The Startup Dictionary – Learning the Lingo #2
Update: Visit our official Startup Glossary page for all Startup Dictionary updates.
A few days ago we posted on our intentions to put together a startup dictionary or glossary to explain some of the common terms being thrown around the place.
Well here it is! Below is the first draft. Obviously many more words to add. If you have any suggestions or corrections then please drop us a line.
+ A +
“Agile software development is a group of software development methods based on iterative and incremental development, where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams. It promotes adaptive planning, evolutionary development and delivery, a time-boxed iterative approach, and encourages rapid and flexible response to change. It is a conceptual framework that promotes foreseen interactions throughout the development cycle. The Agile Manifesto introduced the term in 2001.” (Source: Wikipedia)
Not to be confused with the adjective:
“Able to move quickly and easily: “as agile as a monkey”; “an agile mind”.” (Source: Google Define)
There is plenty of debate and argument about the mis-use of the term ‘agile’. It should only be used in it’s proper context to avoid argument.
“An angel is a wealthy individual willing to invest in a company at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt. Angels are considered one of the oldest sources of capital for start-up entrepreneurs.” (Source: WSJ)
+ B +
“The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it’s a measure of negative cash flow.” (Source: Investopedia)
When your burn rate increases or revenue falls it is typically time to make decisions on expenses (eg reduce staff).
“Bootstrapping or booting refers to a group of metaphors that share a common meaning: a self-sustaining process that proceeds without external help.” (Source: Wikipedia)
The meaning will vary depending on context. Bootstrapping in computing and software development, varies slightly to bootstrapping in business. The commonality is the characteristics of ‘self-sustainability’ and creating something that can be ‘grown’.
“Bootstrapping involves launching a business on a low budget. Practically this means that you’ll outsource (most likely off-shore) your design and development, you‚’ll rent your servers, you won‚’t have an office and you’ll have no salary. Prior to launch, the only expensive professional services which you’ll buy will be your legal advice and accountancy services. Everything else, you’ll have to pick up yourself and learn as you go along.” (Source: RWW)
An Example of 3 Stages of a Bootstrap (Source: Ash Maurya):
1. Ideation (Demo)
2. Valley of Death (Sell)
3. Growth (Build)
Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money.
“Bootstrapping and Lean Startups are quite complementary. Both cover techniques for building low-burn startups by eliminating waste through the maximization of existing resources first before expending effort on the acquisition of new or external resources. While bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya)
“A business plan is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts. It has many functions, from securing external funding to measuring success within your business.” (Source: Business Link)
A business plan is a static operational document to how your business will run.
“The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.” (Source: Wikipedia)
A business model is a dynamic document that describes how your company creates, delivers and captures value.
The 9 Business Model Canvas Building Blocks (Source: Business Model Generation):
1. Customer Segments
2. Value Propositions
4. Customer Relationships
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partnerships
9. Cost Structure
+ C +
Customer Development Model
“The ‘traditional’ way to approaching business is the Product Development Model. It starts with a product idea followed by months of building to deliver it to the public.” (Source: Find The Tech Guy)
However the Customer Development Model begins by talking to prospective customers and developing something they are interested in purchasing/using. These concepts are promoted strongly by Steve Blank and Eric Ries who encourage startups to get early and frequent customer feedback before developing their products too far (in the wrong direction).
The four steps to the model (Source: Find The Tech Guy):
1. Customer Discovery
2. Customer Validation
3. Customer Creation
4. Company Building
+ D +
“An innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.” (Source: Wikipedia)
The term ‘disruptive technologies’ was coined by Clayton M. Christensen and articulated in his book The Innovator’s Dilemma.
The term ‘disruption’ is now often used by startups to describe any product or idea that may change existing markets or products (planned or unplanned). However to be used correctly it should link to Christensen’s original theory. The confusion is best explained here.
An example is the disruption Wikipedia caused to the Encyclopedia market.
+ E +
“An elevator pitch is a concise, carefully planned, and well-practiced description about your company that your mother should be able to understand in the time it would take to ride up an elevator.” (Source: Business Know How)
Being able to pitch your idea is crucial for entrepreneurs and valuable in any formal or informal networking situation. It allows you to quickly describe your concept to anyone in a short period of time, including potential partners or investors.
