Access to finance - Before you access funding - you need traction

Access to finance - Before you access funding - you need traction

Written on 09/30/2019
Jason Newmark

South Africans feel a sense of entitlement when it comes to getting funding for their business. A lot of entrepreneurs come up with an idea and then expect organizations to fund them based on their brilliant business plan and the concept they present them. When they don't get funding they sit back complain, moan and either don't pursue it because of the barrier and either give up or keep wasting time searching.  

Before trying to access funding you need to have a business model which is repeatable and scalable.  Most investors want to invest in a business when they can see, and you can prove that your business model is working and that you need the funds to scale.  When a business is able to scale their operations, this means that they are able to handle a growing amount of work or sales in a capable, cost-effective manner.  Just because you have a few customers who regularly buy doesn't mean u are ready to scale and ask for funding. You first need to prove that you have a problem worth solving, a solution for this problem and then a market who is buying it, and that the funds you require, will allow you to gain access to more customers in the market. This needs to be proved and validated before anyone will empty their pockets and invest in your business. 

‘It's not about how shiny your car looks and if has all the latest features and gadgets, it's about proving your car has petrol in it and is moving’

The number one metric (petrol) which funders look for is Traction.  Because if you have a repeatable & scalable business model and can prove you have traction - this is then the perfect time to try access funding, as at this stage you and the financers have the same goal and this is to grow the business. 

What is traction: Traction is the rate at which a business model captures monetizable value from its users – Ash Mauyra

The right traction metric needs to show business model growth. What this means is that traction is the output of your working business model.

“A business model thus describes how a business creates, delivers, and captures value, from its customers”

That said, I it’s important that I emphasize that monetizable value is not the same thing as revenue. Revenue is an after-effect of value creation and not all that actionable by itself. In order to grow your business model, you need to uncover the key activities your users do that serve as leading indicators for future revenue. That is the concept of monetizable value.  

I repeat rather spend your time working on your business model and gaining traction for your business, once you have this you can then approach the many financial institutions and investors out there and pitch your business model and show the traction you have created through it.  You can gain far more chance of getting access to finance when you can validate your business model and prove you have the one metric that matters to investors – Traction.

Jason Newmark is a serial entrepreneur and the Leading Authority and Pioneer of the Lean Methodology for startups in South Africa.  Owner of the Newmark Group of which initiatives include:  Co-Founder & CEO of Mompreneurs & Co-founder & Director of Lean Start Entrepreneurs South Africa.  He is the winner on the awarding winner show ‘Shark Tank’ & acts as a mentor and expert startup contributor for Thriving Network for Entrepreneurs & The Allan Gray Orbis Foundation.