This is a comprehensive startup glossary, compiled with the sole purpose to serve as a knowledge base for everyone who is interested to learn about startups.
This startup glossary is categorized into 5 sections – Finance, Marketing, Tech, Growth and Business for the reader’s convenience.
FINANCE TERMS
Accredited Investor
An accredited investor is an individual or a business entity allowed to invest in or trade with securities that are not yet available to the general public. And, those securities may or may not be registered with any regulatory body.
To become an accredited investor, an individual or business has to fulfil the eligibility criteria set by the regulatory authority.
Acquisition
Acquisition happens when one company buys a controlling stake (>50% of equity) in another company.
For eg. Facebook acquired Whatsapp in 2014, and more recently, Indian conglomerate Reliance group acquired Metro Cash and Carry India Pvt Ltd for 100% equity.
Acquisitions can be friendly, like the purchase of Whatsapp by Facebook or can be hostile – Musk taking over Twitter.
Angel Investor
Angel investor is a person who provides a small amount of capital to a startup for a stake in the company. It typically is done before the seed round and happens when the startup is in its infancy.
Oyo’s founder, Ritesh Agarwal is an angel investor to more than 35 startups in India. Some of them include retail tech startup Dukaan, and B2B sales productivity startup Nektar.ai.
This list will give you an idea about the most popular angel investors for Indian startups. To know famous angel investors around the world, read here.
Boot Strapping or Bootstrap Startup
Bootstrapping essentially means to fund and manage business without any external help.
It involves launching a business on a low budget, which means renting of servers, outsourcing design and development and no salary for the founders.
There are 3 stages of a bootstrap startup:
- Ideation (Demo)
- Valley of Death (Sell)
- Growth (Build)
It’s important to note that bootstrap and lean startup are different. Bootstrapping does not mean not spending any money.
Bridge Loan
A bridge loan is a short-term loan to bridge the gap between major financing. It is also referred to as a “swing loan”.
Bubble
A bubble is a situation where an individual stock, a financial asset, or even an entire sector, market, or asset class is valued far more than its original value.
In 2008, USA faced a housing bubble where house prices were over-inflated by artificial demand and speculation. The result was an economic crisis and a nasty recession which made large organizations go bankrupt.
Similar thing happens in tech industry also. Several of the startups, which are making losses in hundreds of millions have astronomical valuations. Such scenario is not sustainable and when it will burst, a lot of them will go bust.
Burn Rate
Burn rate measures how fast the startup is using its available funds. It is fairly common that at the initial stage, the burn rate is significantly higher. The startup needs cash to provide salaries, pay hefty rents and maintenance, and invest heavily in marketing and product development.
Buyout
A buyout is the acquisition of a controlling interest (greater than 50%) in a company. It is used synonymously with acquisition. A buyout happens when a company is going private.
Capital Under Management
The amount of capital, or financial assets, that a venture capital firm is currently managing and investing.
Capped Notes
Capped notes refer to a “cap” placed on investor notes in a round of financing. Entrepreneurs and investors agree to place a cap on the valuation of the company where notes turn to equity.
This means investors will own a certain percentage of a company relative to that cap when the company raises another round of funding.
Uncapped rounds are generally more favourable to an entrepreneur or startup.
Cash Flow Positive
Cash flow positive is where you are spending less money than you are making. This means a startup has some balance left in the bank after it has paid all of its expenses.
For survival and growth, it is important for startups to achieve and remain in a state of positive cash flow.
Cliff Vesting
Cliff vesting is a practice of including equity in the compensation package of the employees who join at an early stage. It is used as an incentive to motivate them to stay longer with the company.
Vesting schedules can be time-based, milestone-based, or a mix of time-based and milestone-based.
Time-based stock vesting allows employees to earn equity over time. Typically, an employee will be required to remain at the company for at least a year to exercise any options.
For milestone vesting, an employee earns options or shares after completing a specific project or when the company or the employee reaches a business goal.
Hybrid vesting combines time-based and milestone vesting. An employee must have been with a company for a certain amount of time and reached a milestone before they receive options or shares.
