;
• Not reverse engineering or decompiling the information;
• Notifying the disclosing party of any leaks of the disclosed information;
• Complying with all government rules and regulations, including export and import laws; and
• Ceasing use of the information and returning it to the disclosing party upon termination of the NDA.

NDAs typically conclude with some general legal terms and conditions pertaining to applicable law, jurisdiction and types of remedies, as well as conflict resolution, all of which are important but I don’t want to bore you with those terms here.

Figure out the IP. The  coolest thing about StartupWeekend is that a bunch of people from all sorts of different companies and backgrounds can come together and hack a solution to a problem in 54 hours.  The downside to this equation is that a bunch of people from all sorts of different companies and backgrounds come together to hack a solution to a problem.  Who owns the code?  From a legal perspective, the code, the design, and the art, all of which is copyright, trademark, and maybe even patent material, is owned by the author or inventor.  However, you may not exactly know who contributed what, whether it was code, the idea and its various permutations, or the market research after you walk away from the weekend.  The whole thing is one big blur.

From a practical perspective, whoever walked away with the code, the art, or what have you, may as well be the author.  So, if you didn’t walked away with access to that material, this might be a good time to talk with your teammates to get that, especially if you want to do something with it and no one else on the team does.  If you plan on plowing ahead with turning your weekend hack into a company, then you will need to secure an IP assignment from whoever worked on the idea with you during the weekend to avoid any Social Network-type issues.  This is usually done during formation and in exchange for equity in your newly formed startup.

Reserve your name. According to StartupWeekend, over 30% of the teams that are formed during a given StartupWeekend are still working on their idea 3 months later.  If you are like most, you have already grabbed a domain, a Twitter handle, and Facebook extension.  Whether you continue to use these and do something more though, may be up in the air right now.  Will you be part of this group launching a new startup or just consider the weekend as an awesome experience?  So, you’ll want to keep the door open, just in case.  If you want to launch your startup using the same name that you were using over the weekend, you’ll want to reserve the name for your startup business now with both the Washington and Delaware Secretaries of State (see my post on where to form for more information on why you want to reserve Delaware too).

This is very easy to do.  Roll over to the DE Division of Corporation site, do a search for the name and pay your $75 to reserve the name for six months.  Ditto for the WA Corporations Division.

Recruit advisors. It takes a village to get things done, from market researchers and social media moguls to industry-specific experts and lawyers.  Not only do advisors help with strategic guidance, but they also serve as connectors to key hires, investors, and acquirers.  Set up coffees, bounce the idea off them, get them onboard.  If you are like most software startups, you might need some cash to keep things moving quickly forward.  Constant speed networking may help you talk with your next investor.

A very good way to do this is not only to set up coffees, but attend office hours.  There are a ton of local experts, investors, and lawyers that hold open coffees and office hours (check out the Seattle Tech Startups mailing list for more info).  Make sure that these are free; you’re looking for informal coaching and connections and recruiting supporters.  Check out my free office hours on Ohours.

Continue practicing your pitch. You prepared a short slide deck and a four minute pitch.  That pitch/demo was good for a specific purpose:  StartupWeekend.  What you’ll find out is that there a ton more types of pitches and demos that you will need to develop, including a one-line, fifteen-word “what do you do” pitch and a short, 1-2 minute elevator pitch.  Putting together the perfect elevator pitch takes time and a ton of practice.  Start now and practice, practice, practice.  You just never know when you might be sitting next to that Google exec on a bus or flight who asks you “what do you do?”

And for the real die hards … incorporate! If you think your weekend hack is the greatest thing ever and everyone will want it, then you better think about cleaning up your legal house now by forming a new entity.  You may think it’s hard and expensive to work with an attorney.  While that may be the case for many, that isn’t the case for all.  There are a handful of dedicated startup attorneys, like me who put on free workshops, conduct open office hours, and talk to entrepreneurs exhaustively to answer questions and help them create something great (sorry for the shameless plug).  Things don’t have to be difficult; you just have to find the right person.

Keeping the high level of energy you put out over a StartupWeekend is a tough thing to do for a prolonged period of time.  However, if you can tap into that sense of urgency created over the weekend while pacing yourself through the tasks I’ve recommended above, you might just be on your way to starting the next cool thing.  In the meantime, what questions are lurking in the back of your mind?  What would you like to know more about now that it’s all said and done?

The Tech Cocktail crowd at about 7:28p; the event started at 6:30p.

