So I did a similar article on startup terms last year and it seemed to be something that interested a lot of people. I then realised that we all want to sound smart. Either that or we’re tired of not understanding the panel questions when we watch Dragon’s Den or Shark Tank. Also, these terms will be used quite a bit in businesses if you are working in a relatively new section.
Knowing these words doesn’t just help you sound smarter but it helps you identify what information stakeholders are interested in when you present a startup to them. They don’t particularly care how cool the t-shirts you printed look or that your business card is out of this world. You are exposed to a world of greater accountability for your work. Below are 10 more words to help you on your startup journey
Burn rate
The amount of cash you are spending each month in relation to your capital. Divide your capital amount by your burn rate to determine the lifespan of your company (at least until the next funding round).
Your burn rate is the rate at which your company spends money in excess of income. It’s a measure of negative cash flow. It is usually quoted in terms of cash spent (lost) per month.
Burn rate a good measuring stick for a company’s runway — the amount of time it has before it runs out of money.
Example: If a company has $1 million in the bank, makes $100k per month, and spends $200k per month, it has a burn rate of $100,000/month. It also has a runway of 10 months.
Convertible note
A note is worth a percentage of equity ownership in a company. Some business owners use convertible notes if they want to attract angel investors without having to put a valuation on the company. The note turns into equity as soon as another investor comes in.
Incubator
Startup incubators are groups that support chosen entrepreneurs and/or their businesses with mentorship and funding. In exchange, the incubator takes an equity stake in the company. Increasingly popular and competitive in the tech world, incubators have been touted as the new business schools.
Also Accelerator, an accelerator is a programme designed to rapidly grow a startup through a combination of mentorship, access to technology, office space and, sometimes, the capital. With the wide variety of accelerators available, it can be difficult to work out which one is right for your business, so check out lists of programmes, like this best tech accelerators list.
Pivot
A course correction for startups based on findings in user testing and analysis. This is when 1 or more of your products or services has failed, so you take the company in a different direction.
Seed Round or Seed Stage
The first round of venture capital funding for a business venture. This is for the development stage, just past the angel round, and can be up to $1 million of capital. Subsequent rounds are referred to in terms of Series (Series A, B, C, D, E) or stages (startup stage, formative stage, mezzanine stage).
So, in essence, the seed round is the first period during which a startup is looking for funding or investment. Normally this is followed by a ‘Series A round’ where the second set of investors come on board at a higher price than the first round.
Valuation (pre-money valuation, post-money valuation)
How much your company is worth. But that’s putting it simply. There are several different formulas for determining the valuation of your company when you plan to sell shares. Pre-money valuation is how much a startup company is worth before funding, post-money valuation is the value for the company plus the funding. Again, sounds simple, but how you value your company compared to the size of the investment can quickly dilute your shares. Valuation happens at every round or stage of funding.
Vesting
The schedule under which founders and employees must remain in the company before receiving their full share of the equity. For example, if you have a five-year vesting schedule you may get access to 0% in year one, 25% in year two, 50% in year three, 75% in year four, and 100% in year five. A vesting schedule helps to instill staff loyalty and keep the company together for a certain period of time. Cliff vesting is when someone becomes fully vested on a specified date.
Digital Nomad
A term used to describe someone who works online, and therefore often works from home, in coworking space, or is based abroad. Basically, it’s that guy you always see in the coffee shop, in the exact same spot every day, with his laptop and chai tea latte.
Exit strategy
How you plan to sell the business, pay investors back and create a nest egg for your future. Put simply, it’s how you will sell the company and make your investors lots of money. Who is going to buy you and why?
Gamification
When you’ve got a product or service which is, shall we say, not the most exciting thing in the world, so you incorporate elements of interactive design to increase interest in your product.
Full stack developer
A developer with specialized knowledge in all areas of software development.
Pitch deck (or just Deck)
A short presentation used to pitch your business plan to potential investors. Just like putting together your business plan, there are multiple ways to do this. For a good idea of what to include, check out Guy Kawasaki’s pitch deck template here.
In most cases, it’s A 10-slide powerpoint presentation that covers all aspects of your business in a concise and compelling way. There is a standard format and real artistry to making a good deck. Do your homework, get lots of feedback, and consider hiring a graphic designer to polish the final version.
Scale-up
The process by which a business plans to grow in terms of size, market, geographical location, etc. For example, expanding your area of operations from your neighborhood or borough to citywide would represent expansion. The alternative simulation is a case of an entrepreneur with one Banana or fruit musika who replicates the same stall in another area… that is scaling up.
Stealth mode
When a startup keeps its products or services under wraps, so it doesn’t alert potential competition.
Vanity metrics
Figures and statistics that are often used to show the growth of a startup that don’t actually mean anything in relation to business progress, i.e. 2,000 to 200,000 impressions on Twitter for a company trying to sell a product. This speaks to stats that sound impressive but potentially have a very marginal (if any) impact on the bottom line or actual business growth.
Dave ratio
This is a really weird one but hey, we are learning here. It’s a method by which people can work out the gender parity in an organization by comparing the number of women to the number of men named Dave. At Fleximize we have a ‘woman to Dave’ ratio of 11:1. I bet in Zim we would need a Nyasha ratio or a Munya Ratio.
KPI
Stands for Key Performance Indicator. This is a measurable value that indicates how effectively your company or product is achieving its business goals.
Example: I would guess a main KPI of AirBnB is guests per night (how many people are staying on an Airbnb property on any given night).
The idea is that you can focus on improving key indicators, which should then directly influence your company’s goals.
Churn Rate
Your churn rate is the percentage of customers who stop subscribing to your service in a given time period. You can calculate the churn of anything (like revenue or employees), but it’s most often referring to customers.
This is considered the main enemy of any subscription company.
Example: As of this writing, Buffer’s monthly user churn is 5.9%.
Your acceptable churn rate depends entirely on your specific industry and company.
OKR
Stands for Objectives & Key Results. This is a framework for setting, communicating, and monitoring goals.
Objectives are goals, which tell you where to go. Each objective has key results, which indicate how you’ll get there.
Example:
Objective: Increase our recurring revenue.
Key Results:
- Share of monthly subscriptions increased to 85%.
- Average subscription size of at least $295 per month.
- Reduce churn to less than 1% per month.
MRR
Stands for Monthly Recurring Revenue. This is income that a company can reliably anticipate every 30 days. MRR is intended for products or services that have a defined price and recurring term.
To put two terms together, your MRR churn is the erosion of your monthly recurring revenue.
There is also ARR: Annual Recurring Revenue, not to be confused with Annual Run Rate (below) which even uses MRR in its calculation.
ARR
Stands for Annual Run Rate. This is a method used to project future revenue based on your current revenue. To get it, simply multiply your MRR by 12.
While that might seem inaccurate, ARR is a helpful tool to get an idea of long-term growth and visualize the size of your business.
Example: If a company’s MRR for last month was $100k, its current ARR $1.2M.
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