Fireworks And Flywheels

Why Not All Traction Is Equally Investible

In 2017, working as CMO of Topology Eyewear I accompanied our CEO as we visited and pitched various top-flight VC firms up and down Sandhill Road.

Emboldened by an uptick in traction from a recent launch, we decided the metrics were finally sufficient to unlock a coveted Series A. But what stood in our way was an objection that I’d never heard about in the mountains of startup media I’d consumed before, or even since.

We had the wrong type of traction. 😬

The essence of the feedback was that the customer sales we had achieved were impressive, but not sustainable, as they had primarily been achieved through tactics and customer segments that were not repeatable. So while we had proven that we had a product that some people found worth buying, we hadn’t really validated that the business could acquire customers profitably, day in, day out.

Coming off the back of a late 2016 market blip where startup media told us that “revenue solves all problems” this came as a complete surprise.

Now as we enter 2024 with a fundraising climate expected to be as hard or harder than 2023, we again hear this “traction solves all problems” refrain.

What you need to keep in mind is this:

Not all traction is equally investible.

The Two Types of Marketing Early Startups Need

Within the practice of Traction Design we recognize two types of marketing that are particularly valuable to early-stage startups: "Fireworks" and "Flywheels."

1. Firework-Led Traction

Firework marketing, much like a real-life firework display, consists of short-lived campaigns and activities that capture an audience's attention.

Crowds gather to “OOOoooo!” and “Aaaahhh!” in awe and fascination. They take photos and share their experiences with friends. However, once the display concludes and resources are exhausted, the crowd quickly disperses, not to return until your next significant event.

This is the type of marketing we mostly practiced during the first 15 years of my career at top agencies like AKQA, servicing clients such as Audi, Mercedes, Fiat, Ferrari, and more.

These are the "campaigns and launches" that earn press mentions, win awards, and make your LInkedIn feed look awesome.

Examples of Firework-Led Traction

Imagine firework campaigns as bright flashes of significant awareness, all in a compact timeframe. They dazzle, they excite, but their charm isn't typically repeatable. For example:

• Product Hunt or Kickstarter launches
  These platforms are like a golden ticket to attract attention and cash in on early adopters interested in new products. But remember, it's a one-time thrill, and the clicks or funds you gather can't be replicated the following month.

• Niche newsletters and directories
  Publications like Ben’s Bites, Superhuman and more took the stage in 2023's AI product launches, becoming the go-to for dedicated Substack and other email newsletter roundups of new products. They've become magnets, pulling in huge audiences of people who are expressly interested in new products.

• Celebrity or influencer announcements
  While some celebrity and influencer partnerships turn into long-term relationships, most are like shooting stars - gorgeous, but fleeting. Even in long-term partnerships, the revenue can be a rollercoaster ride, rising and falling with influencer activity.

• Short-term marketing campaigns
  Launch campaigns, seasonal campaigns and sponsorships tend to concentrate large budgets in a short period of time. This means you get more chance of “Cut-through” and being noticed, but by their very nature, the awareness stops as soon as your spend does.

The Problem with Fireworks

Fireworks in marketing can quickly fizzle out, much like the fireworks displays we attended as children. If you want to keep the crowd entertained, you need to spend more resources, which means investing more money in setting up additional fireworks. This continuous expenditure can create a costly cycle.

But that’s not all:

• Fireworks are not investible beyond the seed stage
  While fireworks can make your startup seem "hot" and buzzy, they do not demonstrate your ability to generate repeatable sales. Therefore, they do little to mitigate risk in the eyes of a Series A VC investor.

• Fireworks can provide misleading feedback on your startup
  During a campaign, fireworks can flood your startup with interest from early adopters. This can feel like product-market fit but it's merely a temporary surge, which doesn't represent the usual business operations.

• Fireworks are expensive and addictive
  After the buzz of one fireworks campaign subsides, there can be pressure to replicate it, creating a dependency on costly, non-repeatable acquisition methods.

To clarify, fireworks absolutely can be valuable and even essential in certain circumstances, but they need to be balanced with their opposite counterpart - “flywheels.”

2. Flywheel Traction

A flywheel, in its original sense, is a mechanical device specifically designed to efficiently store rotational energy.

In a business marketing context, a flywheel is a metaphor for a strategy that, once it gets going, continues to sustain its momentum. It represents a cycle where different parts of the business feed into and accelerate each other, creating a self-reinforcing loop.

Unlike fireworks, which represent one-time events or campaigns, flywheels represent ongoing, sustainable strategies that build upon themselves over time.