Last night was the inaugural event of yet another out-of-town tech event coming to Seattle, Tech Cocktail’s Seattle Startup Mixer.  Tech Cocktail, originally the brain child of New York’s Frank Gruber, followed a similar formula to last week’s Seattle Beta — a Belltown bar and a handful of startups showing off their products or services on a laptop or iPad to any passerby that is interested, minus the poker chip-style voting.  In this instance, the bar was Belltown Pub, which is a tad bit smaller than Spitfire, where Seattle Beta was held.  The startups consisted of a few that have been around for a while (SkyGlue, CoCollage, and OfferUp), one that was at Seattle Beta last week (OrderSM), and four relative newcomers (Pikaba, BookieJar, Omnom, and Stagester).

The event featured the sponsorship of Ebay’s new e-commerce solution, x.commerce, and they showed up in full force with their huge orange X Bus (pictured below) taking up almost two lanes on First Avenue.  An interesting tidbit — the X Bus was previously owned by Denzel Washington, although the interior was much different than when he had it, with the exception of the mirror on the ceiling as you entered the bus.  Attendance was pretty good with maybe 100 people showing (I believe that Seattle Beta last week had over 200 attendees).  While attendance seemed a little light, the proximity of this event to Seattle Beta and the similarity in format may have been a contributing factor.  Who knows.  Regardless, it’s hard to coordinate events like this and get 100 people to show up, especially if you are from out of town.  So, the folks at Tech Cocktail should be commended.

x.commerce's tour bus, the X Bus.

On a side note, while I think that some of the events popping up around town and across the U.S. fill a gap in the startup ecosystem, I wish the new events would try to do something different or unique and would actually offer a greater service to startups.  We are getting to the point where many of the events are “me toos,” exact copies of each other, down to the drink tickets, the venues, and the format.  I love the idea of showcasing as many startups as possible, but it needs to be done in a systematic way that puts dozens of startups in one place, at one time, in front of an audience that can do something for them, like help them connect with partners or raise money, similar to what the Social Innovation Fast Pitch event did a couple of weeks ago.

Regardless, it’s always fun to see a handful of new products and share a beer and a chat with young, excited entrepreneurs.  The tour of the interior of the huge x.commerce X Bus was fun too.

In and of itself, SIFPwas very much like many other pitch competitions out there, from the MassChallenge in Boston to NWEN’s First Look Forum here.  However, what was different about SIFP is that of the 14 finalists, 11 were nonprofit organizations, two of which — MoneySense and Sharing Interests Forming Friends (SIFF) — were founded by high school students and two –Reach out and the Biodiesel Cooperative — were founded by college students.  Of the 14 presentations, these four were quite possibly the best presentations of the whole evening and one — Reach Out — is perhaps the best pitch I have ever seen, which I recorded to share with you.  One thing to keep in mind as you watch this pitch is that the founder, Shandra Benito, just started college a few weeks ago.  [Please note that I recorded this on my iPhone and it turns out that I did not catch the audio for the first 45 seconds. Sorry.]  Her preparation, her composure, her delivery, and her measured choice of words though is absolutely second to none.  I think there are lots of startups out there that should watch her pitch to learn how a pitch should be done.

The other incredible thing about the SIFP is that there were over 120 applicants, culminating in the 14 finalists that presented last night.  In addition to the friends, family, coaches and supporters of the finalists, there were an additional 14 semifinalists there that didn’t advance.  These semifinalists had the opportunity to set up a table and a display to share their organization’s story. This helped fill the Fisher Pavilion at the Seattle Center with over 600 attendees to watch the final pitches and to visit with and learn about the 28 semifinalists.

The award announcements as well were not exactly production-perfect.  I would have liked to have seen the award recipients receive a little more stage time and recognition for their incredible efforts, especially the evening’s big winner, Viva Farms, who was selected to receive $30,000 in grants for its farming incubator in Skagit Valley.  I also didn’t see a lot of press at the event.  The incredible young people and innovators I have mentioned above, as well as the social issues they are addressing, deserve more attention both regionally and nationally.

Overall, however, it’s hard to argue that the evening was not a big success.  I know that there hasn’t been a single innovation-centric or pitch event in Seattle in at least the last 3 years or perhaps ever that has drawn this many attendees.  The evening was successful enough, as a matter of fact, that SVP announced last night that they had reserved the Fisher Pavilion to do this event all over again in October 2012.  As for me, I had a great time at the pitch clinic, coaching and mentoring the teams, and judging the semifinals and would be very happy to do it all over again next year.

