“Growth hacking”. “Pivot”. “Exit”. Sometimes it seems like the startup scenehas it’s own language. But there’s one word that tells me everything I need to know about your venture: traction..

I’m not talking about dragging something over a rough surface. Ironically, once you get traction in the startup world, you’ll find everything starts to move a lot more quickly.

I’ll never forget when I realised I was really onto something with my first business, SE Net. It was when the number of people demanding our product, a fixed-line dial-up internet service, began to outstrip our ability to deliver it with the team and resources we had. I found myself working 12-hour days, and it dawned on me that we needed to rapidly grow our team and systems to take advantage of the opportunity in the market, we were lucky we could access debt and had no requirement to sell equity. This is what traction feels like.

On Sunday’s episode of TEN’s Shark Tank we saw a legend of a startup entrepreneur: a true-blue farmer who I think represents everything that’s right about Aussie ingenuity. John Gorman came to pitch what could be a fantastic, world-changing product. He had, off his own back and using $700,000 of his own money, invented a panel-board produced from the excess waste left over from rice production.

John had teamed up with Grant, a finance guy, to launch the product under the AMPAN brand. They were asking the Sharks for $250,000 to build a factory capable of producing over one million metres of the AMPAN board over the next 12 months.

Great product, great founder – but terrible business strategy. They had no traction: they had not yet proven that one single customer wanted to use their product. To sink a quarter of a million dollars into building a factory without first proving demand is not something any Shark was keen to finance. Sadly, they walked away empty handed.

Above all, what investors want to see in startups, is signs of traction. Proof that your idea is delivering, based on solid numbers (be it sales, users, revenues or profits) is essential in getting investors over the line.

It doesn’t have to be shifting a million metres. If John and Grant had a few glowing customer reviews talking about how AMPAN board was better, cheaper, easier to use than the rest – I’d have been in, and probably fighting off other Sharks to clinch the deal.

Inventing new products and service can be an expensive game. Discovering whether your product will gain traction in the market can make a massive difference, between throwing hundreds of thousands of dollars into a black hole, or changing your course to find how your startup can work.

Robbie Adams of Mobilyser had found this out the hard way, spending nearly half a million to develop his startup, which aims to help people track and differentiate between work and personal calls on their mobile phones. For me it’s a solution in search of a problem, and I begged Robbie to stop pursuing this idea without validating the market for it first.

If you want to avoid the risks of building a startup without gaining traction, there are methods to do this. The answer is to test, test, and test some more – and get your customers to help you develop the right product. Read Eric Reis’ The Lean Startup, participate in a Lean Startup Weekend. If you’re initial idea isn’t gaining traction, stop and take a breath. Try to understand why you are not getting the traction you expect then, if need be, take a different path.

Once you have people willing to pay for your product – and you see increasing numbers of them coming to your door – you’ll know what traction feels like. That’s when the real work begins.

This article first appeared on Business Review Weekly. View the original here.

I can still remember one of the most daunting decisions I ever made. It began during a conversation with my fiancé, in a car on the outskirts of Adelaide in the early 1990s. I had this crazy idea. I thought that there was a big opportunity to start an Internet business in South Australia. But to do it, I’d need to take our entire life savings: $11,000 that we had saved for a deposit on our first house.

Week in and week out on TEN’s Shark Tank we see entrepreneurs who have faced the same dilemma themselves: to startup, or not to startup?

I’ve worked with dozens of startup founders over the years, as a co-founder, investor, and mentor. I’ve found there are no hard and fast rules that determine what skill set or personality types make a successful entrepreneur. However, I have found some common actions that I see successful founders taking, as they endeavour to set up and grow their business.

1. RAZOR-SHARP FOCUS

Launching a startup isn’t easy. It takes a lot of blood, sweat and sleepless nights. It’s not just enough to love, live and breathe your industry or new venture. You need to have your energies and attention wholly devoted to making it work.

Jeff Philips of Grown Eyewear entered Shark Tank with a strong product and good numbers, so while sustainable fashion is definitely not in my usual investment territory, my curiosity was piqued. But as the Sharks dived deeper into his business, it became clear that Jeff was splitting his time between Grown Eyewear and a winter headgear business. He intended to use the investment to set up a full time manager on the Grown Eyewear brand, and continue to divide his time between the two businesses.

If a founder isn’t 100 per cent committed to the business I’m backing, it’s a deal-breaker for me. I only invest in startups I think have huge potential, so if a founder believes their other venture is as equally important, I’m going to doubt the opportunity. The increased risk is another key factor. An entrepreneur who has their finger in too many pies is far likelier to see one of them go bad.

2. TAKE THE SHORT-TERM PAIN FOR LONG-TERM GAIN

Nothing is more frustrating for me than seeing people “playing” at startup – and expecting things to be handed to them on a platter. It’s those rare entrepreneurs who will make sacrifices now, understanding that they’ll reap the benefits later, who are far more likely to succeed.

South Australia’s Oliver DuRieu is a fantastic example of this. He came to the Shark Tank to pitch his car-sharing platform, Lamule Australia.