Examples of flywheels in startups

These are the channels, tactics and “motions” that you choose to power your “business as usual” growth and generate sales day in, day out, such as:

• Product-Led Growth

  Product-Led Growth (PLG) is a robust source of repeatable, scalable revenue. It uses the product itself as the main driver of customer acquisition, conversion, and expansion. This strategy creates a self-reinforcing cycle of growth. The product continuously improves based on user feedback and data, attracting more users. As more users adopt and find value in the product, they become advocates, driving user acquisition organically. This makes PLG an efficient, sustainable, and scalable growth strategy.

• Retail and Channel Marketing

  Retail and channel marketing are effective sources of repeatable, scalable growth. They allow startups to leverage existing customer bases and distribution networks. By placing products in retail outlets or partnering with other businesses to promote your offerings, you can reach new audiences and generate steady sales. Over time, successful retail and channel partnerships can increase brand awareness, customer loyalty, and steady revenue streams. These strategies are sustainable and scalable.

• Inbound Marketing, Content Marketing and SEO *

  Done correctly, these efforts build like compound interest. Initially, you may have low domain authority and few subscribers or followers, resulting in low engagement. However, a year later, each new post benefits from the accumulated domain authority and reaches a larger audience that can re-share your content. If you are able to commit consistently, you will be rewarded with a fairly bankable volume of qualified traffic each month

• (Affordable) Paid Growth

  Paid advertising can be a scalable flywheel, provided that the cost fits within your Customer Acquisition Cost (CAC) budget for your given project. If the cost of acquisition exceeds the budget set by your business model, paid advertising should be considered more of a firework than a flywheel.

Though these strategies might lack the glitz, glamour, and recognition, their undeniable allure lies in their consistent ability to churn out sales, day after day.

(* = Note: As of late 2023, content marketing and SEO could be considered flywheel motions. However, with the vast changes currently happening in search engine marketing, the emergence of AI-based products, and the proliferation of bland, SEO-focused text, it's plausible that this approach could die and become irrelevant by year's end. Therefore, I'd recommend caution when considering content marketing as the core of a flywheel strategy from 2024 onwards.)

Flywheels Are When Output > Input

Your first objective is to create repeatable traction, rather than sporadic instances of growth.

But the term "flywheel" is used here in its original sense: a flywheel stores energy and, when more effort and energy are applied to it, it generates more output than the input.

This characteristic is what truly separates flywheels and makes them the holy grail of investible traction.

MRR vs FOMO: Which is More Investible?

This article isn't about debating the value of one over the other, as both hold significant importance. For startups, it's crucial to understand where the value lies and what is most appropriate at each stage.

Fireworks For Pre-Seed & Seed

Fireworks play a valuable role at the pre-seed and seed stages.

At these stages, investors don’t expect your revenue to be mature yet. They are more motivated by market potential and the founding team, and often enticed by the fear of missing out (FOMO).

Creating a significant buzz and social proof, which can be captured as leads, is an excellent way to sweeten your seed deal.

Flywheels for Series A

Serious Series A investors don't invest in fireworks.

Their aim is to reduce investment risk by ensuring that you can create a sustainable customer acquisition cycle, or "flywheel". They need to know that you can systematically and profitably acquire customers, which places greater importance on repeatable, scalable traction flywheels.

Aim to have built, tested and validated that your primary traction flywheel really works at least a couple of months or so before your raise.

How To Know If Your Traction Is Coming From Fireworks or Flywheels

If you're wondering where your current traction is coming from, and whether it is more fireworky or flywheely, ask yourself:

• Is your growth stable and smooth (Flywheel) or bumpy and sporadic? (Fireworks)

• Does your growth stop or wane when your effort stops? (Fireworks)

• What happens if you occasionally switch your marketing spend off? Does your revenue hold steady for a while then slowly decline? (Flywheel) Or does it drop suddenly and dramatically? (Fireworks)

Conclusion

Understanding the difference between Fireworks and Flywheels is critical for aligning your revenue goals with your investment strategy .

While Fireworks can create buzz and are valuable for pre-seed and seed stages, they are not sustainable long-term strategies. On the other hand, Flywheels represent repeatable, sustainable growth strategies that can unlock significant funding.

As a startup, knowing when to utilize each model and how to transition from Fireworks to Flywheels can be the key to securing funding and achieving long-term success.

You can also book a call to discuss directly with me, or DM me via LinkedIn if you want to chat further.