14 Business Terms Every Entrepreneur Should Know
Do you ever get lost in business lingo? You know your stuff, yet feel lost when listening to industry speakers or chatting with a new client: Incubator? KPI? UVP? Huh?
Do these buzzwords actually mean anything?
Here at Creative Clan, we know how many moving parts a business has. Accounting, business development, and marketing require organization and devotion, not a vocabulary. But business terms are more than just buzzwords. Learning them will help you feel more confident during meetings and channel more authority when you communicate. Plus, you’ll connect more with potential clients and partners if you understand what they’re talking about.
Let’s walk through the 14 business terms every entrepreneur should know below.
Table of contents
- Top Line/Bottom Line
- Gross Profit
- Value Proposition
- Pitch Deck
- Churn Rate
- Seed/Series A, B, C
- Burn Rate
- Scale Your Business with Creative Clan
Scaling is another word for growth. Maybe you have one film studio right now with a couple of actors you rely on for talent and production. Imagine placing the management aspect on someone else – they’d find their own actors and open separate studios. Of course, the operation is still yours. That’s scaling your business. Similarly, scalability refers to whether your business can scale.
For example, if you only allocate five hours a week to your venture; if you never teach anyone how to conduct basic business duties; if you never seek capital; you’re on your own. The attitude, knowledge, and manpower for scalability aren’t present. It takes a lot of resources to scale which requires a lot of dedication from the entrepreneur.
Business expert Carl Gould tells Forbes how important systems are to scaling. Reminds us of SOPs , though systems may embody a few SOPs. Other things you need to scale include:
- People: Your business can’t reach its full potential with only one person working it. You’ll need to spend time recruiting talent you trust.
- Awareness: Are you blindly making decisions without considering their business worth? Are you ignoring difficult parts of your day-to-day? The list goes on. You need to be aware of your business’ state, your strengths, and weaknesses to scale.
- Risk tolerance: When changing and growing your operations significantly, you’re exposing yourself to a lot of risk. But maybe trust is a better word here. You’ll need to trust your abilities, judgment, and staff to jump headfirst into an expanded venture.
- Automation: Time is money when you’re scaling, so any tech you can leverage to automate tasks is helpful. For example, Zapier’s automations trigger actions based on your needs.
Scalability and scaling are good terms to know when discussing your business trajectory, especially for venture capitalists, business lenders, and more.
An accelerator is meant to accelerate your startup’s growth. How? Through funding, mentoring, guidance, and a structured plan for growth over a few months. Of course, none of this is free. The mentor-based program is accessible only if you’re willing to share equity in your company with investors (usually 5%-10%). Plus, admission is highly competitive.
A venture capitalist or startup investor won’t shell out the dough for an idea, no matter how good it is. You’ll already need a solid model or prototype to be eligible for a startup accelerator.
So, accelerators take place over a few months – what do you do for all that time? You’ll access some great entrepreneurial minds and hear their advice on how to develop and market your product or service.
Another way to access mentor-based guidance is through an…
Incubators are a more relaxed version of an accelerator. Entrepreneurs can join this mentor-based program for similar mentorship and resources. Like accelerators, incubators are competitive and are meant to support an early-stage business in exchange for equity. But not all incubators demand equity for support. Some are actually nonprofit organizations.
Plus, incubators are meant for businesses even earlier in their journey. These programs can last 1 to 5 years, offering entrepreneurs access to office space and technical tools.
If you’ve just started your business and haven’t solidified your goals and model, an incubator is a great way to shape your trajectory. And if you’re past the childhood phrase? An accelerator is the natural next step, followed by…
Imagine starting a business with nothing but your wits and whatever funds are in your piggy bank. That’s bootstrapping — it’s when an entrepreneur launches a company without any external investment. No loans or VCs here; these businesses are built by self-starters, powered by personal savings or immediate revenue from the new business.
Did you know the popular dating website Plenty of Fish is a bootstrapped business? The founder launched the startup from his apartment. Only years later did he hire employees and move to an office. Other bootstrapped companies include Microsoft, Basecamp, and TechCrunch.
Related Reading: When should I incorporate my business?
Top Line/Bottom Line
Top line and bottom line refers to items on your income statement. This is one of the important business terms every entrepreneur should know because it relates to your finances. At the top, what’s listed first is your revenue. In other words, top line means your total revenue before expenses and other costs. Bottom line refers to the last line on your income statement, net income. This is the amount of money you’re left with from operations after all costs are accounted for.
Gross profit is your top line revenue minus your cost of goods sold, or COGS for short. This metric is used to assess how much money you have left for indirect costs, like overhead and interest.
