Growing A Business Through Capital and Traction, Part 2

SIBP-1While securing financial, knowledge and relationship capital is the biggest and most immediate challenge most entrepreneurs, startups and small businesses face, it is by no means the only challenge. A close second is gaining traction.

What exactly is traction? It’s basically all the things that help you sell more of your products or services. The more traction you have, the more momentum your business has. The more momentum your business has, the more viable it is and attractive it becomes to outside investors.

For an early stage company, gaining traction is really about building your sales. There are other kinds of traction that will become important later on, but for a business that’s just starting out, traction and sales are effectively the same thing. And there’s a good reason that these two concepts are connected. Cash is king.

Without cash, you really can’t do much of anything. That’s as true in your household finances as it is for your business. That’s as true for big, established companies as it is for startups. When a company goes out of business or has to restructure out of bankruptcy, it’s always for the same reason: They ran out of cash.

Without cash, you’re dead in the water.

A lot of startup companies and young businesses have to rely on outside sources of cash. As they’re getting ramped up or expanding, they just don’t have enough cash. They need money to invest in equipment, staff, inventory and office or other commercial space. To offset the cash that they’re burning through (it’s called cash burn for a reason), they have to bring in outside money.

To be successful, these entrepreneurs and business owners need to balance their need for cash with their available sources of this cash. Cash comes from three sources: The business owners themselves, outsiders (investors and lenders of various kinds), and sales.

This may seem surprising, but many businesses get so wrapped up on trying to raise money through outsiders that they completely overlook the power of generating money through sales. The irony is that once you understand how to build your sales, it’s usually one of the easiest and quickest ways to bring cash into the business.

Sales can seem unpredictable, particularly in the day-to-day experience. On a fundamental level, however, sales isn’t complicated. It’s a system driven entirely by inputs and outputs. The more opportunities you generate and act on, the more sales you make.

That offers you a level of control over how much money you can make, which is something you don’t have at all when it comes to raising money from outsiders. When you approach a bank or an investor, they have all the control. It’s the golden rule: He who has the gold, makes the rules.

When you focus on sales, however, you have all the control. The more successful your sales efforts, the more traction you have. You have more cash flow, and that cash flow is under your control. The more traction and momentum you have, the more ability you have to negotiate better terms with potential investors and lenders. You’ll also have the upper hand. If you aren’t getting a deal you like, it’s easier to walk away if you know you can rely on your sales to continue growing your business.