Fundamental Startup Terminology
When you are stepping into the startup world, perhaps the most critical skill you need is knowing how to speak. To become a part of this ecosystem, you must learn its language. In this case, it’s startup terminology.
The process of building a business doesn’t end once you come up with a brilliant idea and a solid business plan. It is actually just the beginning. Once you’ve founded your company, you’ll need to grow it. This requires time, energy, and, as in most cases, money. When pitching to investors and conducting negotiations, for example, having a sound grasp on the startup jargon will come in exceptionally handy.
So, in order to save you some invaluable time, we have created a glossary of startup terminology with the most useful definitions under one roof as an easy and continuous source. We strongly recommend you bookmark this page to access it easily and to keep abreast of updates. It may come in handy sooner rather than later.
Index
A/B Testing
Let’s say you have two or more C2As (Call to Actions) for an ad, and you want to learn which one will have more leads or conversions; then, you should use A/B Testing. It’s a process where you try different versions of promoting your product, service, or content and pick the best performing one. A/B Testing is also known as split testing, and it helps you understand your target audience’s behaviours.
Accelerator
An organisation that brings together the components that accelerate a startup’s growth. These usual mentors, and guidance such as structured weekly assignments, take you through the critical stages of setting up a successful business.
They may also offer some amount of funding and workspace, but not always.
The boundaries and definitions between terms like incubator or accelerator are always moving. That’s one reason why they are used together, such as accelerator/incubator. However, don’t be confused by this. Some organisations support startups in different ways.
Accredited Investor
An Accredited Investor (a.k.a. Qualified Investor) is a person or a business that has some privileges for buying and selling equity shares, fractional loans, and derivatives because of their high net income or high-value assets they have.
Affiliate Marketing
Affiliate Marketing allows you to sell products and services of other companies with a commission. For example, you can join Amazon’s affiliate programme and start a website about office ergonomics. You can insert affiliate links into your content and make revenue for each sale from customers who bought products visiting Amazon’s website using your affiliate links.
Alpha Release
Not to be muddled up with MVP (Minimum Viable Product), Alpha Release of a product is the next phase after the MVP, especially in software development. It’s the next version of your product after you test with a small number of early adopters and have made necessary adjustments for a more detailed QA.
Angel
These are particularly minted individuals who swoop in like angels to give startups or entrepreneurs that very early—usually first—funding. They are the first to believe in the founder and the business, so they typically get better deals—more equity for less money—than institutional investors such as VCs. The latter bet with more data and traction.
B2B, B2C, D2C, B2B2C, B2G
B2B, B2C, and D2C are acronyms used to signal how a business earns its revenue. The first “B” is always your business. The 2 is a “to.”
B2B: Business to Business. You, as a business, sell to other businesses.
B2C: Business to Consumer. You, as a business, sell to individual consumers.
D2C: Direct to Consumer. You, as a manufacturer, directly sell to individuals.
B2B2C: Business to Business to Consumer. You, as a business, sell to consumers through other businesses.
B2G: Business to Government. You, as a business, sell to government entities.
Beta Release
Beta Release is the version of a product before it is released. It’s the stage where you stop adding new features and focus on fixing any bugs and perfecting the customer experience. Therefore, it’s critical to get detailed feedback and let your users test your product thoroughly in the Beta Release stage.
Board of Directors
Also known as the “B of D,” the Board of Directors is a group of people who represent the shareholders of a company. Shareholders can be individuals or other companies who have financial interests in a company’s profitability.
The Board of Directors of a company have regular meetings. They have the right to make decisions about the company’s policies, hiring/firing process, and how the company is run in general.
Black Hat
If something is “black hat,” it means that it exploits a system to achieve specific goals. For example, “black hat SEO” violates search engines’ terms of service to rank higher on the results pages. Sometimes brands and publishers practice black hat SEO tactics such as “keyword stuffing” or building content farms to get fake backlinks to increase their domain authorities and domain rankings when search engine algorithms were less advanced.