Similarly, a gross profit margin describes the money your business made after accounting for all your business expenses as a percentage. If your gross profit margin hovers around 10%, you’re in good shape. If not? You might need to…
A pivot is a strategy switch, often done quickly to meet changing market conditions. For example, tons of restaurants in Toronto pivoted to take-out, delivery, and virtual cooking lessons in place of in-restaurant dining during the COVID-19 pandemic.
But pivots aren’t only for a change in the market. Entrepreneurs pivot to solve business problems in many different ways. A pivot could look like:
- Embracing one business feature as a standalone product
- Adding features to a product to attract a new target audience
- Develop a business suite starting with your original product
- Switching marketing strategies, i.e., going from ads to affiliates
- Changing manufacturing processes, i.e., outsourcing to another country
- Altering operations to better suit the vision
Successful entrepreneurs adapt when they see opportunities to enhance their businesses and aren’t afraid to pivot when needed.
ARR stands for annual recurring revenue, and MRR stands for monthly recurring revenue. These metrics measure your business’s health and financial stability. This is an especially useful business term every entrepreneur should know in SaaS or subscription based businesses. The calculation is simple. Add up the revenue you’re guaranteed to get on a monthly or annual basis through secured contracts and ongoing work with clients.
Many businesses use ARR and MRR for forecasting, using them as a base to prepare for future business strategies and investments.
Remember the UVP acronym we heard earlier? That stands for “unique value proposition,” also sometimes shortened to the value proposition. Think about how you help your customers. Your UVP covers two vital aspects of your business: economic value and attractiveness.
This is what keeps you in business. Sure, you sell greeting cards – but what makes your greeting cards unique from the thousands of others in the industry? What do you bring to your business that others can’t? That’s your value proposition.
Related Reading: What is a business plan?
A pitch deck is a slideshow presentation with a bird’s eye view of your business, including the target audience, business model, team, and more. You’ll need one to propose partnerships, secure capital, and even speak at industry events.
KPI stands for “Key Performance Indicator,” which is a way to measure success relative to a certain benchmark. Of course, regular business income is a pretty universal indication of success. But KPIs are more specific and offer more insights about how to get that income. In addition, there are often KPIs specific to certain industries and it’s a goal to reach the same KPI value as competitiors.
For example, popular KPIs for call centers include:
- Average handle time: The amount of time a representative takes to solve a customer issue
- Abandon rate: The rate of customers hanging up on calls
- Average hold time: The amount of time it takes for customers to reach a representative
Similarly, television producers might use these KPIs:
- Average show rating: How customers and critics rate the show
- Share ratio: Measures how often fans share the piece with friends
- Annual average net profit: Annual income before taxes and other expenses
Pssst. If you’re talking to investors, they’d love to know how you plan to measure success. Be sure to include this in your vocabulary of business terms every entrepreneur should know. You’ll seem super smart when pitching and sharing insights of your biz!
One KPI most businesses use is…
Customer attrition, or churn, is the rate at which customers stop becoming customers of a certain business. Subscription-based businesses often calculate churn rate to find out how many customers end their subscriptions — think online subscriptions, magazines, Netflix, and others.
If business is good, you’ll want to boast a low churn rate to your prospective customers or investors. Similarly, you’ll want to know your churn rate and identify factors surrounding churn rate increases.
Like all KPIs, churn rates help you measure progress and tackle problems as they arise.
Seed/Series A, B, C
A seed round refers to the first stage of raising money for a startup. Series A, B, and C refer to various stages of startup funding. Ever heard of angel investors? These are high-net-worth players who invest large amounts of money in exchange for equity in your business. Series A, B, and C categorize the often millions of dollars that go into these initial funding bursts:
Series A: Anywhere between $2 million to $24 million for businesses with a great idea that still don’t have a solid plan to monetize. In other words, Series A is for development stage businesses.
Series B: Anywhere between $30 million to $60 million for businesses past the development stage that want to reach new markets.
Series C: Funding for relatively successful businesses to grow by creating new products or partnering and acquiring other companies.
Related Reading: Accounting for Startups: A Complete Guide
Every entrepreneur experiences peaks and dips in revenue — but how do you distinguish a bad month from a pattern? Your wallet might remind you, but you’ll get more insight from calculating burn rate.
Burn rate measures the rate at which your business uses money. You might also hear this referred to as negative cash flow. Specifically, burn rate often compares a startup’s capital spending against positive cash flow. Here’s how you calculate it:
Burn rate = (Starting balance – Ending balance) / # of Months
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Bottom line? Business terms can feel like jargon, but knowing their meanings will only help you. You’ll pick up things quicker and feel confident when communicating with investors, partners, clients, and other professionals you encounter. Beyond this list of business terms every entrepreneur should know, you’ll probably come across more that are specific to your niche.
Need more support building your business? We can help. Contact us today for a consultation!