Cliffs are also used on CEOs by investors to make sure the CEO sticks around after getting the cash.
Convertible Debt
Convertible debt is when a company borrows money with the intent that the debt accrued will later be converted to equity in the company at a later valuation.
This allows companies to delay valuation while raising funding in its early stages. This is typically done in the early stages of a company’s life when a valuation is more difficult to complete and investing carries a higher risk.
Crowdfunding
Crowdfunding is the act of raising money from a group of people. This group is a tribe of early fans who are excited about your business and would like to help you to get your product or site launched.
In exchange for their money, startups give them either rewards, interest or equity. Some of them may even consider it as a donation.
Sites like Kickstarter, GoFundMe, LendingClub provide platform to startups to raise money through crowdfunding.
Debt Financing
Debt financing is a mode of raising funds by selling bond, bills or notes to an investor with the promise that the debt will be repaid with interest. It is typically performed by late stage companies.
Due Diligence
Due diligence is an analysis an investor makes of all the facts and figures of a potential investment. It can include an investigation of financial records and a measure of potential ROI.
Investors can hire consultancy firms such as Deloitte, PwC and alike to see whether the numbers make sense and if is it viable to invest in that particular company.
ESOP
Employee Stock Options or commonly known as ESOPs are a mechanism for offering stocks or shares of a company to its preferred employees.
In ESOPs, companies offer shares at a fractional cost than the market value, which makes a lucrative option for the employees. As the company grows, employees start to see the benefits of the shares they have.
Exit Strategy
Exit is a method by which an investor and/or entrepreneur intends to “exit” their investment in a company. This is how founders and investors get rich.
Common options for exit are an IPO or buyout from another company. Entrepreneurs and venture capitalists often develop an “exit strategy” while the company is still growing.
Fund of Funds
It’s not directly related to startups but is an important term in the world of finance. Fund of funds also known as a multi-manager investment—is a pooled investment fund that invests in other types of funds.
They usually invest in other mutual funds or hedge funds. Its portfolio contains different underlying portfolios of other funds.
IPO
Initial Public Offering or famously known as IPO is a way of raising money from the public in exchange for equity. To launch an IPO, a company needs to first convert its status to public limited and get listed on a stock exchange. It is the most coveted exit strategy in today’s startup world.
Lead Investor
A lead investor organizes a specific round of funding for a company. It can be an individual or a venture capital firm. The lead investor usually invests the most capital in that round, thereby known as “leading the round”.
Leveraged buyout
Leverage buyout happens when a company is purchased with a strategic combination of equity and borrowed money. The target company’s assets or revenue is used as a “leverage” to pay back the borrowed capital.
Mezzanine Financing
A form of hybrid capital typically used to fund adolescent and mature cash flow positive companies. It is a form of debt financing but it also includes embedded equity instruments or options.
At this point, companies that are no longer considered startups but are yet to go public, are typically referred to as “mezzanine level” companies.
In English, mezzanine is a floor that is built between two floors of a building and is smaller than the other floors.
Monetize
Monetizing refers to a strategy of making money through your offerings. It includes deciding upon the pricing, coupled with other marketing strategies like seasonal discounting or offering free trials in order to generate recurring revenue.
Other People’s Money
A funding method, when you use other people’s money to fund your startup, probably from family, friends or other acquaintances.
Payback period
Payback period means the amount of time it takes to recover the cost of an investment. In simple words, it is the length of time an investment reaches a breakeven point (i.e. the point of no profit, no loss).
Portfolio Company
A company that a specific venture capital form has invested in is considered as “portfolio company” of that firm.
Preferred Stock
A stock that carries a fixed dividend that is to be paid out before dividends carried by common stock.
Ramen Profitable
Ramen profitable means profitable enough to cover costs and basic living expenses for everyone working at a startup.
Recapitalization
A corporate reorganization of a company’s capital structure, changing the mix of equity and debt. A company will usually recapitalize to prepare for an exit, lower taxes, or defend against a takeover.