Blitzscaling
“Blitz,” a word borrowed from German, means “lightning.” So “blitzscaling” refers to the rapid, breakneck growth of a company. One of the most classic examples of blitzscaling is Amazon’s global expansion during the 90s. A more current example might be German grocery delivery startup Gorillas. The company was founded in May 2020, hit unicorn status within a year and operates in hundreds of cities around Europe.
Bootstrapping
The term was originally a reference to the phrase “pull yourself up by your bootstraps.” Which meant to make something out of nothing, today it is mainly used to reference a self-funded or customer-funded business.
Suppose you are not looking for an investment to grow but rely on paying customers and use a portion of the revenue to grow the business. You are essentially bootstrapping.
Bridge Round
Bridge round is a way to finance startups in the short-term to cover operations expenses until the startup gets its product ready for the market or regular funding round investment.
Burn Rate
It’s at what pace you are burning through the investment for the business.
More employees equal a higher burn rate; a bigger office equals a higher burn rate. It’s indeed true that you have to spend money to make money, but this is a metric you should be looking to minimise unless you have a good reason. Spend, but make sure it is justifiable in terms of bringing revenue into the business.
Business Model Canvas
Business Model Canvas is a visual outline that presents the structure of your business. It includes who your customers are, your route to market, value proposition and finances.
CAC
CAC is an acronym for Customer Acquisition Cost. It’s the amount of money you spend to acquire one customer on average. So, for example, do you pay £0.2 or £2.5 to get new followers through IG ads?
Your CAC spending might come from social media ads, team member time spent reaching out to B2B customers, or events you run to be discovered by more people.
While CAC is not the only item on the expenditure part of your balance sheet, it is an important one. It is because you want the margin between your customer spend and CAC to be meaningfully significant so that you can turn a good profit. It is also a valuable metric to compare with your average customer spending.
Cap Table
Cap Table is short for “Capitalisation Table.” Startups and early-stage businesses use cap tables to show the breakdown of a company’s shareholders’ equity.
Churn Rate
Churns refer to lost subscription customers. Imagine you acquire 100 users every month and have 1000 in total already.
To calculate what number of users you would have in 6 months, adding 600 wouldn’t be enough; you would also have to subtract your monthly churn.
Cliff
A cliff is a pre-agreed time between co-founders when they earn a large chunk of their rights to the shares of their company, in the case of a vesting scheme.
If you have a vesting scheme where you realise your share rights at 1% for every month worked and you have a “12-month cliff for 20%” in your vesting agreement, at 12 months and one day, you will secure the 20%. If you leave before 12 months, you will get 0%.
Convertible Note
Angel or seed investors use convertible notes when they’re looking to invest in an early-stage startup that has not been valued. Convertible notes can be converted into equities—as the name suggests—when the valuation of a company is established.
Cottage Business
Cottage Business or Cottage Industry Business refers to small-scale or boutique manufacturers that operate at home, in studios, or small workshops rather than factories or other facilities for mass production.
CRM
It’s an acronym for “Customer Relationship Management.” Simply put, it’s a digital tool to monitor and manage your interactions with your current and potential customers. For example, you can use CRM to track your invoices and payments between you and your clients.
CTA, C2A
CTA or C2A is for “Call to Action.” In marketing and advertisement, a call to action is a phrase you use to attract customers and clients. Ideally, a call to action comes after you present your copy that delivers your USP (Unique Selling Point), making the audience engage with your content. For example, let’s say that you run a hotel and have a discount campaign. A good CTA might be, “book now and claim your discount.”
Deck (Pitch Deck)
The “deck,” also called the “pitch deck,” has replaced the good-old business plan for most purposes. It is usually a presentation document such as a keynote, PowerPoint or similar and comprises 10-15 slides. Usually designed to be presented in under 20 minutes, it answers critical questions about your business in a more complex way than your elevator pitch.
