Key Terms Every Entrepreneur Should Know

Starting your own business can be thrilling, but it often feels like you need to learn a whole new language. The startup world has its own set of buzzwords, acronyms, and concepts that can be confusing. But don't worry! We’re here to break it all down into simple, digestible bits.

In this guide, we'll talk about the most common startup and small business terms, giving you the knowledge to feel comfortable navigating discussions in the entrepreneurial world. Whether you’re a founder, an investor, or just someone curious about the startup and small business ecosystem, this is your go-to guide to understand everything from MVPs to ARR.

What Is an MVP (Minimum Viable Product)?

Let's kick things off with MVP, or Minimum Viable Product. An MVP is the simplest version of a product that can still solve a customer problem effectively. The keyword here is "viable." It has to be useful to someone; otherwise, it’s not viable at all. The purpose of an MVP is to get something out into the hands of real users as quickly as possible so you can get feedback and iterate.

Your MVP doesn't need to be fancy—just enough to be functional. It helps you learn whether people actually want what you're building before you invest too much time or money into a fully developed product.

Take Airbnb, for instance. The founders started with a very simple website to rent out a few air mattresses in their apartment to make extra money. It wasn't a fully-fledged platform with all the features we see today, but it was viable enough to validate their idea and get early feedback from users.

Product-Market Fit (PMF)

Achieving Product-Market Fit means you’ve built something that people want, and they love it. You’re no longer struggling to find customers; instead, your challenge is scaling to keep up with demand. Before product-market fit, a startup's main focus is figuring out what customers really want. Once you achieve it, the focus shifts to growth and scaling.

Take Instacart as an example. Initially, they focused on getting a small group of users to love the product—grocery delivery made easy. Once they found that people were excited about the service, they focused on scaling and expanding to different regions.

Funding For My Business

Understanding Venture Capital and VCs

Venture Capital is funding provided to startups in exchange for equity—a piece of ownership in the company. The people who invest in startups are often called VCs (venture capitalists). VCs are willing to take big risks because they’re looking for companies that can grow to an enormous scale.

Most venture capital investments don’t succeed. In fact, many startups fail. But the few that become successful can return huge profits to investors—think of early investments in companies like Google or Facebook. Venture capitalists are essentially betting on finding the next big thing that will make up for all the others that didn't work out.

Angel Investors: The Startup's Guardian Angels

Angel Investors are individuals who invest their own money in early-stage startups. Unlike VCs, who invest from a managed fund, angels typically invest smaller amounts—like $20,000 or $50,000. They might do it as a side project, as a way to support new ventures, or because they’re excited about a particular idea.

Angels are usually the first people to take a bet on a startup, and their investment can be critical to helping a company get off the ground.

Grants: A Funding Lifeline for Startups and Small Businesses

Grants are a great way to fund your startup or small business without giving away equity or taking on debt. Grants are non-repayable funds provided by government bodies, non-profits, or other organizations to help support businesses, especially in their early stages.

In the US, there are various federal, state, and local grants available for small businesses. For instance, the Small Business Innovation Research (SBIR) program provides funding to small businesses engaging in federal research and development. The Economic Development Administration (EDA) also provides grants aimed at fostering economic growth in communities.

In the EU, there are similar opportunities through programs like Horizon Europe, which offers grants to innovative startups in technology and research fields. Many EU countries also have regional grants to support local businesses. These grants can be competitive, but they provide a great opportunity to get funding without diluting ownership in your business.

Accelerator Programs

Accelerator Programs are intensive, fixed-term programs designed to help startups scale quickly by providing mentorship, funding, and access to a network of investors. Startups that join accelerators often receive seed funding in exchange for equity and go through a structured curriculum that covers everything from product development to pitching investors.

Examples of well-known accelerators include Y Combinator, Techstars, and 500 Startups. Joining an accelerator can be a great way to refine your product, gain valuable connections, and secure additional funding.

Crowdfunding: Raising Capital from the Crowd

Crowdfunding involves raising small amounts of money from a large number of people, usually via online platforms. This can be a great way to validate your idea and raise funds without giving away too much equity. Platforms like Kickstarter, Indiegogo, and GoFundMe allow startups and small businesses to showcase their ideas to the world and secure backing from supporters.

There are different types of crowdfunding, including reward-based crowdfunding, where backers receive a product or perk in exchange for their support, and equity crowdfunding, where backers receive a stake in the company.

Seed Rounds and Series Funding

A Seed Round is the first significant round of funding for a startup. It’s the initial boost that helps a company build its MVP and get some traction. Later rounds of funding are called Series A, Series B, Series C, and so on, with each round typically involving larger investments and more structured agreements.

In these later rounds, investors often ask for a board seat or significant ownership stakes, which helps them influence the company's direction.

For example, DoorDash raised a seed round to get started with their simple food delivery service. Once they proved their concept and gained traction, they went on to raise larger rounds to expand their service to more cities and improve their technology.

Burn Rate: Keeping an Eye on Your Cash

Burn Rate refers to how much money your startup or small business is spending every month. If you have $1 million in the bank and end the month with $900,000, your burn rate is $100,000. Knowing your burn rate is crucial, as it tells you how long you can operate before running out of money. It's especially important for startups that aren't profitable yet but need time to reach that stage.

Profitability: The Goalpost for Every Business

Profitability is straightforward: it’s when your business makes more money than it spends. But startups often take time to become profitable. Sometimes, a startup can grow and scale, and as it does, its profit margins—the difference between revenue and costs—will improve.

Take Google, for example. It wasn’t profitable in its early years, but once it figured out how to monetize its search engine effectively, it became incredibly profitable. That’s a common startup journey—initial losses followed by scalable, high-margin profitability.

