Accelerator: If you’re launching a startup, accelerators can help you move your idea quickly by providing you with mentorship and fundraising opportunities during a few months program.
Agile: While lean describes the business side of the build-measure-learn loop, agile development focuses on the development part of the loop and entails building incrementally and iteratively while testing quickly.
Angel: If you’re seeking funding for an idea, angel investors are the best groups to look for. They tend to be individual investors, family and friends looking to support and fund a promising venture at an early stage for a potentially high return.
BiGO Report: A regular report that outlines 1. What the team has accomplished (Been), 2. Beneficiary level of initial and ongoing interest, What the team sets out to do next (going), and, finally obstacle that the team is struggling with or navigating.
Beneficiary: The person who benefits when a solution solves a problem they have.
Board of directors: Mentorship, guidance and connections are key to the success of a startup. The board of directors tends to include members who can help the founders make wiser decisions while contributing to areas like hiring, business development and fundraising.
Bootstrapping: Over 90% of startups are self-funded. In fact, I would argue that close to 100% of startups start with their own funds especially nowadays that the funding bar is getting higher. Bootstrappers are entrepreneurs that combine human capital (knowledge, experience and skills) with savings to launch and grow a startup without raising capital. An entrepreneur can also bootstrap the early stages and then raise funds for growth. A path taken by most founders.
Burn: One of the most asked investor questions is, what is your burn rate or how much do you project you will burn over the next 18 months? It simply means the amount the startup will spend over a predetermined period.
Business development: At a high level, there are two key roles in a technology startup. The technical founder is responsible for building and improving the product. The non-technical founder takes the business role whether it’s partnership development or strategic planning and execution. Non-technical founders tend to be business developers.
Business model canvas: Instead of a hundred page business model, the business model canvas categorizes the key areas of launching a startup like customer segments, value proposition, key partners, revenue model and acquisition channels.
CAC: One of the most important metrics in business is the customer acquisition cost. In other words, how much does it cost you to acquire a customer? Without knowing this number, it is hard to budget marketing campaigns or make any projections.
Cap table: Investors and founders use a cap table to organize the stakes of each owner or investor in the startup.
Cashflow: The amount of money flowing in and out of the business. Free cash flow is the amount left in the business after paying expenditures. Free cash flow is used as a profitability measure of the business.
Chasm: Many startups succeed at acquiring believers, called the innovators, but fail to capture the rest of the market. That gap between the innovators and the rest is called the chasm.
Churn: One of the most asked investor questions is, what is your churn rate? That is, what percentage of your paying users cancel the service. Your goal is to make churn as low as possible.
Crowdfunding: A new funding model that allows entrepreneurs to raise money from a large group of backers or angel investors without necessarily going through the venture capital route.
Customer development: Part of the lean methodology, customer development is the stage during which you discover and validate the customer mainly by interviewing them and testing hypotheses qualitatively and quantitatively.
Evangelists: In the product adoption lifecycle, you find different categories of buyers adopting the product in different time periods. The evangelists are those who come early on, they are the first to believe in the product and convince others to adopt it.
Exit: Entrepreneurs build startups for many reasons. Many want to make a major impact in the world while others, in addition to the impact, they aim to exit their ventures either through an IPO or mergers and acquisitions.
Empathy Map: A structured framework for investigating a problem by empathizing with those who have a particularproblem.
Founder: Anyone can create a site and business cards then call themselves founders of a startup. A real founder is a doer. It doesn’t matter how much of an impact or progress you’re able to make as long as action has and is being taken. Founders execute.
Income: Having deducted expenses from revenue, the difference is the income you retain in the business for reinvestment or withdrawal. Income is a better performance metric in measuring the stability and health of the business. On the other hand, high revenue even at losses (negative income) can signal potential.
Incubators: Unlike accelerators, incubators tend to offer longer term advisement programs that help you with mentorship, connections and resources like a coworking space. Accelerators are focused on speed and fundraising while incubators usually take earlier stage startups and help them overcome early stage challenges.
Iteration: At the end of the day, an idea is just an educated guess. What are the odds that entrepreneurs will guess right all the time? When you realize you need to make a minor change to the product, the target buyer or any important aspect of the business model, you are iterating.
Key Performance Indicators (KPIs): It stands for key performance indicators, the metrics by which startups judge their performance, progress and targets. Some of the most common KPIs include customer acquisition cost, customer lifetime value, monthly and annually recurring revenue.
Lean: Minimum viable products are part of the lean methodology which entails going through the build-measure-learn loop which essentially enforces the idea of building and testing quickly instead of building an advanced product hoping that customers will come.