ROI
Return On Investment (ROI) is the amount an investor gets back as a percentage of the money he or she has invested in a venture. For eg. if a venture capitalist invests $2 million for a 20% share in a company and that company is bought out for $40 million, the VC’s return would be $8 million (300%).
Round
Startups raise capital from BC firms in individual rounds, depending on the stage of the company. The first round is usually a seed round followed by Series A, B and C if necessary. In rare cases, rounds can go as far as Series G, which happened with Box.net.
Runway
Runway is a time period a startup can operate at a loss before running out of money. For example, if a startup has $500,000 in bank account and its monthly expenses are $100,000 the runway would be 5 months.
Secondary Public Offering
When a company offers up new stock for sale to the public after an IPO. It happens when founders step down or desire to move into a lesser role within the company.
Seed Funding
The seed round is the first official round of financing for a startup. At this point a company is usually raising funds for proof of concept and/or to build out a prototype.
Series
Series refer to the specific round of financing a company is raising. It is numbered alphabetically in order of its precedence. For eg. Series A, B, C, so on and so forth.
Sweat Equity
When a company offers shares to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions.
This is a good recruiting tool to help you attract passionate talent you can’t afford to pay at market rates.
Term Sheet
Term Sheet is a non-binding agreement that outlines the major aspects of an investment to be made in a company. A term sheet sets the groundwork for building out detailed legal documents.
Valuation
Valuation is a process by which a company’s worth or value is determined. An analyst will look at the capital structure, management team, and revenue or potential revenue, among other things.
Here’s a video that explains how startups are valued:
Venture Capital
Venture capital is the money provided by venture capital firms to small, high-risk, startup companies with major growth potential. People who invest in such companies are called venture capitalists and they typically have a focused market or sector that they know well and invest in.
Vesting
When an employee of a company gains rights to stock options and contributions provided by the employer. The rights typically gain value (vest) over time until they reach their full value after a pre-determined amount of time.
For e.g., if an employee was offered 200 stock units over 5 years, 40 units would vest each year.
This gives employees an incentive to perform well and stay with the company for a longer period of time.
MARKETING TERMS
A/B Testing
A/B testing (also known as split testing or bucket testing) is a method of comparing two versions of a certain thing against each other to determine which one performs better.
A/B testing is usually performed on landing pages, ads and emails. In A/B testing only a single variable is changed, to measure its true effectiveness. If more than one variables are changed, it is known as multi-variate testing.
ARPU / AOV
Average Revenue Per User (APRU) is the average amount of revenue generated by each active user of your app over a given period of time.
Average revenue per user is most commonly measured on a monthly level, using monthly recurring revenue (MRR) as an input.
Average Revenue Per User (ARPU) = MRR / Total number of active users
In eCommerce, it is termed as Average Order Value (AOV), which means the average amount spent each time a customer places an order on a website or mobile app.
Average Order Value (AOV) = Revenue / Total number of orders
B2B
B2B is an acronym for business to business. This describes a business that is targeting another business with its product or services.
For e.g. A tyre manufacturing company would target an automobile manufacturing company to sell its products.
B2C
B2B is an acronym for business to consumer. Contrary to B2B, it involves selling products or services directly to individual customers.
Popular B2C examples include FMCG, retail companies like Walmart or Amazon, and services of professionals like doctors, beauticians, nutrionists, etc.
CAC
CAC stands for Customer Acquisition Cost. CAC measures how much an organization spends to acquire new customers.
To simply calculate CAC, a company considers all its marketing campaign costs and divides it by total new customers acquired.
CAC = Total marketing campaign costs / Total new customers acquired
Many companies also add indirect expenses like:
- Salaries of marketing and sales staff
- Software subscriptions of CRM and sales / marketing tools
- Any additional professional services (e.g., consultants) used in marketing/sales
- Overheads
Churn Rate
Customer churn also known as customer turnover refers to the number of customers you are losing in a predetermined time period.
For a subscription-based business like SaaS, customer churn rate is the percentage of customers or subscribers who cancel or don’t renew their subscriptions during a given time period, such as a month or a year.