Great pitch decks tell stories. They present relevant data and draw meaningful conclusions.
Entrepreneur
Entrepreneurs are extraordinarily resilient, risk-taking and creative people who solve problems for their customers by understanding the market demands and taking advantage of new opportunities provided by new technologies. However, some are known to be arrogant and opinionated.
According to thoroughly unreliable sources, the ratio of “true entrepreneurs” to people who say “they are entrepreneurs but are not” is estimated to be one-third.
Evergreen
The best word that describes “evergreen” is “timeless.” The term is used in publishing and marketing to explain that content, service, or product is always fresh and beneficial.
Exit
Almost every entrepreneur dreams of an exit with a high valuation and profit—especially serial entrepreneurs. The business owner sells their shares or the whole company to another individual or commercial entity to exit.
FMA (First Mover Advantage)
As soon as new technology (or a large scale social change) opens up a unique opportunity in the market, entrepreneurs seek to take advantage of it.
Having the FMA means that if you reach a certain level of success, you have an excellent chance to be a monopoly or among the first big brands. It is huge. Markets get saturated quickly, so moving first gives you an edge.
On the other hand, you take more risks when you are the first to make a move. Perhaps there isn’t enough demand, maybe it is not a profitable or sustainable business, perhaps you can be successful, but the industry is very investment heavy, or the opportunity is not as good as you imagined.
Freemium
Freemium is a portmanteau of Free and Premium. It refers to the business model where it is free to download and use with limited features. However, if you would like access to all of the features, you have to pay.
It usually works well with apps, some subscription services and web tools.
Fume Date
Petrol left in the tank? No! It is running on fumes! Your fume date is when your cash runs out, and you can no longer continue to work on the enterprise. Then, you either have to get a job, get investment, or get a sponsor to increase your runway with cast injection.
Growth Hacking
Growth hacking refers to finding the low-hanging fruits (easy marketing actions with great return) and exploiting them. It is a term loved by some and disliked by others. Those who are not a fan of this term usually put forward the view that there is no “hack” to building a relationship with your audience, and any hack will soon be exploited by many, bringing in lower and lower returns. We tend to agree.
Hockey-stick growth
Imagine you are holding a hockey stick parallel to the ground. You notice that one end of the stick curves steeply upwards. Now imagine a graph where a startup displays its growth in revenue and customers. If it looks like a hockey stick, you have hockey-stick growth. Almost too dull to be a famous analogy, but there you have it.
Idea Validation
Idea validation is the process of testing your ideas through some tools, case studies, and experimentation to avoid risky business decisions. It’s a critical stage for startups because it helps startups define specific problems when reaching the first paying customer.
Inbound Leads
An inbound lead—or inbound lead generation—is a B2B lead generation method to attract customers to your services or products. For example, email marketing is a way of inbound lead generation. You can collect emails of your potential customers, and in return, you can offer them a free promotional product or service, such as an ebook or a whitepaper.
Incubator
An organisation that helps founders and startups build and grow their business, incubators are most often (but not always) sponsored by larger enterprise-level organisations. For example, this is a good PR exercise when a bank opens an incubator for fintech startups (look! we are helping startups!). Still, they also get to participate in these startups’ intellectual property, giving them an opportunity edge.
The boundaries and definitions between terms like incubator or accelerator are always moving. That’s one reason why they are used together, such as accelerator/incubator. However, don’t be confused by this. Some organisations support startups in different ways.
Interaction Design
Interaction design is part of the “user experience.” It’s the design of how customers interact with your product, especially digital ones, such as apps and websites. A product with a successful interaction design enables users to navigate through the interface easiest possible way. In other words, it’s “user friendly.”
Intrapreneur
Some companies employ people to work on the development of innovative and disruptive products and projects. Those people are intrapreneurs. Intrapreneurs don’t face the challenges and risks like entrepreneurs because they are usually not owners of the whole company or the product.