LifeTime Value (LTV): The basic formula to calculate LTV is multiplying the average revenue per account by gross margin and dividing the total by customer churn rate. Today, many platforms can help you calculate and project your LTV.
Minimal Viable Product: To test ideas quickly without spending a lot of resources in building a product that may or may not work, entrepreneurs are encouraged to
. It’s the first versions of the product that only include the core features that aim to test the riskiest assumptions before building the next versions with more advanced features.
Pretotype: or Pre-prototype is an early version of a minimal viable product. Potential solution attempts are pretotypes that are validated by beneficiaries, and later on, markets.
Pitch deck: Before making an investment, most of the time, investors expect a quick presentation that highlights the key areas of a startup like team, product, market, traction and plan. Entrepreneurs create and use a pitch deck for investor presentations.
Pivot: Sometimes we’re confident the plan is right but quickly realize it isn’t. When there’s a major change to the business model like the way you make money, ideal customer profile or the solution (product), you are pivoting. Entrepreneurs must be open to iterations and pivots even if they had spent a lot of resources getting the latest version right. For this reason, spending too much time and money testing ideas or versions of a product is not a wise execution strategy. Instead, build, test and adjust quickly.
Post-money valuation: The value of a startup either increases or decreases after a round of funding. It decreases if the new funding round puts a lower valuation on the startup to what it was worth before getting funded. To calculate a startup’s post-money valuation, divide the investment dollar amount by the percentage received by the investor in the company. The formula for pre-money valuation is the company’s post-money valuation minus the dollar amount invested in the business.
Pre-money valuation: It is important for founders, investors and other stockholders to know the valuation of a startup before they receive capital. This helps in determining startup value after it is funded.
Product/Market fit: There are various definitions for p/m fit. Essentially, you reach p/m fit when your customer acquisition cost is lower than the life-time value of your customers and existing customers are referring buyers like them therefore lowering you acquisition cost and increasing your net promoter score.
Retention: Keep churn low and retention high. A high retention rate signals a healthy business especially if it is significantly higher than churn.
Revenue: At the top of your financial statement comes revenue which is the amount you generate before paying expenses. Revenue as a standalone metric is not an accurate measure of startup performance since expenses, especially in the early stages, can be significantly higher than the amounts generated.
Return On Investment: Every startup expects a return on investment in time and money whether it is on marketing, hiring, acquisitions or other initiatives.
Run rate: One of the key startup metrics is run rate. It projects the performance of the startup in the future based on current data. For instance, if a startup generates $100,000 in the first quarter, its 12 months run rate is $400,000 ($100,000 x 4).
Scalability: The goal of every startup is to build a scalable business model. Thanks to technology and automation, a startup product can serve hundreds of thousands of users without needing the same number of service providers. A startup is called scalable when it creates and validates a repeatable business model that addresses user needs around the clock.
Seed: Right after an angel round comes a seed round, although there is no required sequence to follow. Companies that receive a seed round tend to have found a viable business model with customers.
Series A, B, C: Companies that receive a series A round tend to have reached product/market fit and the funds will help them scale faster. Series B and C are for startups that continue to grow towards an acquisition or IPO.
Sweat equity: Self-funded entrepreneurs turn human capital (time, skills and knowledge) into financial capital (money). Human capital is equivalent to sweat equity since it doesn’t require a monetary commitment but can lead to future financial returns.
Target market: Your ideal buyers. A group of customers with similar needs and objectives. You can define your ideal customers through their demographics, psychographics and other categories.
Term sheet: Upon interest between investors and founders, a term sheet is used to outline the terms of the investment. Term sheets don’t guarantee an investment. They’re also used as a starting point for negotiations.
Traction: The evaluation of your key metrics. Investors will look at your traction over time to evaluate the investment opportunity. As a startup founder, you can build traction even before building a product. Companies like Buffer and Robinhood built a list of tens of thousands of potential users before they released the first version of their products. One common and effective way to build traction is through inbound marketing.
Validation: There are many metrics that signal idea validation but at the end of the day, it’s about proving there is a need and demand for the product. One of the strongest
is when people pay for the product, use it and recommend it to others with similar needs.
Venture Capitalist: Unlike angels, most venture capitals invest for a living. Usually, they are interested in startups with traction and proof that an investment will help accelerate their path to goals.
Vesting: In order to ensure investors and employees’ long-term commitment to the startup, vesting schedules require stock option holders’ (employees) involvement in the startup for a predetermined period, usually 4 years, before they can claim their shares.
Wireframing: Before designing a web or mobile application, a skeleton of the product is created to be used as a roadmap for the designer to base the designs on. It is also an important step in ensuring understanding of expected outcome between team members in a startup.
