Business Terms Entrepreneurs Should Know
Many budding innovators entering the entrepreneurial world quickly realize that they can’t get a business off the ground just with their brilliant idea. A business needs many diverse skills and, at the beginning, when funding has not yet been realized, the lone entrepreneur has to take on many tasks and responsibilities that don’t fit into his or her scope of knowledge. Part of taking on these varied tasks, for the time being, is familiarizing yourself with the necessary business terms so you can talk sense to marketers, finance experts, web designers, lawyers, and professionals in other fields.
Here is a list of useful terms for those embarking on their entrepreneurial journey.
Finance Terms for Entrepreneurs
Angel investors are individual investors. They can be family and friends that support an early-stage undertaking, or they can be professional investors like Peter Thiel who was the first angel investor in Facebook.
Money that’s obtained like this in the early stages of a startup is referred to as seed capital. It can be regarded as the first of four funding stages, with the first being called ‘seed’ funding or a seed round.
Series A, B, C
These are consecutive funding rounds. A startup becomes eligible for Series A funding when it has proven itself in some way, for instance, by having a stable user base. Series B rounds take the business to the next level, and Series C funding aims to scale an already successful company as fast as possible. You can learn more about startup funding on our other blog.
Venture Capitalist (VC)
A venture capitalist (VC) is a private equity investor that provides funding for startups that show high growth potential. The funding is in exchange for an equity stake.
You are bootstrapping your venture if you use your own capital, even if it is not much, to start your venture. Or if you use the operating revenue from an undertaking that you have started.
This is a common way to raise capital. Here you exchange investor funds for a share of your business or startup. The investors can be family members, friends, angel investors, or venture capitalists. With equity financing, you lose partial control of your business, and you have to share profits with your investors.
You can also raise funds the old-fashioned way, by borrowing money and paying it back with interest. You can use your credit card, your line of credit, personal loans from banks, or mortgages.
This funding model originated in the late 1990s and has since become very popular. It allows an entrepreneur to raise money from a group of people that each makes a small donation. There are several online platforms for this purpose.
Revenue is the total amount of money generated by a company from selling its products or services. The figure appears at the top of a financial statement.
Income is the total profits, or net income, after the cost of running the business has been subtracted from the revenue. The figure appears on the bottom of a financial statement.
It’s important to understand the difference between revenue and income. The two terms are not interchangeable.
Return on Investment (ROI)
ROI is a key business metric that looks at how successful an undertaking is by comparing the upfront costs with the net profits it produced.
Business Terms for Entrepreneurs
In the startup world, a founder is an entrepreneur that started a business. The business is called a startup.
A solopreneur is someone who creates a business venture on their own with no outside help from partners or co-workers. This gives the solopreneur full creative control, but it’s only viable in the beginning stages. As soon as the business starts to grow, solopreneurs are forced to take on help in order to scale the business.
Unicorns are startups that are valued at $1 billion. Famous unicorns are SpaceX, Zapier, and Stripe.
A dragon is a company that has raised $1 billion from investors in a single round. Uber is one of them.
Incubators are programs that offer support and mentorship to fledgling startups, providing a coworking space where they can network and collaborate with other entrepreneurs and business experts, while they refine their business idea.
Accelerators work with existing companies to help them accelerate their growth. Only businesses that already have a minimum viable product are accepted into a rigorous application process. Y Combinator is a famous accelerator that has launched many successful entrepreneurs.
A pitch deck is a fundraising tool that startups use to raise funding from VCs. It comprises a brief presentation that gives an overview of the startup business, including its business model, monetizing strategy, product, and startup team.
A scalable business has the processes in place to easily respond to increased demand. Due to technology and automation, businesses can reach millions of customers globally and then must be able to respond efficiently as their workload increases. Scalability is an important metric for startups.
Minimum Viable Product (MVP)
This is a product in the beginning stages, but with enough features that early-adopter customers can test-drive it and give startups valuable feedback so they can perfect the eventual product. This is very critical to a lean startup.
Iteration refers to the process of developing a product from its initial version to the end product. This can involve a number of changes. Each new version is called an iteration.
This is one of the development stages to ensure a startup launches a product that will succeed because it has been tested for errors and functionality.
In the alpha release, the product or service is tested in-house.
The beta release follows the alpha release and involves the testing of the product or service by actual customers or early adopters. Their feedback may lead to a new iteration of the product.
Pivoting refers to a major change to a company’s business model. Entrepreneurs must be agile enough to pivot, that is, change to a new strategy. IBM is a good example of a company that successfully pivoted – from PC manufacturer to providing IT consulting services to large corporations.
