There’s a common meme in Venture Capital that traction is tough to quantify, but you know it when you see it.
Well, let’s take a stab at it anyway. Â Quantifying it. Â Because I don’t think Initial Traction is at all nebulous in SaaS — and I think it occurs earlier than many think.
Here’s a Discrete definition of Initial Traction:
- ARR of $1m or more
- ARR/MRR Growing >=100% a year, annualized
- With >50% of new revenue acquired from zero-cost marketing, i.e. viral, ether, word-of-mouth, whatever … because these compound.
Ok, why this test? Â Well, it means two things:
>> First, that your SaaS product’s customer base (and revenue) is compounding. Not from a large base yet, but it’s now started compounding, albeit at a small scale.  And that’s where the power and leverage are in SaaS.
>> And Second, it means that you’ve begun to build a brand. Â A micro-brand at this phase, but word-of-mouth is starting. Â At least within a tiny community of potential customers. Â Leads and customers from the ether. Â This is what will enable you to scale. Â Because the brand will begin to self-reinforce at this point.
Some people don’t hit this test for quite some time — especially the 3d prong. Â If you’re at $1.5m in ARR but still out there bringing each customer in yourself — well, you’re doing great, but you haven’t really hit Initial Traction. Â Some companies won’t hit this until $2m-$4m in ARR, or even later. Â Some, maybe even most, won’t believe it even then until it seems easier, more repeatable. Â But I think with hindsight, at least, we can often see Initial Traction as early as $1m ARR. Â {Though before that, you’re just too small. Â Before $1m in ARR, your revenues are not big enough to be self-sustaining … even if all your leads are viral or from the ether.}
Now let me tell you. Â When you hit Initial Traction — it won’t feel all that different. Â It will feel the same. Â You’re still struggling to achieve escape velocity. Â After all, with $1m or $1.5m in ARR, or whatever the number is … you may only have 8-10 employees. Â It’s hard to feel like you really have something concrete when you’re all still taking out the trash, answering support tickets, struggling to make payroll. Â It actually won’t feel that real until you’re far further along, $5m in ARR or more, once you’ve got 30, 40 folks all pulling together. Â With some redundancy. Â With a micro-brand that is evolving into a mini-brand.
But Trust Me. Â When you hit Initial Traction — it’s time to accelerate. Â And invest.
Now at the last key step, at 10 Unaffiliated Customers, you had something. Â Not yet a company then, but the start, the heart of something.
Initial Traction — this is the next step.  You’ve got something real now — a tiny, but real, compounding SaaS company.  You’ve established the self-sustaining base of a compounding, powerful SaaS business model.  As long as it’s $1m+ in ARR, growing >=100%, with primarily organic customer flow … things are about to get good.
You may not see it, and I know it was a struggle to get here … but trust me. Â Now it starts to get fun. Â And if you can get through the next phase — then you will make it.
Don’t miss it, This Moment, The Start of First True Traction. Â Just ignore those who don’t see it, or don’t agree. Â Instead, force yourself, your team to see it. Â Celebrate it. Â And most importantly — take a pause and double down.
If and when you’re there — Congratulations. Â Now you’ve got something real. Â A real SaaS company. Â Now, for the first time, fate … is entirely in your own hands.
(note: an update of one of the first SaaStr posts, with new vid and more)