What are the words every startup founder needs to know?
Are you starting a company but you don’t have an MBA? Have you ever been on a call with someone to talk about your business and you’ve never heard half of the words that they’re using? What the heck’s a cap table? Cliff? Chasm?
Don’t worry because you don’t need a business degree (mine’s in French literature), and you don’t need to go it alone. Running a startup is crazy exciting but it can also be super overwhelming. I know because I’ve done it over 7 times.
To make it easier for you, We’ve created a glossary of 56 terms that you’ll need to know while you start, scale and maybe even sell your company.
Every Term You Need to Know as a Startup Entrepreneur
Also known as split testing. Comparing two versions of a web page, product, campaign, etc. to see which performs better. At early stages, it’s debatable whether or not A/B testing is worthwhile because it can distract management from higher yield activities.
Fixed-term, cohort-based programs, that include mentorship and educational components and often culminate in a public pitch event or demo day. Accelerators can be either privately or publicly funded and cover a wide range of industries. There are specific types of seed accelerators, such as corporate accelerators, which are often subsidiaries or programs of larger corporations that act like seed accelerators.
When a user goes from being a free user to a paying customer or activates their paid Saas subscription
Relating to or denoting a method of project management using the build, measure, learn loop, used especially for software development, that is characterized by the division of tasks into short phases of work and frequent reassessment and adaptation of plans.
The product testing with the internal team when the feature which you are developing is incomplete or partially complete.
An investor, typically an individual, who invests in a startup very early on in exchange for convertible debt or ownership equity.
B2B (Business to Business)
The business’ products or services are sold to other businesses rather than consumers
B2C (Business to Consumer)
The business’ products or services are sold to consumers rather than other companies.
A pre-release of software given out to a group of users to try under real conditions. Beta versions have gone through alpha testing and are usually close in look, feel and function to the final product; however, design changes often occur as a result.
Board of Directors
Team of people that advise, mentor, and help founders made critical business decisions in regards to hiring, business development, and fundraising.
Using the founder’s own funds, knowledge, skills, and experience to launch and grow a startup
The amount of monthly cash that a company spends before it starts generating its own income. A company’s burn rate is also used to measure its runway, the amount of time the company has before it runs out of money.
Business Model Canvas
A visual chart with elements that describe the main parts of launching a startup such as revenue model, acquisition channels, customer segments, and value proposition
CAC (Customer Acquisition Cost)
The amount of money it takes to bring one new customer to your company. CAC can be calculated by dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent. For example, if a company spent $100 on marketing in a year and acquired 100 customers in the same year, their CAC is $1.00.
A table that shows the amount of ownership per stakeholder, equity dilution, and value of equity in each round of investment by founders, investors, and other owners.
The amount of money coming into and leaving the business. Here is a free downloadable Cash Flow Calculator.
The percentage of your customers that discontinue their relationship with you or stop using your product/service.
The amount of time that must go by before an investor or employee is fully vested. Four years with a one-year cliff is the typical vesting schedule for startup founders’ stock.
Under this vesting schedule, founders will vest their shares over a total period of four years. The one year cliff means that the founders will not get vested with regards to any shares until the first anniversary of the founders stock issuance.
How a startup differentiates itself from its competitors or how it has an advantage over its competitors
Raising funding through raising small amounts of money from a large number of people Crowdfunding is a form of crowdsourcing and alternative finance.
As a stage in the lean methodology, startups explore and validate who their ideal customer is (through interviews and qualitative and quantitative testing).
When a startup’s product or service challenges (disrupts) the status quo
Products used by an organization rather than individual users.
Customers that believe in, adopt and promote a startup’s product or service early
To leave the business through IPO (initial public offering) or mergers and acquisitions
A way to acquire new customers by offering a free subscription and then encouraging them to upgrade to a paid plan with enhanced features
Using a low-cost strategies and marketing campaigns to quickly grow revenue
The revenue growth pattern of sudden and extremely rapid growth after a long period of linear growth that, on a graph, happens to resemble a hockey stick.
Top-line revenue, also known as gross revenue.
