The 10 Business Terms You Need To Know When Building Your Startup Vol. II

On the long road to building your startup, you may run into unfamiliar terms you have never encountered before. As you deliver your first or even fiftieth pitch to potential investors, you might hear acronyms that will take you by surprise and leave you scratching your head on how to respond. Fear not, because we have provided another installment of business terms to add to your arsenal in the boardroom or a meeting.

PMF- Product Market Fit

The center of your startup's solar system should be product market fit. This term describes a solution that has an audience of people who are willing to pay for it. If this audience becomes repeat customers, resulting in revenue that surpasses your expenses, then you have arrived at Product Market Fit.

MVP- Minimal Viable Product

Though you may have a complete version of your startup's solution in mind with all of the bells and whistles, you might not have the resources to execute it all at once. The MVP describes a product with the minimum amount of functionality needed to present to potential customers. Determining what goes into your MVP is a great learning opportunity and allows you to test ideas and get feedback before moving on to a complete version that has been validated by your potential market.

B2B- Business to Business

If your startup wants to serve companies rather than individual consumers, then you are most likely a B2B company. Examples such as Salesforce provide a critical service for businesses to make their lives easier rather than providing a consumer-based solution like AirBnB that targets individual homeowners and travelers.

B2C- Business to Consumer

This customer focus describes companies such as Uber that focus on individual consumers and drivers rather than customers at the business level. Understanding who is going to buy or use your solution and how you will approach them, is a crucial step for any startup.

CT- Cap Table

Typically presented in a spreadsheet or table, this document is used for startups or early stage ventures to list ownership at a detailed level. Think of it as a financial snapshot of who owns what, how much each person owns, and what they paid for their part of the equity pie. This table can be used as a tool to attract potential investors, employees, and new partners.

TS- Term Sheet

A term sheet is a foundational roadmap for all parties involved in a business transaction to make sure the core items in an agreement are, in fact, agreed upon. Though this sheet is often not legally binding, it can be helpful as a working document to define items and clear up potential misunderstandings or disputes in preparation for more formal negotiations later on.

MRR- Monthly Recurring Revenues

If your startup's solution is SaaS or subscription-based, this form of revenue will most likely be the type you will be earning. This is the portion of revenue taken in that is likely to continue with a high degree of certainty. Consider this a goal for your company to move toward predictable and stable earnings on a regular basis.

EBITDA- Earnings Before Interests Taxes Depreciation Amortization

As a way to measure a company's profitability, the EBITDA margin can be used to show investors, owners, or financial professionals how a company is doing. With a higher margin, the bottom line is also more profitable overall as it shows that a company has smaller operating expenses as it relates to total revenue.

CAPEX- Capital Expenditure

Expenditures that fall under this category include those needed to improve operations, purchase equipment, or to upgrade and acquire physical assets such as property or buildings. As your startup scales, it is important to keep in mind what expenses may come up in the future and plan ahead so you can keep up with the pace of growth.

IRR- Internal Rate of Return

With limited resources and projects competing for attention, IRR is a way to determine what value a project will generate for the business. A typical application of this metric is to compare the profitability of a new undertaking contrasted with expanding an existing channel. The higher the rate of return against the cost to execute it, the more profitable the project will likely be. This is useful to know when you need to decide whether a new feature or a whole new software product will be the best move for your company.