Churn Rate = (Lost Customers ÷ Total Customers at the Start of Time Period) x 100
Cohort Analysis
Cohort analysis is an analytical technique that categorizes and divides data into groups with common characteristics prior to analysis.
A cohort is a group of people who share a common characteristic over a certain period of time, such as users that have become customers at approximately the same time, a graduating class of students, or contact tracing individuals during a pandemic.
Cohort analysis technique is typically used to make it easier for organizations to isolate, analyze, and detect patterns in the lifecycle of a user, to optimize customer retention, and to better understand user behaviour in a particular cohort.
Customer Development Model
Customer Development Model is a set of objectives and milestones that are meaningful for a startup.
The Customer Development Model is characterized by an iterative and flexible process that reflects the ambiguous nature of starting a new business and launching new markets.
The CDM process consists of four distinct but connected steps:
- Customer discovery: Focus on understanding your customers, their problems, their preferences and their buying behaviour.
- Customer validation: Develop a replicable sales process―an essential step in scaling a business.
- Customer creation: Generate demand, and identify and tease out potential customers.
- Company building: Focus on building your organization to scale and executing the business plan.
D2C
Short for Direct to Consumer, D2C is a business model popularized by eCommerce companies where a business will build, market, sell and ship a product directly to the customer.
D2C streamlines the distribution process by avoiding any middlemen (such as third-party retailers and distribution partners) — allowing D2C companies to offer products at lower prices than brands using traditional retail business models
DAU/WAU/MAU
DAU: Daily Active Users
It is the measurement of the number of users who are active on an app or website each day.
WAU: Weekly Active Users
The number of unique users that engage with an app, product or website within a 7-day window.
MAU: Monthly Active Users
The number of unique customers who interacted with a product or service of a company within a month.
Deck (Pitch Deck)
A pitch deck is a brief presentation that gives potential investors or clients an overview of your business plan, products, services and growth traction.
A pitch deck normally includes:
- Introduction
- Problem
- Solution
- Market size and opportunity
- Product
- Traction
- Team
- Competition
- Financials
- Investment and use of funds
Demographics
Demographics mean the characteristics of the target market who would be buying a company’s products or services.
Demographics typically include age, gender, education, occupation, family size, marital status, religion and ethnicity.
Demographics form an important part of customer persona since all of the marketing messages are designed as per the characteristics of ideal customers.
Elevator Pitch
An elevator pitch refers to the brief introduction given to a particular concept, product, or initiative.
The reason it’s called an elevator pitch is that it should be short enough to present during a brief elevator ride (in 30 seconds or so).
Evangelist
An evangelist is a marketer who uses word-of-mouth communication to spread a message.
Evangelism essentially refers to promoting the positive attributes of a product or service to a wide audience to increase a company’s customer base.
First Mover Advantage
The first-mover advantage refers to an advantage gained by a company that first introduces a product or service to the market.
The first-mover advantage enables a company to establish strong brand recognition and product/service loyalty before other entrants to the market.
Founder Market Fit
Founder-market fit is an innate, unfair advantage that sets founders apart from their competitors. Accelerators and Early Stage VCs often look for it when evaluating founders for potential investments.
Typically when startups are so early, there isn’t a ton of data and metrics to go off of, so investors rely on the founders to convince them that there is a market for their product and that they are the founders to make it happen.
Freemium
Freemium is a business model in which companies offer users the most basic version of a product for free while encouraging them to upgrade to a paid premium version that comes with additional, advanced features.
The main goal of a freemium acquisition model is to decrease your business’ customer acquisition cost (CAC). By eliminating the cost to sign up for an account, you lower the bar to entry for new users to your product.
Growth Hacking
Growth hacking (also known as ‘growth marketing’) is the use of resource-light and cost-effective digital marketing tactics to help grow and retain an active user base, sell products and gain exposure.
Loss Leader Pricing
Loss leader pricing is a pricing strategy that at its core means selling one of your products (the loss leader) below the price at which you bought it in order to attract customers to your other products.
