Traction vs. Revenue for Startups

by Deanne Watt, Fractional CPO

When you’re launching a software startup, should you chase traction or revenue first? It's like asking if you should date for fun or marry rich—there’s no wrong answer, but the choice says a lot about your strategy.

Here’s a breakdown that could save you a year of investor meetings and a lot of ramen dinners.

Why Traction and Revenue Matter (But in Different Ways)

Traction is like high school popularity: it shows that people care. This could mean growing user numbers, engagement, partnerships, or even buzz on Product Hunt. For many modern investors, especially in pre-seed or seed rounds, traction is proof that your product solves a real problem—even if it’s not making money yet.

Revenue, on the other hand, is hard currency. It tells investors you’ve not only built something people want but also something they’re willing to pay for. That’s catnip for later-stage VCs or angels who like their bets with a side of spreadsheet.

The Case for Traction First

Pros

• Great for fundraising: It makes a compelling story. “We grew 500% last quarter” opens wallets.

• Opens feedback loops: More users = more feedback = better product.

• Shows market potential: Investors bet on markets. Traction proves there’s one.

Cons

• It can be a vanity metric trap: 10,000 users who never return won’t impress forever.

• Often means you’re burning cash: Without revenue, you’re dependent on runway or investors.

If you're B2C or freemium SaaS, traction-first is often your best bet. Just make sure you’re tracking the right KPIs (like retention and MAU/DAU ratio).

The Case for Revenue First

Pros

• Validates your business model early: You’re proving value and cash flow.

• Easier path to profitability: Or at least sustainability.

• More investor confidence: “You made $20K last month?” gets attention.

Cons

• Slower growth: You’re optimizing for monetization, not scale.

• Can limit experimentation: You might skip bold features that don’t immediately pay off.

If you're B2B or enterprise SaaS, prioritize revenue. Your early customers are often your best evangelists—and investors love paying customers.

What Modern Investors Really Want

Today’s early-stage investors (especially in SaaS) are shifting. They’re no longer impressed by user spikes without retention or revenue. They're looking for efficient growth—a mix of traction and early signs of monetization. In other words: can you grow fast, but responsibly?

If you’re raising:

• Pre-Seed: Show traction—users, signups, engagement.

• Seed: Show traction + revenue—conversion rates, first paying customers.

• Series A: Show repeatable revenue—monthly recurring revenue (MRR), low churn, customer acquisition cost (CAC) vs. lifetime value (LTV).

Tips for Balancing Both

1. Start with clear KPIs: Know what signals matter most—MRR, active users, conversion rate, or churn?

2. Build monetization into the product: Don’t bolt it on later. Make it feel natural.

3. Use pilots and paid betas: They let you test monetization without going all-in.

4. Track unit economics early: Know your CAC, LTV, and payback period—even if it’s ugly right now.

5. Don’t fake it: Vanity metrics are transparent to seasoned investors.

Traction gets you into the room. Revenue gets you to stay. If you can do both—even a little—you’ve got investor catnip. But if you have to choose, pick the one that tells your story best. Just make sure the story ends with a path to both growth and cash.

Q&A

What counts as “traction” for early-stage startups? Traction means proof people care—this could be user growth, engagement, waitlist signups, social buzz, or pilot users. It’s early validation that your idea is sticky.

Can I raise funding with traction but no revenue? Yes—but it depends on the story you're telling. Pre-seed and seed investors often back strong traction if you’ve shown market interest, retention, and a monetization plan (even if you haven’t flipped the switch yet).

What are the risks of focusing only on revenue early? Revenue might slow growth or product experimentation. If you're too focused on monetization, you could miss building long-term user value or the viral features that attract scale.

How do I know when to switch from traction to revenue? Look at retention and engagement first. If users are sticking around and loving the product, start testing paid features. If they're bailing after one use, fix that before charging.

What metrics do investors really want to see? They want evidence of product-market fit. For traction: daily active users (DAU), retention, NPS, etc. For revenue: monthly recurring revenue (MRR), customer acquisition cost (CAC), and lifetime value (LTV). If you can show efficient growth, you’re golden.