Organizations or programs that offer long-term support and advisement to startups, such as mentorship and connections
An updated or new version of a product, ideal client, or anything associated with the business and how it operates, after a minor change
IP (Intellectual Property)
When a startup goes through the process to own the rights to their product (or parts of it) or invention, typically via patents, trademarks, or copyrights
KPI (Key Performance Indicators)
Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making.
The methodology for developing businesses and products that aims to shorten product development cycles and rapidly discover if a proposed business model is viable; this is achieved by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and validated learning.
LTV (Lifetime Value)
The value a specific customer brings to a company for as long as it is in business
MVP (Minimum Viable Product)
A concept from Lean Startup that serves as the first version of the startup’s product and stresses the importance of learning in new product development. An MVP is an actual product (which may be no more than a landing page, or a service with an appearance of automation, but which is fully manual behind the scenes) that you can offer to customers to observe their actual behavior with the product or service.
Founders and business owners who tend to be more on the business and marketing side of the business rather than the technical side
A presentation that gives an overall picture of the startup. It’s presented to investors so they can make investing decisions.
Read more about 8 Essential Fashion Pitch Deck Examples from Successful Startups
A major change to the business and how it operates
The value of a company before investing actually happens. This valuation gives investors an idea of the current value of the business and provides the value of each issued share.
The value of a company after investments have been made
The degree to which a product satisfies a strong market demand. In other words, being in a good market with a product that can satisfy that market.
The customers a startup keeps or retains over time. This can be measured by subtracting the number of users acquired during a given period from the number of users at the end of that time period, divided by the number of users at the start of that time period x 100.
The amount of money earned by a company, based on sales, and before expenses
ROI (Return on Investment)
The amount of money or time someone to expect to receive based on their investment in the startup.
Revenue projection over a specific period of time based on current performance
Typically comes after Angel investing and allows startups to get funding for product development, marketing, etc.
Series A, B, C
Series A is the first round of funding that helps a startup scale fast, while the goal of Series B and C funding is to expand and even get acquired or an IPO
Time, energy, knowledge, and skills (rather than money) invested into a startup
A startup’s ideal group of buyers based on demographics and psychographics
Outlines the terms of the investment agreement
Refers to the concept in Geoffrey A. Moore’s book Crossing the Chasm that is about the “focus” required to get early stage technology products across the deadly chasm from early adopters to mainstream customers.
The initial progress of a startup and the momentum it builds as it grows, especially seen when the business has paying customers. Investors are more excited when there is momentum in the business. It’s one thing to say you have a great idea that may get customers some day. It’s another thing entirely to have actual paying customers!
A startup unicorn is a privately held technology company with a valuation of over $1 billion. The term was first coined in 2013 by venture capitalist Aileen Lee.
Unicorns with over $10 billion in valuation have been designated as “decacorn” companies.] For private companies valued over $100 billion, the terms “centicorn” and “hectocorn” have been used\ Elon Musk‘s SpaceX is in the forefront to reach the elusive “superunicorn” status, to reach over $1 trillion valuation while remaining as a private company. Wikipedia https://en.wikipedia.org/wiki/Unicorn_(finance)
Proving that your product or service is in demand/there is a need for it/people will pay for it. Revenue, showing that you have people who will pay for what you’re building, is the strongest example of market validation.
The value, or differentiator, that a startup brings to the market
VC (Venture Capital)
A form of private equity financing provided by venture capital firms or funds to startups, early-stage, and emerging companies that have high growth potential. For some examples of venture capital firms, visit our 15 Pre-Seed Venture Capital Firms who Invest in Early Stage Startups.
The amount of time before an investor can claim their shares in a startup. The standard vesting for startups lasts four years, with a one-year cliff. In other words, a founder or employee will fully retain all shares after four years. After the first year, a percentage of equity will be vested either monthly or quarterly until it is fully vested after four years.
There you have it: 56 words every startup founder needs to know.
If you’re like I was and starting a business with no experience and without an MBA, don’t worry. By being familiar with the words above, you’ll fit into the startup world in no time!
Download your own glossary copy here and keep it handy for your next meeting.