For small businesses, profitability can often come sooner than for startups. Many small businesses, like a local coffee shop or an independent consulting firm, focus on reaching profitability quickly to sustain operations without external funding.

Bootstrapping: Going It Alone

Bootstrapping is when you build a company using your own money or by reinvesting profits from the business, rather than raising external funding. If you launch an app and rely on its revenue to grow, you’re bootstrapping. This approach gives you complete control over your business, without needing investor approval or giving away equity.

It’s a great option for businesses that don’t need a massive amount of upfront capital or are not aiming for explosive growth. Many successful businesses, including Mailchimp, started by bootstrapping and were able to grow without giving away ownership.

Convertible Notes and SAFE Notes

Convertible Notes and SAFE Notes are tools startups use to raise money. A Convertible Note is a debt that converts into equity in the future, usually during the next round of funding. A SAFE (Simple Agreement for Future Equity) is similar but simpler—it’s not a debt and usually involves fewer terms and obligations.

If you’re a founder raising money, it’s important to understand the differences and make sure you know what you’re agreeing to before signing.

Equity and Stock Options

Equity represents ownership in a startup. Employees might receive stock options, which are the right to buy shares in the future, usually at a favorable price. This helps align the incentives of employees and founders—everyone wins if the company becomes successful.

TAM: Total Addressable Market

Total Addressable Market (TAM) is the total revenue opportunity available for a product or service. It's a way to understand the potential size of your market. For example, Tesla's TAM isn't just electric cars—it’s the entire automotive market because their goal is to replace traditional vehicles.

Sometimes, startups help create their own market. For example, Uber significantly expanded the TAM for ride services by making it more convenient and affordable than traditional taxis.

Valuation: How Much Is Your Startup Worth?

Valuation is what people think your startup is worth, often based on the last round of funding. But unlike the stock market, where share prices are constantly adjusted, startup valuations are somewhat subjective and can fluctuate greatly depending on market sentiment and investor expectations.

High valuations can be exciting, but they aren’t always a sign of guaranteed success. They’re just an estimate of what people believe your startup could be worth in the future.

Exit Strategy: Planning for the Future

An Exit Strategy is a plan for how investors (or founders) will eventually get a return on their investment in a startup. Common exit strategies include acquisitions (where another company buys the startup) and IPOs (initial public offerings). Having a clear exit strategy is important as it helps investors understand how they will make money from their investment.

For example, WhatsApp was acquired by Facebook for $19 billion, providing a massive return to its founders and early investors. On the other hand, companies like Zoom went public via an IPO, allowing founders and early stakeholders to sell their shares on the open market.

IPO: Going Public

An IPO (Initial Public Offering) is when a privately held company starts selling shares to the public through stock exchanges. It’s often a big milestone for startups, signaling maturity, financial stability, and broad public interest.

IPOs allow founders, employees, and early investors to cash in on their equity, potentially making millions or even billions.

ARR: Annual Recurring Revenue

Annual Recurring Revenue (ARR) is a metric used to understand how much predictable revenue a company can expect every year. If you have 5 customers each paying $10,000 annually, your ARR is $50k.

This metric is especially important for subscription-based businesses. ARR gives you a clear idea of your revenue stability and helps you plan future growth.

CAC and LTV: Understanding Customer Acquisition Costs and Lifetime Value

Customer Acquisition Cost (CAC) is how much it costs to acquire a new customer. This includes marketing expenses, sales efforts, and any other costs involved in getting a customer to buy. Lifetime Value (LTV), on the other hand, is the total revenue you expect to earn from a customer over the entire duration of their relationship with your business.

For instance, if DoorDash spends $20 to acquire a new customer (CAC) but expects to earn $200 from that customer over time (LTV), they have a good ratio. Ideally, your LTV should be significantly higher than your CAC, which means your business is sustainable.

Churn Rate: Keeping Customers Around

Churn Rate is the percentage of customers who stop using your product or service during a given period. A high churn rate can be a red flag, as it indicates that you’re losing customers faster than you’re gaining them. For subscription-based businesses, managing churn is crucial to ensure growth.

For example, a small business offering a subscription meal box service needs to keep customers happy to avoid a high churn rate. The lower the churn rate, the more predictable your revenue becomes.

The Smart Choice: Start Your Business with Selldone

Starting a business is challenging enough without having to deal with unnecessary complications. One of the smartest choices you can make is to use Selldone—a business platform that stands out thanks to its open-source, no-plugin approach. Traditional ecommerce platforms can be cluttered with plugins that require constant updates, risk compatibility issues, and add complexity to your business. Selldone solves this by offering everything you need right out of the box—no plugins required.

Selldone's open-source nature gives you full control and flexibility, allowing you to tailor your business to your unique needs. This means fewer headaches dealing with third-party software and more time focusing on what really matters—growing your business. Whether it's setting up an online store, automating processes, or integrating IoT features, Selldone empowers you to build a scalable, future-proof business with ease.

With Selldone, you don't need to be a tech expert to create a robust online presence. The platform’s user-friendly tools make it accessible for anyone to start, manage, and scale their business effectively. Plus, the no-plugin approach ensures your business is always running smoothly without hidden costs or surprises. If you're looking for a hassle-free way to launch your startup or small business, Selldone is the perfect choice.

Startup and small business terminology can be overwhelming, but understanding these key terms can help demystify the journey. Whether you’re trying to find product-market fit, raising a seed round, or just trying to keep your burn rate in check, knowing these concepts will put you in a better position to succeed.

So, whether you’re bootstrapping your way to profitability or preparing for your first funding round, remember—knowledge is power. Keep learning, keep iterating, and go build something amazing!

Thanks for reading! We hope this guide makes your entrepreneurial journey a bit smoother and helps you navigate the complex, exciting world of building your dream business.