In the last decade, the landscape of the startup industry has altered drastically. And along with this unprecedented expansion came an entirely new vocabulary for entrepreneurs. To anyone outside the startup scene, this new lingo can be confusing. For any aspiring entrepreneur, learning to understand the jargon is an important first step. Take a look at these 15 startup terms you need to know:
Paid advertising content designed to look like an authentic post, engaging, and interesting readers enough that they either don’t notice or simply don’t care that they are being pitched. Check out this Forbes article ranking social media campaigns.
When a startup is in its infancy, an individual may invest by providing a small amount of capital for a stake in the company, known as an angel investor. This can be anyone, from family and friends to a high net worth entrepreneur willing to invest in your idea. On occasion, these investors form ‘angel groups’ to enable them to invest in bigger startup opportunities.
Stands for “business to business” and refers to one business targeting another business with its services or product. Alternatively, B2C (business to consumer) involves selling your services or products directly to the masses. It’s an important distinction to make when generating your business plan.
To bootstrap your startup is to self-fund your company to get cash going using personal resources, like friends and family, or the company’s own revenue. Take a look at this article.
To put it simply, your burn rate or run rate is how fast you are spending your money. It is essentially the amount of money you spend in relation to your capital over any given period of time. For many startup businesses, your burn rate will start high – it is common to lose quite a large sum of cash over the first few years before breaking even and, eventually, beginning to turn a profit.
Crowdfunding has become a popular method for gaining both funding and followers in recent years. Any individual can decide to support your project or company. This can be either donation-based, where the contributors expect nothing in return for their support; reward-based, where contributors are rewarded in exchange for their donations; or equity-based, where contributors can purchase equity interests in the company. Follow the example of these successful campaigns.
‘Gamifying’ is adding a game element to your product, website, etc. to encourage customers to engage with it for a reward of some kind, such as exclusive content or deals. This is particularly beneficial to those trying to market a product or service which has little inherent excitement to it, by incorporating interactive content design into your marketing to increase public interest. Get inspired by this famous example.
The term ‘growth hacking‘ refers to a marketing technique focused on quickly finding scalable growth via unorthodox tactics. These non-traditional, underutilized methods for acquiring new customers and capital must also be as inexpensive as possible, such as social media. Check out this Forbes article for more advice. This is similar to a lean startup (see lean startup definition below).
The ‘hockey stick’ is the term used to describe the physical shape of the growth curve entrepreneurs ideally want to see in their startup. This goal growth pattern is achievable through steady growth for the first few years and then a sudden rise in profits at some point, curving the line up to resemble the shape of a hockey stick.
A startup incubator or accelerator is a hub for supporting business in its early years, offering advice and mentorship, as well as resources like funding and office space, often in exchange for equity. This can take place over a few months, or even last into the first few years of a startup’s lifespan. These incubators can provide companies with a vast array of advice, such as how to properly build a management team or effectively strategize future growth.
Your IP or intellectual property is usually what makes your product, service, or company unique. This can be in the form of a patent (though obtaining a patent can be expensive and time-consuming) or simply a formula or strategy that no one else has. It’s not necessary for your startup to have intellectual property, since sometimes it’s just not compatible with your product design or business model; if your company or business does have it, it is incredibly important to protect it, since that secret ingredient or unique design determines the success of your startup.
IPO (Initial Public Offering)
An IPO is the first time a startup makes their shares of stock accessible to the general public. Whether the company’s shares are offered on a securities exchange or made available to the public, this is the point at which a previously private company becomes a public company, leaving its startup days behind. This is a considerable risk: it can lead to a big pay-off for some investors but can also cost your company significantly.
A lean startup is a method of launching a startup business wherein the company aims to validate their business concept as quickly and cheaply as possible. This can be applied to founding an entirely new company or introducing a new product or service. This is a similar process to growth hacking (see growth hacking definition above). Check out this organization.
MVP (Minimum Viable Product)
The MVP is a basic version of your company’s new product, released to satisfy early adopters and return feedback for further development and upgraded features. This is an important technique needed for proof of concept.
Stands for Software as a service. This is a software product that is remotely hosted via the internet (i.e. in the cloud) for which subscription services are sold. Take a look at this article on growth hacking for your SaaS startup.
The term product/market fit describes the process wherein a startup company locates the ideal target customer and provides this audience with the relevant product. It involves gathering detailed data from your target audience regarding your product, in order to truly understand who will actually buy your product or service.
A term sheet is the first in a procession of documents required for an investor to make an equity investment in a startup company. It is not a legally binding document – it simply lays out the parameters (i.e. the terms and conditions) for any potential investment, leaving flexibility for negotiating before a final agreement is made.
Vesting is essentially how the founders of a startup company protect themselves from each other. At the very beginning of the process, each founder receives their full package of stocks all at once. This means they won’t get taxed for capital gains – it also means that the company retains the right to purchase their equity if they decide to walk away from the company. Consequently, the founders are all able to focus on their common goal to create and run a successful startup, due to the incentive of losing their investment if they leave.