What this often times means though is that you cut out much needed legal advice or don’t pause long enough to consider the legal ramifications of what you are doing.  This can get you into very expensive trouble.  The cost to clean up the mess is often times a lot more expensive and a lot more painful than if you had just done things right in the first place.

It’s not all your fault though — the cost to obtain affordable startup legal advice was outrageous and has only grown worse, at least that’s the case at most law firms (not mine, however).  Moreover, there are some non-profit organizations out there that put together similar workshops and charge entrepreneurs $50 or even $100 to attend.  While this money may be going to a good organization or a good cause, I think it’s too much for the typical bootstrapping startup.

That’s why I decided to put together a legal workshop that addresses all the major issues an entrepreneur or early stage startup is likely to encounter and to make it absolutely free.  If you are interested in attending, the workshop will be on Wednesday, October 26 from 9:30a – 12:30p at the University Heights Center in the U District.  In addition to myself, there are going to be two rockstar attorneys there that “get” startups — my friend and colleague, Katie Long, will be talking IP and how to protect it, and Sara Evans of the leading employment law firm, Jackson Lewis, will be talking about consultants, contractors and employees.

To reserve your spot, go to the Legal Nuts n’ Bolts for Entrepreneurs sign up page and claim one of the free tickets.  Let people know you’re coming, invite your friends, and pass it on.

I look forward to seeing at the workshop on October 26!

At the end of the day, however, a healthy startup community is like a three legged stool.  One leg is great entrepreneurs, another is great ideas and the last is great advisors.  If any of these three legs or key elements is missing or is somehow too short or too long, then the entire ecosystem is out of balance.  In this article, I discuss each of these three key elements as part of a healthy startup ecosystem.

Great Entrepreneurs

The first element that a city or town must have in order to set on the road to creating a healthy and vibrant startup community is great people.  Great people come from all walks of life and all sorts of backgrounds.  So, when I say “great,” I don’t mean people with a certain type of degree, or people with a certain type of experience, or people that have worked at a certain type of company.  It takes more than a Harvard or Stanford MBA, or a CS degree, or five years of programming at Microsoft or Google or Wall Street experience to be a great entrepreneur.

You can’t “policy” your way to a healthy startup community, and you can’t just throw more money at ideas or people either.

It takes a whole lot more than paper accolades to make a great entrepreneur.  A great entrepreneur is someone who has courage; the courage to jump off the cliff into the abyss not knowing if there is a bottom or if you will land safely.  A great entrepreneur is also someone who has keen observation skills; the observation skills to see how things work and how things don’t work, to spot trends before anyone else, and synthesize information rapidly and accurately to draw correct conclusions more often than not.  A great entrepreneur has foresight and vision; the foresight to predict how trends and collected information add up to disrupt an existing market and the vision to create a new one.  And lastly, a great entrepreneur has focus; the unique ability to ignore the distractions, the me-toos, the wanna-bes and the also-rans, and hone in on an idea with laser-like precision.

Great Ideas

The second key element for nourishing and supporting a healthy startup community is great ideas.  Of the three elements I discuss in this article, great ideas are perhaps the most prevalent.  That’s not to say that coming up with a great idea is easy, but rather that the occurrence or instance of great ideas, of sparks of brilliance, is higher than great entrepreneurs, or great advisors, which we will discuss next.

In and of themselves, ideas are cheap.  They are worthless.  Most entrepreneurs have dozens of ideas and most great entrepreneurs already have the next great idea lined up while working on their current startup.  Honestly, who doesn’t have an idea journal or log?  [Hint:  If you don’t, get one and keep track of your ideas.  You never know when you’ll need one.]  Ideas are easy to generate.  They take no time or commitment, sacrifice, or action.  All they take is a spark, whether while taking a shower, or riding a bus, or talking to Aunt Hilda.  A great idea is an idea that actually has some potential for changing the status quo, or reinventing the future.  A great idea is an idea with an angle.  And most of the time, great ideas are not obvious.  If they were, everyone would have them.

Great Advisors

The third and last element of a healthy startup community is great advisors.  Great advisors are the professors, the VCs and angels, the lawyers and accountants, and the other entrepreneurs and business people who regularly and consistently give of their time, for free, to coach and mentor and push and polish entrepreneurs to help them become great entrepreneurs.

Great advisors poke and prod and question and cheerlead.  They are brutally honest and graciously giving.  Like diamonds in the rough, they take untempered entrepreneurs and help them to shine, to become great entrepreneurs.  Great advisors are also well-read and analytical, and help entrepreneurs realize when the timing for an idea is off, or the demographics are wrong, or the finances just don’t make sense.  They help filter and differentiate the fabulous from the ordinary.