According to the strategy, the loss leader item is sold at a loss, but the business expects customers to purchase other items at regular price, thereby negating the loss.
LTV
Lifetime value (LTV) estimates how much revenue a customer represents a business over the life of that relationship. LTV is often used in conjunction with CAC (Customer Acquisition Cost), in order to discover whether or not a company is operating efficiently.
Market Penetration
A market penetration strategy is a process of infiltrating an already existing market (where current or similar products already exist) with a new product (from your company or organization).
It can also refer to the strategy a company or organization uses to expand or further saturate their customer base in a market they are already in.
Market Sizing
Market Sizing is the process of estimating the potential of a market. It helps to identify potential number of clients or customers, as well as the total revenue or sales for a product or service within a given market.
While it’s an important exercise for all businesses to carry out regularly, it is particularly useful for startups and entrepreneurs in the early stages of their business.
Market sizing can provide data on:
Total potential market volume and value
Target customer profiles
The main competitors
Investment decisions
Current trends in a particular market
The products or services available in that market
Net Promoter Score
Net Promoter Score (NPS) is a customer satisfaction benchmark that measures how likely your customers are to recommend your business to a friend.
NPS scores are measured with a single-question survey and reported with a number from the range 0 to 10, a higher score is desirable.
Respondents give a rating between 0 (not at all likely) and 10 (extremely likely) and, depending on their response, customers fall into one of 3 categories to establish an NPS score:
- Promoters respond with a score of 9 or 10 and are typically loyal and enthusiastic customers.
- Passives respond with a score of 7 or 8. They are satisfied with your service but not happy enough to be considered promoters.
- Detractors respond with a score of 0 to 6. These are unhappy customers who are unlikely to buy from you again, and may even discourage others from buying from you.
It’s simple to calculate your final NPS score – just subtract the percentage of Detractors from the percentage of Promoters.
For example, if 10% of respondents are Detractors, 20% are Passives and 70% are Promoters, your NPS score would be 70-10 = 60.
Product Market Fit
Product-market fit happens when you build the right product to solve customer needs.
Discovering the perfect product-market fit often distinguishes market leaders and top brands from the rest.
Before the company is ready to scale up its production, it must find out whether its product can serve as a solution to its target audience. If the minimum value proposition (MVP) fulfils a need, then the company is on its way to product-market fit.
TAM SAM SOM
TAM: Total Addressable Market
It is the total market demand for a product and/or service.
The TAM shows a prospective investor what is potentially possible if the company could grow into all segments of the market through appropriate additions to the product portfolio and business model.
SAM: Service Attainable Market
This is the segment of the TAM within the geographical reach that a company can target with its products and/or services.
The SAM answers the question, “for which part of the TAM is their product appropriate?” The SAM describes the market that the company can address with its current business model.
SAM is important for investors because it shows the potential of the business idea in the medium term. The SAM is important for startup founders because it represents the target group for the product.
SOM: Service Obtainable Market
This is the portion of SAM that a company can realistically capture and serve.
SOM helps identify the part of the SAM that is most appropriate for a company’s business model. Thus, the SOM shows which sales can be achieved by the business. The SOM is a subset of the SAM that is restricted by:
- Natural barriers such as distance or language
- Limited capacity, for example, production capacity or marketing reach
- Loss of market share to competitors
Thought Leader
A thought leader, or influencer, is someone who, based on their expertise and perspective in an industry, offers unique guidance, inspires innovation and influences others.
In simple terms, thought leadership is all about you creating value, building knowledge, and taking a stand.
Value Proposition
A value proposition is a statement that identifies measurable benefits prospective customers can expect when buying a product or service.
It serves as a declaration of intent, both inside the company and in the marketplace.
A successful value proposition is persuasive and helps turn a prospect into a paying customer.
Virality
Virality is a term that refers to a new video, tool, app, content, product, software program, game or online-based item that generates thousands or millions of views from people who use such products or services.
Viral marketing is a business strategy that uses existing social networks to promote a product.
Its name refers to how consumers spread information about a product with other people in their social networks, much in the same way that a virus spreads from one person to another.