“An entrepreneur is an individual who accepts financial risks and undertakes new financial ventures. The word derives from the French “entre” (to enter) and “prendre” (to take), and in a general sense applies to any person starting a new project or trying a new opportunity.” (Source: wiseGEEK)
“In finance, equity is ownership in any asset after all debts associated with that asset are paid off.” (Source: Investopedia)
Equity = Assets minus Liabilities
In terms of startup, it is commonly used to describe a business giving up a percentage of ownership in exchange for cash. An equity investor is then entitled to share in any future profits and/or sale of business assets (after debts are paid off).
+ I +
“Business incubators are projects designed to help new businesses develop and successfully launch. In some instances, the projects are overseen by colleges or universities and are based in facilities located on campus.” (Source: wiseGEEK)
“In 2005, Y Combinator developed a new model of startup funding. Twice a year we invest a small amount of money (average $18k) in a large number of startups (most recently 65).” (Source: Y Combinator)
“Coined in the 1980s by management consultant Gifford Pinchot, intrapreneurs are used by companies that are in great need of new, innovative ideas. Today, instead of waiting until the company is in a bind, most companies try to create an environment where employees are free to explore ideas. If the idea looks profitable, the person behind it is given an opportunity to become an intrapreneur.” (Source: Investopedia)
‘Intrapreneurs’ hold many similar characteristics to ‘Entrepreneurs’ any may well leave their jobs to pursue a career as an entrepreneur. Companies seek out intrapreneurs to effect change within their organisations.
+ L +
Also referred to as: lean manufacturing, lean enterprise, lean production.
“The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources.” (Source: Lean Enterprise Institute)
The definitions and usage of ‘lean’ vary depending on context and application. The origin of the word in business can be linked back to the 90’s.
“Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS)”. (Source: Wikipedia)
The key focus is around the reduction of waste whiling focusing on delivering value to the customer.
“Lean startup is a term coined and trade marked by Eric Ries. His method advocates the creation of rapid prototypes designed to test market assumptions, and uses customer feedback to evolve them much faster than via more traditional product development practices, such as the Waterfall model. It is not uncommon to see Lean Startups release new code to production multiple times a day, often using a practice known as Continuous Deployment.” (Source: Wikipedia)
You should note the slight differences between lean and bootstrapping.
“Bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya)
An Example of 3 Stages of a Lean Startup (Source: Ash Maurya):
1. Customer Discover (Problem/Solution Fit)
2. Customer Validation (Product/Market Fit)
3. Customer Creation (Scale)
Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money.
+ N +
Non Disclosure Agreement (NDA)
“A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract between you and another party not to disclose information that you have shared for a specific purpose.” (Source: Business Link)
Such agreements are used to discourage employees and/or business contracts from not releasing sensitive information to others. It is important that you consult with a legal adviser about the content scope of such a document.
+ P +
“It means to change direction. More specifically, to make a structured course correction with a business idea, and then to test a new hypothesis or new business model to see if it works better.” (Source: Beat the GMAT)
Companies usually pivot when their current idea is not working or has lost momentum. However you may pivot when you have launched an early version of your product/idea (protype) and it needs improvement.
Eric Ries suggests “designing products with the smallest set of features to please a customer base, and moving products into the marketplace quickly to test reaction, then iterating. (Source: Forbes)
+ V +
Venture Capital (VC)
“Venture capital provides long-term, committed share capital to help unquoted companies grow and succeed. Obtaining venture capital is very different from raising a loan. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of your success or failure. Venture capital is invested in exchange for a stake in your company and, as shareholders, the investors’ returns are dependent upon the growth and profitability of your business.” (Source: Startups)
There are differing views on taking funding from Venture Capital investors. Some argue that the involvement of VC in early startups reduces the ‘entrepreneurial’ spirit and changes the direction of the company due to the overhanging financial commitment.
“Venture capital firms are only interested in companies with high growth prospects that are managed by experienced and ambitious teams who are capable of turning their business plan into a reality.” (Source: Startups)