Entrepreneurship Terms You Need To Know

Want to become a better entrepreneur? Knowing the lingo definitely helps! Whether your goal is just to have a better understanding of the vocabulary or to better communicate with your business partners, knowing the specific terms used by entrepreneurs will allow you to do so. We have provided a list of some of the most common terms used in the world of entrepreneurship along with their definitions.

Acquisition

The process of one business acquiring another

Acqui-hired

When a startup is acquired for its staff

Accounts Receivable

The total amount of money your customers or clients owe your business at a given time

Accounts Payable

The total amount of money you owe your creditors at a given time

Affiliate Marketing

Type of marketing where a business rewards customers for each affiliate they convert into a customer

Angel Investors

Affluent individuals who funding startups at an early stage before venture capitals

Burn Rate

The rate at which a business loses money before making profit

Burn Rate = [total amount spent month B — total amount spent month A] / total amount spent month A

Business Accelerator

Programs that accelerate the growth of existing companies with an idea and business model in place

Business Incubator

Programs that target early-stage startups and help entrepreneurs meet and flesh out ideas by providing coaching, mentoring, and a workspace.

Business Model

A company’s core plan to make money. A business model canvas helps entrepreneurs develop and organize their business model.

Business Valuation

An estimation of the worth of a business and its assets

B2B

Business to business — describes a business supplying to other businesses

B2C

Business to customer — describes a business supplying to customers

Cap

The maximum valuation that investors will convert their convertible notes into shares of stock.

Further explanation on how valuation cap is calculated here.

Cap Table

A table consisting of the company’s securities and their ownership for each round of funding

Cash Flow

The movement of money into and out of a business

Churn Rate

Percentage of customers who choose to stop using your product or services

Churn Rate = [users at the beginning of period — users at the end of period] / users at the beginning of period

Cliff Vesting

When employees become fully vested on a specific date rather than over a period of time

Compound Annual Growth Rate (CAGR)

A term used to describe growth rate, typically of market size or revenue.

CAGR = (beginning value / final value) ^ (1 / time in years) - 1

Consumer Direct Marketing

A form of marketing where the distributors are also customers

Convertible Notes

A short-term debt that converts into equity

Copyright

Legal rights given to creators to protect and distribute their work

Crowdfunding

The practice of raising money from numerous retail investors, accredited investors, or institutional investors in smaller amounts each

Crowdsourcing

The practice of getting information from members of the public

Customer Acquisition Cost

Total cost of winning a new customer to purchase the business’s goods and services

Acquisition Cost = cost spent acquiring customers / number of customers acquired

Due Diligence

An investigation of a company’s business, assets, and capabilities before entering an agreement or transaction

Early Adopters

Early users of a product

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA = net income + interest + taxes + depreciation + amortization

Elevator Pitch

A short message encapsulating the central ideas of a business intended to be delivered to investors

Exit Strategy

A strategic plan for entrepreneurs to sell their business

Financing Rounds

The process by which startups gain capital. In each round, startups get enough capital to get to the next milestone.

Pre-seed funding — the earliest round of funding, usually done by the founders or their families and friends

Seed funding — first official equity funding stage, usually done by angel investors

Series A — funding for startups that have developed a track record of success, but may not have monetized their business yet

Series B — funding to help startups get to the next level by expanding market reach

Series C — funding for already successful businesses developing ne new products, expand into new markets, or acquiring other companies.

First Mover Advantage

A company’s ability to be better off than competitors because it is the first to market a product

Freemium

Pricing strategy where the product is provided for free but additional features would require payment

Free Cash Flow

Cash flow available to firms to pay their investors or dividend

Hedge Fund

Financial funding that uses pooled funds

Lifestyle Business

A business set up by founders aiming to maintain a certain level of income and no more or a particular lifestyle. In contrast, a ventured backed startup is not expected to become profitable in the first few years.