A disruptive product or service supersedes what has come before it. The first television was a disruptive technology. It superseded radio. Blockchain is an example of disruptive technology. It holds far-reaching implications for financial institutions.
Your value proposition answers the question: what’s in it for me or my business? Your value proposition offers customers a better or more unique solution than any other available.
Software as a Service (SaaS) is a popular startup business model. These startups develop and provide access to software platforms over the Internet. Their customers have nothing to install or update; they just need an internet connection. HR technology software is an example of SaaS.
Platform as a Service (PaaS), also known as cloud platform services, provides a framework for developers to build their software on so they can create customized applications. SaaS companies use PaaS companies like Microsoft Azure to build their applications.
Marketing terms for entrepreneurs
These people are your initial marketers. They are the first adopters of new products. They use the new product and believe in its potential and tell others about it.
Growth hacking involves strategies focused solely on growth. The aim is usually to gain as many users or customers as possible in a limited time and with a limited budget. It involves strategies used by early-stage startups that need to grow fast in a short time.
This term applies to technology startups that quickly gain early adopters, called innovators, who love and use their product, but the product fails to gain broad market adoption. That gap between the innovators and mainstream customers is called the chasm.
Searching engine optimization (SEO) is not simple to master. However, without expertise in SEO, startups may struggle to grow their customer base or gain higher search engine ranking. It’s an essential skill that startups must invest in from day one.
Affiliate marketing is a growth strategy whereby people, called affiliates, sell your product to their audience and earn a percentage of the sales they make.
These are your ideal customers that share similar needs and objectives. Your ideal customers can be categorized according to age, gender, education level, demographics, and more.
A conversion in marketing happens when a lead becomes a customer by buying a product or service. For example, a visitor to your website converts from a visitor to a lead when he or she subscribes to your newsletter.
A lead is a potential customer who contacted your business and has given you their contact details, which gives you the opportunity to market to them and make a sale. A business wants as many leads as possible.
Lead generation is the process companies use to attract strangers and convert them to someone who becomes interested in the company and what it has to offer. There are many lead generation techniques.
A niche market is a segment of a larger market with its own requirements. In this case, an entrepreneur focuses on a niche market to cater to specific consumers instead of the entire market.
Customer segmentation is the process of sorting customers into different groups based on common attributes in order to target different marketing to each group.
A/B testing, also known as split testing, is used to find out which version of something (an email headline, a landing page, a banner, or other web page element) will be more successful in terms of impact or other business metrics like sales.
A call to action (CTA) is an instruction to your audience to do something you want them to do. ’’Buy now’’ or ’’Sign here’’ are examples.
Inbound VS. Outbound Marketing
Inbound and outbound marketing are strategies to gain new customers. With inbound marketing, you find a way to bring customers to your business. You can do this through social media marketing and content that is written for SEO, including guides, videos, podcasts, blogs, and infographics.
With outbound marketing, you take your business to customers through actions like cold-calling, trade shows, TV commercials, radio ads, and email spam.
Analytics Terms for Entrepreneurs
Key performance indicators (KPI) are the metrics by which a startup measures its success. Some common KPIs include activation rate, active users, burn rate, customer acquisition cost, and customer lifetime value.
Activation rate is an important measure for SaaS companies. This is the rate at which your acquired customers become active customers by taking a significant action. For instance, a customer who has signed up for a SaaS marketing automation platform, activates their membership by creating their first automated email marketing campaign.
Burn rate simply means how fast a startup spends money.
Investors always want to know what a startup’s churn rate is, in other words, what percentage of your paying users cancel the service. Your goal is to have a low churn rate. Low churn rate indicates that your product or service is meeting the needs of your customers.
This important metric measures how many visitors come to your website and leave after looking at only one page. The goal is to have a low bounce rate, meaning visitors find something worthwhile for which they choose to stay on your website.
Customer acquisition cost (CAC) is how much you spend to gain one new customer. It includes the cost of all marketing and sales activities. This is an important metric as it costs more to acquire new customers than to retain existing ones.
Gross profit margin (GPM) looks at the difference between net sales and the cost of goods sold (COGS). The GPM of a product can reveal if it’s a high-margin item, which may lead you to intensify your marketing efforts.
Revenue Growth Rate
Revenue growth rate is a measured reflection of the growth in sales over a given period. A high revenue growth rate is an indication of fast growth and demand for a startup’s product or services.
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