TECH TERMS
Agile
The Agile methodology is a way to manage a project by breaking it up into several phases.
It involves constant collaboration with stakeholders and continuous improvement at every stage.
Once the work begins, teams cycle through a process of planning, executing, and evaluating.
Continuous collaboration is vital, both with team members and project stakeholders.
Bleeding Edge
Bleeding edge refers to a new product or service, usually involving technology, that has been released to the public even though it hasn’t been thoroughly tested.
Due to its lack of testing, this type of technology often comes with a certain amount of risk for the consumer, especially if it’s flawed or misses the mark.
Digital Ecosystem
A digital ecosystem is a group of interconnected information technology resources that can function as a unit.
Digital ecosystems are made up of suppliers, customers, trading partners, applications, third-party data service providers and all respective technologies. Interoperability is the key to the ecosystem’s success.
Digital Nomad
A digital nomad is someone who travels around the globe while working remotely.
Digital nomads take advantage of the new possibilities of digital work, and often only need a laptop to earn a living.
This gives them the flexibility to travel, using technology to either run a business or work for a company that has a remote work policy.
Disruption or Disruptive Innovation
Disruptive innovation is the introduction of a product or service into an established industry that performs better and, generally, at a lower cost than existing offerings, thereby displacing the market leaders in that particular market space and transforming industry.
Netflix is often cited as an example of a disruptive innovator. Launched in 1997 as a mail-order movie rental company, Netflix first focused on a niche group of consumers willing to wait for the mail to get the movie they wanted.
The company’s customer base broadened as it perfected its business model and then moved into a streaming service — business moves that eventually brought down industry giant Blockbuster.
Intellectual Property
Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, names and images used in commerce.
IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create.
By striking the right balance between the interests of innovators and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.
Proof of Concept
A proof of concept (POC) is an exercise in which work is focused on determining whether an idea can be turned into a reality.
A POC’s goal is not to seek market demand for the concept or choose the best way to produce it. Rather than focusing on building or developing the idea, it tests whether it’s viable. In addition, it enables those involved in the proof-of-concept exercise to explore its financial potential.
A POC typically requires time or other resources, such as supporting technologies or necessary physical components.
Going through this process, however, enables companies to determine an idea’s practicality before putting production-level resources behind an untested hypothesis.
Responsive Design
Responsive design is an approach to web design that allows websites and pages to render (or display) on all devices and screen sizes by automatically adapting to the screen, whether it’s a desktop, laptop, tablet, smartphone, or even a smart TV!
SaaS
Software as a Service (SaaS) is a method of software delivery that allows data to be accessed from any device with an internet connection and a web browser. In this web-based model, software vendors host and maintain the servers, databases, and the code that makes up an application.
There is no need to download the software or purchase a DVD, back in days as we used to. Users just need to go to a specific URL, enter login credentials and can start using the software.
Unlike previous business model, where users bought software for a single upfront fee, SaaS operates on a monthly subscription model, and has different pricing tiers.
Tech Stack
A tech stack is simply a collection of software services that are used for application development.
Sometimes called a “solutions stack,” a tech stack typically consists of programming languages, frameworks, a database, front-end tools, back-end tools, and applications connected via APIs.
User Interface
The user interface is the point at which human users interact with a computer, website or application.
UI design, also known as user interface design, refers to the aesthetic design of all visual elements of a digital product’s user interface; namely the product’s presentation and interactivity.
User Experience
User Experience refers to the feeling users experience when using a product, application, system, or service.
It is a broad term that can cover anything from how well the user can navigate the product, how easy it is to use, how relevant the content displayed is etc.
GROWTH TERMS
Benchmark
Benchmark is a standard by which a startup measures their current success. An investor measures a company’s growth by determining whether or not they have met certain benchmarks.
Benchmarking involves using key performance indicators to analyze your startup’s performance relative to other businesses and requires thoroughly investigating the metrics of their competitors.
Decacorn
Decacorns are privately-held firms that exceed the valuation of $10 billion.
