Startup Vocabulary for Aspiring Entrepreneurs
There is a lot of startup vocabulary that gets used throughout the entrepreneurial process that we’d like to use this opportunity to provide a quick definition of a few key terms.
“How might we”?
The start of a problem question that can be used as a helpful starting point for the entrepreneurial process, by focusing on the needs and frustrations of potential customers.
A list of the important considerations for establishing team expectations, including the roles and commitment level of team members, success metrics and milestones, and processes for communication, decision making, and working style.
Entrepreneur Skill Types
- The builder is the technical co-founder and product developer. This may include skills of coding or product prototyping.
- The brander is the strategist behind connecting the customer to your offering, including marketing, brand guidelines, and visual design.
- The business developer is the person in charge of marketing and sales. This person hustles to get the right partners and customers.
- The brain is the operations and finance person, plus is the person who handles a lot of the research at the back end of the company.
A detailed document of your company’s next steps, including past achievements and other reasons why one should believe the company will be successful (e.g. size of the market, operational plans, skills of the team, etc.). Moreover, a business plan serves multiple purposes: it helps you plan, organize, and keep track of your startup’s progress, explain your vision to investors and to your team, and have an overview of your whole startup, which often helps you review decisions and plan ahead. There is a balance, though, between planning and action.
Primary Market Research (PMR)
Gathering new data and information that has not been collected before. For example, interviews with potential customers or surveys.
Secondary Market Research
Gathering existing data that has already been produced, such as through Internet research or reading research papers.
Ways of dividing markets. Criteria for segmentation is ideally based on how those customers make purchasing decisions, though might include gender, age, location, income, and anything else that will divide customers into groups that will allow you to meaningfully understand how to solve their similar needs.
Choosing the customer segment that your company will focus on. For instance, if you are selling an energy drink, you may want to focus on young adults between 18 and 25 years old who do not get enough sleep due to studying or work. This does not mean that other groups will not buy your product. Instead, it means that your product development, your marketing, and all your efforts will be
done with this group in mind, allowing them to recognize the value of the offering clearly.
A useful way of thinking about your target customer is to choose or create a full profile of a real or imaginary customer, and try to understand his/her behavior as an individual, including hopes, interests, frustrations, and fears, career, age, and family status. This allows alignment within the company, allowing your team to refer to this person during decision-making processes.
Designing and Testing Your Offering
Full Life Cycle Use Case
Map of how a customer goes through the process of realizing their frustrations, then finding and using a solution.
A description of your offering in terms of the value you create for your customer. It includes a description of your target customer, industry, the benefit you deliver, and your strategy for delivering that benefit.
Most service businesses operate by bringing together people in two different arenas, such as bringing together drivers with individuals needing rides, or online marketplaces connecting consumers with people selling their goods.
Proof of Concept (PoC)
A PoC is preliminary or initial evidence that demonstrates a business concept is feasible i.e. through mockups and user testing to try to validate a market need.
A prototype is a working, preliminary sample or model of a product built to test the concept and viability of a startup. The key objectives of the prototype are to iterate beyond validation of the initial market need towards determining the initial offering that will be sold on the market, which requires some testing of the most important benefits sought by the customer and the key features that will achieve those benefits.
Minimum Viable Product (MVP)
The minimum viable product, which is sometimes referred to as the “minimum viable proof”, is a simple version of your offering developed to prove a hypothesis. The MVP should be created and executed with the least resources, and with the minimum number of features, while showing that the offering will meet the customer needs.
The different people, organizations, platforms, and activities that can make customers aware of the offering in hopes of getting them to purchase. The best channels vary by industry. For example, social media may work for fashion if executed well, but is typically not a high-yield marketing channel in most industries. Personal selling – making calls and developing one’s network in the
industry – typically offers one of the highest payoffs for early-stage companies.
Making calls and developing one’s network in the industry – typically offers one of the highest payoffs for early-stage companies.
Specific tools that a company might use to entice customers to purchase, such as sales and discounts, free samples, or other promotions.
Build-Measure-Learn Feedback Loop
Develop initial business model ideas, measure market feedback, refine ideas based on market reactions.
Gathering enough market feedback to validate business assumptions
Persevere or Pivot Decisions
Actions the team takes after gathering evidence from market tests
Market feedback that makes the entrepreneur feel good without much bearing on business feasibility.
Operations Startup Vocabulary
The avenues through which a company delivers its offering to its target customers, such as through its own channels (store front, online store), partner channels (major distributors), or a combination of both.
The companies that provide parts or services that are can then be put together to develop the offering.
The chain of companies involved in the development and supply of a product to its final consumer.
Sourcing / Purchasing
The area of the company dedicated to choosing suppliers and effectively buying necessary goods and raw materials.
Financial Startup Vocabulary
All the money you receive from selling your offering. This is typically calculated by multiplying your price per product, sold by the number of items you have sold. People sometimes use “revenue” and “sales” interchangeably.
Cost of Goods Sold (COGS)
The cost of goods sold represents the cost of acquiring and providing the products you sold. This does not include fixed costs, like marketing and administration.
The money that is left after your costs. There are two types:
- Gross profit – The revenue minus the cost to produce the offering.
- Net Profit – The revenue minus all costs the company incurs.
The profit divided by the revenues for a specific time-period.
An estimate of the total amount of revenue/ cost /profit that you expect in a set amount of time moving forward.
The number of customers you need in order to recover your initial costs. It can be helpful to know this number of customers to then get an estimate of how long (in months or years) it will take you to break even.
Cost of Customer Acquisition (COCA)
The cost to acquire an individual customer, averaging in the costs of all the efforts to acquire customers who did not purchase.
When an entrepreneur attempts to found and build a company from personal finances or from the operating revenues of the new company, using no outside capital. This is often preferred for many early-stage companies to prove demand and allow higher valuation when investors might add more growth potential.
Any individual or company that provides funding for a venture, usually expecting to have a financial return over their invested capital. There are several types of investors, including friends and family, angel investors, venture capitalists, private equity firms, and even yourself.
Friends and Family Investors
Sometimes, parents, grandparents, friends, or other relatives may provide early capital for a startup. They usually bring the upsides of trust, risk-taking and no bureaucracy, but also bring downsides such as lack of professionalism, expertise, and above all, the risk of damaging a valuable personal relationship.
Usually experienced and wealthy individuals who invest their own capital, individually or in groups, in seed or early-stage rounds of funding. Many only invest in industries in which they have prior experience, which also means they bring more than money to startups (e.g. introductions within their network, expertise, advice).
Venture Capitalists (VCs)
Individuals who invest the money of wealthy individuals and/or institutions (a.k.a. Limited Partners) in startups as part of firms. VC firms have larger portfolios and often invest significantly more capital in startups than angel investors. VCs generally only invest after significant proof of demand for the company, and they usually ask for a lot more control over the startup’s decision in return for their investment.
Raising monetary contributions from many people, oftentimes contributing to the early development of the product. This is typically via the Internet, such as through Kickstarter or Indiegogo. These contributions are often viewed as pre-orders for a company, since the contributions usually require significant costs to fulfill the incentives.
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