IP (Intellectual Property)
People usually get muddled IP with copyright, whereas laws and regulations protect companies’ and people’s ideas the former, the latter is the law that protects the former. So, copyright is a type of intellectual property protection.
Iterate
An iteration is a slightly different version of the same product. For example, you are trying to take a stain off the kitchen counter, rub it away, it doesn’t work. So you change your strategy and do the same action, but this time with a new tool or a new solvent, you have just “iterated”.
Being able to iterate well lies at the core of thinking and acting lean.
A bakery has fewer reasons to iterate than a tech company that is taking advantage of new markets.
KPI
It’s an acronym for “Key Performance Indicator” that determines if a goal is achieved. For example, you run a website, and your goal is to have a certain amount of page views per month. Then, your KPI is the page view stats in Google Analytics.
Loss-leader Pricing
Do you want to attract new customers? A loss-leader pricing strategy can help you with that. Simply put, you sell a product—or multiple products—less than the cost to catch customers’ attention. Then, you can sell your other products that have profitable prices.
Low Hanging Fruit
An easy-win. A reward that you can go and grab.
It can be used about a market opportunity or actions that would bring in revenue for a specific customer. In terms of market opportunities, low hanging fruits constantly change. Since they are hanging down, it is easy for others to discover and grab as well!
Selling PPE might be low-hanging fruit when the demand is very high, for example.
LTV (Lifetime Value)
Once you acquire a customer (in other words – a customer knows your brand and has made a purchase), there is a good chance they will purchase again and become repeat customers.
So the value of that customer is more than one purchase. That value is defined as the Lifetime Value of your customer.
It becomes highly relevant when you factor in the CAC (customer acquisition cost) as well. In some startups, the CAC might be higher than the profit of a single purchase from a single customer, but it still makes sense as a profitable business because the LTV is still high.
MRR
Acronym for Monthly Recurring Revenue.
What you measure here is not just revenue but the recurring revenue. The source of this revenue might be monthly membership subscriptions, ad revenue, app downloads or transactions on your e-commerce site.
It is metric founders often asked about since the change in MRR gives a strong indication about the growth of that business.
MVP
MVP, an acronym for Minimum Viable Product, is the easiest, cheapest, and usually the lowest-effort version of your product. For example, you want to build a mental health app for couples filled with daily suggestions. The MVP version of this could be a clean but meaningful daily newsletter.
To build an MVP, ask yourself the question: “What is the cheapest, quickest and easiest way of solving the target problem for my customers?”
NDA
Here’s another acronym. NDA stands for “Non-disclosure Agreement.” It’s a deal between two parties in which neither side can share any details about the development of a particular product or project. If there’s an information leak, there will be financial and legal consequences for the part that leaked the information.
Pain Point
Pain point simply means a problem in the customer journey. For example, if you want to sell a particular service or product but your customers don’t buy it, there’s a pain point you need to solve. You need to identify why you fail in converting people. It may be about the process, your marketing, or something else entirely. Just check your data, know your customers better, and you’ll see what you have to do.
Pitch (a.k.a elevator pitch)
The startup ecosystem seems to borrow a lot of terms from different sports. For example, in baseball, the pitch is the throw of the ball to the batter.
A pitch is a short, snappy, practised, and perfected presentation of the what, why, who, when, how of your business.
Usually, in under a minute, a good pitch answers questions such as; what is your business model, who is your target market, what is the solution, how valuable is the opportunity, why are you the ones to make that a reality and not others, your competitive advantages and so on.
Pivot
It means directional change and is a term borrowed from basketball.
In basketball, you pivot by keeping one foot in place while moving the other to change the direction you are facing.
In the world of startups, if you change or evolve the solution you are offering while keeping the focus on the same core problem, you are doing a pivot.
Fun fact: When the change is so significant that the term “pivot” doesn’t cut it anymore, you can use morph.