At first blush, many may believe that creating a healthy startup community is easy, that all it takes is more money or more startups or more incubators.  The truth is that the chemistry of the perfectly balanced, symbiotic, self-sustaining startup ecosystem is elusive.  You can’t “policy” your way to a healthy startup community, and you can’t just throw more money at ideas or people either.  It takes a balance of time, effort, human and financial resources, and sacrifice to accelerate the development of entrepreneurs, ideas, and advisors, into great entrepreneurs, great ideas and great advisors.  When the right balance is struck between the various stakeholders and these stakeholders are both committed and communicative, a healthy startup community can be cultivated.

I’m sure there isn’t a single entrepreneur out there that hasn’t heard of the term “traction,” as in “I love your idea, but come back when you have more traction.”  For those of you who haven’t heard of the term, we’ll familiarize you with the concept in this article.  And for those of you who think you know what traction is, we’ll work on focusing your sights on what traction means for you and how you should be thinking about it as part of your startup strategy.

Traction Defined

Traction usually comes up early for startups.  It could be when you realize you need outside capital to continue growing or building your startup, it could up as part of a university business plan competition, or it could come up in talking with a strategic advisor.  Traction indirectly refers to how well a startup is getting general market validation of its business proposition and proving out its business concept.  Put another way, we could merely say that traction is a measure of how well your startup is progressing.  Refining this a little further and honing in on a working definition, we could say more specifically that traction is a measure of how well a startup is delivering its business model and how well its target demographic is accepting that business model.  Traction is also a line of demarcation — it marks the transition point from idea discovery or ideation to customer acquisition and validation.

[T]raction is a measure of how well a startup is delivering its business model and how well its target demographic is accepting that business model.

As you can tell from the definition of traction above, it’s general.  It doesn’t specifically tell you what traction is for your startup or how to apply it.  Here’s where the secret sauce comes in — in order to demonstrate traction you have to apply the general definition to your startup using a key metric that signifies how well your startup is performing.  Some people call this key metric a key performance indicator, or KPI.  I don’t really care what you call it.  The bottom line is that it is a metric of your own choosing, and sometimes of your own making, that specifically reflects how well you are accomplishing what you set out to accomplish.  Note, that unless you have some grand strategy, eyeballs alone do not a key metric make.  There needs to be a financial component to this key metric.

Metric Examples

So, what are some examples of key metrics that you can use for demonstrating traction?  Many startups use straightforward measures of traction, such as gross revenue, transaction volume, or gross merchandise value.  Once you have this in place, you can easily come up with a slightly more refined and complex metric that measures how deeply you are penetrating your target customer by coming up with a quotient, such as revenue per customer, transaction size per customer, or number of transactions per customer, and show how that changes over time.

Once you’ve settled on a simple metric that measures your growth, you can start  getting more refined and start slicing and dicing the financial data to figure out performance by market, sector, demographic or other sub-category.  For example, you may want to know how appealing your value-add is to soccer moms, so you start collecting sales data for women between the age of 25-40 with children and tracking it over time.

The goal initially is to choose the key metric that accurately expresses, both quantitatively and graphically, how well your startup is performing and growing.  If you find that one metric will not depict your startup’s story, as you would like to share it, pick more than one metric but try to keep it simple.

The Importance of Traction

Why are we going through all the trouble of coming up with one or more key performance indicators for your startup?  A couple of reasons.  First, if you intend to raise money, your investors will want to know how things are going and where you are in the startup development lifecycle.  Traction will come up in this context and you had better have a response for it, or be sent away with the usual reply “come back when you have more traction.”

Some traction is necessary but not sufficient.  You must have enough traction to convince someone, anyone, that what you are doing and how you are doing it is financially worthwhile and has merit.  That’s why you need to identify your traction metrics early and track them over time to see how you are progressing.  You should even consider setting goals or milestones for yourself and your team, to keep everyone honest and hungry, such as “by this time next year, I want to hit _________ dollars per transaction and _________ customers.”

I admit that identifying or creating the one or two key metrics that basically capture the financial progress of your startup isn’t easy.  This is the stuff of financial analysts.  However, with a little focus and a diligent understanding of what your service means to your customers and how they are using it, you can identify a metric that captures the essence of your startup’s traction.  And hopefully when you do, it’s the hockey stick graphic that you can include as one of your slides on your pitch deck.