Ground Floor
Ground floor is a reference to the beginning of a venture, or the earliest point of a startup. It is generally considered an advantage to invest at this level.
Innovation Funnel
An innovation funnel is a tool or process ensuring only the best ideas are executed.
In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market.
An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Iteration
Iteration is a process of refining an idea or a concept.
Technically speaking, iteration involves a minor change of the current business model in an attempt to capitalize on a closely related market opportunity.
Be it Lean, Six Sigma or Design Thinking, are iterative by nature. These iterative frameworks are being used often, and it is currently the primary way that companies are seeing success and growth.
Launch
Launching means to start a venture officially or making a product, app or website live.
Launching a startup is a process during which the founders attempt to search and validate a business model first before they can execute on it.
Lean Startup
Lean Startup, a term coined by Eric Ries is a method of creating rapid prototypes designed to test market assumptions and uses customer feedback to evolve them.
In simple terms, with a lean startup approach, the company begins by getting to the market to ask the opinion of potential customers about all elements of the business model: product features, price, distribution channels and economic strategies.
With this data collected, the startup creates a minimum viable product (MVP) and ask for customer feedback as quickly as possible. Based on the answers obtained, it aims for new versions and adjusts until it finds the ideal product.
This method is much faster than developing product via the traditional approach like the waterfall model.
Low Hanging Fruit
Low hanging fruit is the easiest thing a company can do to bring cash in the door.
This phrase is used as a metaphor to describe tasks or projects that a team or employee can easily and quickly complete before moving on to more challenging work.
Merger
A merger is a business deal where two existing, independent companies combine to form a new, singular legal entity. Mergers are voluntary.
Typically, both companies are of a similar size and scope and both stand to gain from the transaction.
In India, in 2017, two telecom giants – Vodafone and Idea merged together to create Vodafone Idea Limited in order to survive against their biggest competitor – Reliance Jio.
Moat
An economic moat refers to a company with a long-term, sustainable competitive advantage, which protects its profits from competitors.
There are two different types of economic moats:
(i) Narrow Economic Moat
A narrow economic moat refers to a marginal competitive advantage over the rest of the market. Despite still representing an advantage, these sorts of moats tend to be short-lived.
(ii) Wide Economic Moat
For a wide economic moat, on the other hand, the competitive advantage is far more sustainable and difficult to “reach” in terms of market share.
MVP
Minimum Viable Product (MVP) is a development technique in which a new product is introduced in the market with basic features, but enough to get the attention of the consumers.
A key premise behind the idea of MVP is that you produce 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 and observe their actual behavior with the product or service.
Seeing what people actually do with respect to a product is much more reliable than asking people what they would do. The feedback and data obtained in this manner forms a solid basis for validated learning and further iterations.
North Star Metric
A North Star Metric is the source of truth that shows a business is meeting the expectations of both its customers and its executives.
To qualify as a “North Star,” a metric must do three things: lead to revenue, reflect customer value, and measure progress. If a metric hits those three points, and every department contributes to improving it, the company will grow sustainably—or so the theory goes.
Pivot
A pivot is essentially a shift in business strategy to test a new approach regarding a startup’s business model or product after receiving direct or indirect feedback, and it’s one of the fundamental concepts of lean startup methodology.
Pivot does not necessarily mean drastically changing the whole company.
Sometimes, a company only has one important problem that needs to be addressed, and only requires one aspect of the company to changed. Below are some examples of pivoting that you might not have guessed are considered a “pivot”:
- Turning one feature of a product into the product itself, resulting in a simpler, more streamlined offering.
- The opposite of the previous point is also considered a pivot, in which one product is turned into a feature of a larger suite of features as part of another product.
- Focusing on a different set of customers by positioning a company into a new market or vertical.
- Changing a platform, say, from an app to software or vice versa.
- Employing a new revenue model to increase monetization. For example, a company might find that an ad-based revenue model may be more profitable than freemium.
- Using different techniques to build a product, often cuts down on manufacturing costs or creates a more reliable product.