Intellectual Property (IP)

Property that includes human intellect, and these property can be protected by copyrights and patents

Internal Rate of Return (IRR)

Annual rate of growth expected from an investment

Refer here for more details on how IRR is calculated and its formula.

Intrapreneurship

One who works in a large corporation but takes on entrepreneurial ventures

Joint Venture (JV)

A specific legal entity created by two businesses to achieve an outcome

Lifetime Value

The worth of a customer to a business over the whole period of their lifespan as a customer

Lifetime Value = value of customer to business x average lifespan as customers

Limited Liability Company (LLC)

A company structure where owners are not personally liable for the debts of the business

Line of Credit

A business loan where the borrower pays interested on the amount that is actually used

Loss Leader Pricing

Marketing strategy that sells products below cost to get customers

Low Hanging Fruit

Tasks that are easily accomplished without much effort.

Margins

Difference between a seller’s price and cost

Margins = gross profit / revenue

Merger

Combining two businesses or entities into one

Minimum Viable Product (MVP)

A product with the minimum number of features that still captures the essense of a business

Monthly Recurring Revenue (MRR)

Income business can count on receiving every month

MRR = number of customers x average amount paid by a customer

Multilevel Marketing (MLM)

A strategy where distributors are incentivized to recruit by getting a percentage of the recruiter’s sales

Multiple

A measurement of dividing one variable by another that measures a company’s financial state. Multiple is also commonly used in assessing the valuation of a company. The valuation is determined through multiplying a metrics value like revenue by a multiple that is reflective of the industry through comparison with other similar companies.

Network Marketing

A business in which a distributor network is needed to build the business

Nondisclosure Agreement

A legal document that protects a startup from employees leaking sensitive information

Outsourcing

Purchasing standard operation services from another company insteading of creating a new one for the business

Partnership

Two or more individuals operating a for-profit business together

Patent

Rights given to inventors for the use and distribution of their product

Pivot

A shift of the business values or model based on customer feedback

Post Money Valuation

An estimation of a company’s worth after outside financing

Example: suppose investors invest 300,000 into the business and the business is valued at 1 million, then the post money valuation of the company will be 1.3 million

Pre Money Valuation

An estimation of a company’s worth prior to outside financing

Example: suppose investors invest 300,000 into the business and the business is valued at 1.3 million including the investment, then the pre money valuation of the company will be 1 million

Private Equity

Investments made into a company that is not publicly traded

Pro Rata Rights

Rights given to investors to participate in future rounds of financing to maintain their ownership of the company

Ramen Profitability

A measurement of if the startup makes enough money to cover the founders’ living expenses

Return on Investment (ROI)

The amount gained relative to the amount spent

ROI = net profit / cost of investment

Runway

The amount of time until a startup goes out of business

Sales

The total amount generated by the exchange of goods or services for money. Sales differ from revenue as revenue is the total amount of money generated by a company, and sales differ from profit as profit deducts the cost from the money generated.

Service Addressable Market (SAM)

Service Addressable Market — total market demand for your service

Service Addressable Market = potential customers that would be a good fit for your business X average annual revenue of these customers

Scaling

The act of growing a business

Share of Market (SOM)

Share of Market — size of your actual customer base

Share of Market = [revenue last year x service addressable market (SAM) this year] / SAM last year

Special Purpose Vehicle

A legal entity created to fulfill a narrow or temporary objective

Strategic Alliance

An ongoing relationship between two businesses in which they work to achieve some goal

Sweat Equity

Benefits stakeholders give to a company that is non-monetary

Total Addressable Market (TAM)

Total Addressable Market — total market demand

Total Addressable Market = total number of customers in a market x number of average annual revenue of each customer

Trademark

A form of legal protection for symbols or words representing a company or product

Unicorn

A startup valued at one billion USD or more

Unique Selling Point (USP)

The differentiating factor between a business and its competitors

Value Proposition

A statement of promise for the value of a given product

Venture Capital (VC)

A method of financing where startups give up partial ownership stake in return for capital

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store