Oliver was well spoken, enthusiastic and smart. He pitched well, and while his startup was a little too early-stage for the Sharks to invest, he made a big impression. What stood out for me was that he understood the big picture of being an entrepreneur. He’d sold his prized Ute, and turned down a high six-figure wage in the mines to start his venture.

Few people are willing to make these sacrifices, and who can blame them? But if Australia is ever going to transition to a knowledge economy led by high-tech businesses, we need more startup founders like Oliver willing to forgo the easy life for the hard yards.

3. LISTENING TO ADVICE AND CRITICISM

Nobody knows it all. You may be the smartest person in the room, but there will always be somebody there who can teach you more, if you’re willing to listen. Entrepreneurs tend to grow very close to their business. It is after all, their baby – they brought it into the world, and have been responsible for it from day one. And, just as parents don’t respond well to strangers offering parenting advice, startup founders can sometimes find advice and criticism confronting.

Being coachable is a key indicator of success for startup founders, and for most early stage investors it comes as a prerequisite. So keeping your calm, refusing to be ruffled by people who are questioning you or your business, and taking on board what potential investors are saying, can make the difference between “deal” or “no deal”.

Sitting in a car with my fiancé on a warm, South Australian evening over twenty years ago, I made the decision to leap into the unknown and start my first business. It ended up being the best decision I ever made.

My advice for people deciding whether to startup or not to startup is to ask yourself: “Can I be super focused, make short term sacrifices, and be willing to listen even to the harshest advice?” If the answer to those questions is yes, then don’t die wondering. Get out there and give it a go.

This article first appeared on Business Review Weekly. View the original here.

The best way to fund your business is from your customers – to get out and sell. This has the side effect of proving your product is something people are willing to pay for. It will also help answer one of the first questions an investor will ask you.

Investment is best used to pour petrol on the fire, to accelerate your plans. But if you’re just doing it for status in the startup blogs, or are trying to create buzz around your business – please quit while you’re ahead.

Getting investment should be about setting a goal, having a plan to work towards that goal, finding the capital needed to fund the cash shortfall due to the plan, and then executing the plan. If the plan starts to work, the value of your business will grow, allowing you to raise money at a higher valuation.

On last night’s episode of TEN’s Shark Tank we saw some great examples of how tough it can be to win investors over, no matter how good your idea or pitch is.

ANSWER THE HARD QUESTIONS BEFORE THEY’RE ASKED

Entrepreneurs need to have a strategy for every investor pitch meeting they enter, and a big part of that is tackling the hard questions upfront, preferably before they are even asked. Hugh and Richard from Nexus Notes entered dangerous territory when they came to the table asking for $300,000 for 7.5 per cent equity, weeks after they had been accepted into leading Aussie accelerator Startmate, requiring them to sell 7.5 per cent for just $50,000.

There is no denying that Nexus Notes delivered an excellent pitch. They had a strong team and their business has already started to see traction. But what Nexus Notes offered the Sharks was a day one loss of epic proportion, and they tried to hide that fact rather than put it right on the table.

Getting into Startmate is a fantastic achievement; it is a great program that is helping companies find global success. But to put any investor into a down round, and then show a wilful lack of understanding about what you have done, demonstrates a massive lack of business maturity – something I know Startmate will fix.

Entrepreneurs need to understand how investors value startups and know the risk of locking investors in at an early stage at an inflated valuation. This can mean entering the scary world of the down round – when you need to raise more cash later, and your valuation is lower than for previous rounds. Many investors have anti-dilution clauses to ensure that their shareholding stays the same in the down round or if targets are missed. This means that the math for founders is scary. Somebody has to lose out, and it will be invariably be the founders’ shareholding that takes a hit.

My offer to Hugh and Richard was serious, even though it came from the annoyed part of my brain. It is a great business, so I offered them the exact valuation they had already agreed with another investor.

DON’T OVERCOOK YOUR VALUATION EARLY ON

Early stage investors are used to seeing startups pull a valuation number from thin air using a justification that they have a massive market or a “world first product”.

But when Hani and Meray of Charli Chair announced their baby-shower chair business was worth $4 million, despite the fact they had only produced and shipped 500 units – I have to admit I was shocked.

If you want to get investors over the line you need to be able to validate your valuation. Silence when an investor pushes you on why you’re worth $4 million will never be met with a ‘there, there’ pat on the back and a blank cheque.

When I was part of the founding team at PIPE Networks, we brought our first external investors on at a $550,000 investment at a valuation of $5.5 million. At the time, we had a net profit of almost $900,000. Sure, we could have pushed for a higher valuation but we knew that the investment was critical for our growth plans. We knew it would bring on the right investors for long-term capital needs, and most importantly set us up to play the big game. The business later floated on the ASX, and then sold for over $370 million.

Sydney’s “The Dinner Ladies” came to the Shark Tank with a strong, established business and plans for an exciting new project. The catch was that they didn’t want to include the whole business in their investment. This is a rookie error. No investors want to see their entrepreneurs distracted and a subsidiary’s ability to take focus from the main game is a recipe for an unhealthy business arrangement.

An entrepreneur’s long-term plan should include diluting equity to bring the right investors on board – not splitting up the business to gamble on new ventures and only offering investors the riskier part.

This article first appeared on Business Review Weekly. View the original here.