An entrepreneur asks:
How important is traction vs a potentially revolutionary idea that is yet to gain traction? How do you decide to invest in a company that has great traction but no revenue model?
‘Potentially revolutionary’ seems to imply very little traction so far. It also implies expectations of explosive growth. That’s the key to thinking about this: if revolutionary, not evolutionary, is your game, then showing traction in the form of revenues and cash flows isn’t as important as sign-ups, usage, going viral and other non-financial metrics. Then your job becomes one of convincing investors on how you will achieve these metrics.
Now, does this mean that pitching non-financial metrics will always work? Not necessarily. Investors in India and other parts of Asia do care a lot about monetization and for good reason. Broadly speaking, non-financial measures of traction are not sufficient to attract large cheques. There is absolutely nothing wrong with working on an evolutionary business instead of a revolutionary one — and this often results in a better outcome.
From my latest column at Yourstory.