ROI
Acronym for Return On Investment. Good ROI means it is “worth the effort,” bad ROI means “you are better off not spending that resource” (which can be money, time, energy so on).
ROI is a very flexible and helpful acronym. Thinking in terms of the ROI focuses your efforts on things that matter for your business.
Make a habit of asking yourself, what is the ROI here?
Do not make the mistake of thinking ROI is just about money as a lot of founders do. e.g., Your ROI on spending quality time with your employees might not be more revenue at the end of that month, but maybe better loyalty by them to the business, and that might pay off well in the future.
Runway
You are a small aircraft trying to—desperately—take off. Whether you can depend on your acceleration and how much of a runway you have.
As startup jargon, runway refers to the amount of money you have left in the bank sponsoring your business. Being scrappy as a startup gives you a longer runway to experiment with new ideas. Protect your runway like you protect your most valued possessions.
SaaS
Acronym for Software as a Service.
Even if you have not heard the term SaaS, you have used a SaaS product before. For example, Gmail is a SaaS. If you are using software that is not “yours”, you are using it as a service. Gmail isn’t yours. It is Google’s. But you are using it as a service. There are thousands of SaaS solutions, and many businesses depend on them. Here are some more well-known examples:
SaaS Examples: Stripe, Typeform, Airtable, Google Suite Services, Canva, Trello, Zeplin, DocuSign, Slack, Algolia.
To get personalised SaaS recommendations to build your business, take a look at toolbase.io.
Seed Round
Startup investment usually happens in “rounds” or “series.” The seed round is usually the second round. In the UK, seed investments are £150K on average and get about 15% of a startups equity. It allows founders to employ a few people and build and market for the next 1-2 years.
They are usually more formal and more committed than the first round (friends & family or angel investors). They essentially give the business that “seed capital” to allow it to grow and flourish.
SEO
Search engine optimisation (SEO) is the process of using organic (non-paid) search engine results to increase the quality and quantity of website visitors and brand exposure. Spending an ongoing effort on SEO would remove impediments that could effectively make your startup invisible to a target audience that you want to find on search engines.
SEO provides startups with unique customer data, increases traffic and conversions, assists startups in making informed business decisions, and generates a long-term audience, among other benefits.
VC
Acronym for Venture Capital.
It simply means big money.
VCs are funds, which use investors’ money to invest in startups. They are there to make money for their investors. But, unfortunately, they are notorious for pushing founders and startups to grow as fast and big as possible, sometimes to the detriment of the business and the founders’ mental health.
Nine out of ten of their investments fail. Yet, that one investment that succeeds brings them ten times, 100 times or even higher return on their investment, making the whole business worth their while. That’s why they are okay with a more significant risk of bankrupting the business if it also means it has a bigger chance to be a unicorn. Here is where their motivations might differ from the founders’.
Vesting
A vesting period is usually the time to pass before you earn the rights to a share.
If the vesting agreement that you agree with your co-founder states you earn total shares at the end of 36 months, and you leave earlier, you don’t get all your shares. However, it guarantees to both parties that you will stick it out to the end, or if you choose not to, you will sacrifice a certain percentage of your shares.
Consider this scenario; you have a business that has started generating revenue. You see tremendous growth potential, but your co-founder wants to leave the company just three months on. If that happened, and you didn’t have a vesting scheme, that co-founder would still own 50% of the company, in perpetuity, even though they stopped working for it. So that’s why you need vesting.
Xtech (fintech, healthtech, proptech, hrtech, edtech)
Take the first syllable of the startup’s industry, add a -tech to the end. You have just successfully created a new startup industry!
EdTech, FinTech, MarTech, HealthTech, PropTech, LawTech.
It doesn’t always work, though. ConTech, ConsTech for construction? Nah.
This is a comprehensive list, but it is not yet complete. We’ll continue to update, so make sure to return regularly. We would be glad to hear from you if you have any suggestions. You can reach us at hello@startupsoflondon.com.