Scalability
Scalability refers to the capacity of a startup to cope with the increased demand and to fulfill it while effectively managing the resources. It essentially captures a startup’s readiness for growth.
Startups that prove they can scale up as they grow are more attractive to investors, who see them as less risky investments.
Stage
Stage refers to the stage of development a startup company is in.
There is no explicitly rule for what defines each stage of a company, but startups tend to be categorized as:
- Seed stage
- Early stage
- Mid stage
- Late stage
Most VC firms only invest in companies in one or two stages. Some firms, however manage multiple funds geared toward different stage companies.
Traction
Traction in business refers to the progress a company has made or the momentum it has attained over a while, keeping in mind its potential customers.
Startup traction is the progress and momentum at which the startup grows.
There are several metrics to measure traction – revenue, innovation, online traffic and engagement, media presence, forming partnerships etc.
Unicorn
Unicorn refers to any startup that reaches a valuation of $1 billion.
Here’s a list of all unicorns from all over the world.
BUSINESS TERMS
Brand
A brand is a product, service or a concept that is publicly distinguished from other products, services or concepts so that it can be easily communicated and marketed.
A brand is a sum of how a product or business is perceived by those who experience it—including customers, investors, employees, the media, and more. Branding is the process of shaping these perceptions.
Branding is different from marketing, and their differences are very well explained in this article on Branding vs. Marketing.
Business Model
A business model is a dynamic document that describes how a company creates, delivers and captures value.
The business model canvas is a strategic management template for developing new or documenting existing business models.
It is a visual chart with elements describing a firm’s value proposition, infrastructure, customers and finances. It assists firms in aligning their activities by illustrating potential trade-offs.
The 9 business model canvas building blocks include:
- Customer Segments
- Value Propositions
- Channels
- Customer Relationships
- Revenue Streams
- Key Resources
- Key Activities
- Key Partnerships
- Cost Structure
Business Plan
A business plan is a written document that describes a business, its objectives, strategies, management, the market it is in, and its financial forecasts.
It has many functions from securing external funding to measuring success within the business. It also serves as a static operational document that describes how a business will function.
Cottage Business
Cottage business is a business with a unique idea but is not massively scalable. These businesses are not lucrative for VCs to invest in.
The term origins from cottage industries, which usually operate from a “cottage” i.e. home, wherein production is labour intensive and produces goods on a small scale.
Entrepreneur in Residence
An entrepreneur in residence is seasoned entrepreneur employed by a Venture Capital firm to help the firm vet potential investments and mentor the firm’s portfolio companies.
Investor’s Hound
Investor’s hound is a professional employed by VCs to keep a constant watch on the management’s functioning and startup’s operations, to ensure that a startup doesn’t lose its direction and VC’s money is safe.
This person will always sniff out any troubles or discrepancies and work proactively and aggressively so that the laid targets are met and VCs could get their desired ROI back within the committed time frame.
Incubator
Business incubator refers to an organisation which helps small businesses, startups and individuals to develop and grow their business. This is achieved by offering a number of services like management training, office space training and capital financing.
Intrapreneur
Intrapreneur is an individual who is tasked with creating new and innovative products within an already-established business. Backed by a company’s available resources, intrapreneurs develop open-ended ideas and turn them into real-world products and services.
Liquidation
Liquidation is the process of dissolving (closing) a company by selling off all its assets (making them liquid) to pay off the debts.
NDA
Non-Disclosure Agreement (NDA) is a biding agreement between two parties to protect sensitive or confidential information, such as trade secrets, from being shared with outside parties.
Pro Rata Rights
Pro rata rights represent an agreement between an investor and a company, whereby the company provides the investor with the right—but not the obligation—to participate in one or more future rounds of financing.
Pro rata rights also allow investors to maintain their ownership stake in a startup as it grows.
SPAC
A special purpose acquisition company (SPAC) is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO).
Such a business structure allows investors to contribute money towards a fund, which is then used to acquire one or more unspecified businesses to be identified after the IPO.
Therefore, this sort of shell firm structure is often called a “blank-check company” in popular media.
