10 business terms to know before you start a startup

10 business terms to know before you start a startup

If you’re afraid to do your own business then you should be familiar with the business environment and the business terms that are used.

Entrepreneurs have a lot of creativity, they have product ideas, and they’re ready to work on their coats so their businesses can stand on their own feet. Unfortunately, not all entrepreneurs know the business and financial terms they will be hitting when they build a  business .

So before you resign from your job and start a business, you’d better take a look at these terms.

1. An Angel Investor

Angel investor is the investor who is willing to help a  start-up  at the start of the road and represents the step for entrepreneurs to invest their own money or family money to invest someone else’s money. Of course, investors do not do this out of goodwill, but in return for action in the company or for another good. Entrepreneurs need to know that the investor, through this investment, expects to take part in business decisions and the future of the company.

2. Accelerators and startup incubators

The two are organizations with similar structures whose purpose is to help startups. Accelerators run intensive and short-term programs, and incubators are geared to supporting the business environment, supporting business early on.

Through a start-up accelerator it can receive funding from the program or from other investors. You can think of an accelerator like a mini-university where you learn marketing, sales and so on. Many accelerators have the same business model as seed funds or business angel investors: they take start-ups in the hopes of a successful exit in a few years.

Incubators do not take action from startups, but some charge a charge while others are free. Incubators are suited for startups and startup accelerators need little help to speed up business.

3. Treating financial terms

Maybe you want to make pictures or a mobile application, but that does not mean you do not have to know the financial terms, especially as you will face many. Now you will not find a dictionary of economic terms here, but it will give you some examples to give you an idea.

The main pillars of a business are: revenue, expenses and profit. Income is calculated by multiplying the cost of a unit / service by the amount sold. Then you have to consider the expenses to see your net profit. Net profit represents total revenue minus expenses. You’ll hear a lot about the profit margin. Well, this is the ratio between net profit and net turnover. If you want to find the margin, then you share your net profit on your turnover. That is, turnover is the total amount of revenue from commercial transactions over a period of time.

ROI (return of investment) or what is the recovery period of the investment, that is, the time period in which the investment is recovered from the profit or from the net income obtained from the realization of the investment. It is calculated by dividing the total investment into the annual profit, equal in time or dividing the annual net income. This is the time to recover the investment.

Hold me that any idea of ​​a startup is a business, and a business is represented by figures, profit and income and expenses. You do not need to know how to make accounting, but you should know the meaning of the terms that influence your business.

4. A  unicorn  is a technology startup that has reached an estimated $ 1 billion. You will dream this term and want it for your business. There are only two unicorns in Romania: UiPath and eMAG.

Business terms to know when starting a business:

5. Validation and scalability

Validation means that you have proven that there is a need in the market for the product or service you want to offer. If there is no need then you will not be successful. Scalability refers to the ability to grow a business by replicating the business model in different markets or by new management practices.

6. MVP  does not come from the most valuable player, but from the minimal viable product. If you have a startup that builds a hardware product then you have to bring it into a minimal state of operation so you can show your potential customers the potential of your product. Based on the MVP (and other factors) they will decide whether to invest in you or not.

7. Growth hacking  is a creative and innovative approach to increasing your startup. Specifically, growth hacking is a new form of marketing that combines creativity, experimentation and business growth. Try different growth methods, get visibility then measure all these things and see if it’s what you do or not.

8. CAC and CRR, other important business terms

CAC (customer acquisition cost) is the cost of a client’s acquisition. Assemble marketing, sales, wages, etc., and divide it into the number of customers you get in a given period. For example, if you spent 200 lei on 10 customers then the cost is 20 lei.

Customer retention rate (CRR) is an important parameter because it shows you whether you keep your customers happy, and that helps you find out how fast you can grow your business. How many customers have stayed with you in a period of time. You can calculate this for a long or short period.

Let’s say you start the month with 1000 customers and at the end you lose 150, but you earn another 200. That means you have 1050 customers and the retention rate is 85% ((1050-200) / 100) X10 = 85%. Is it a lot or a little? it depends on the industry where you work.

9. Listing on the stock exchange

When you need funding, but you do not want to borrow from banks or if you do not want to get money from investors, you can list your company on the stock market. The listing process allows a company’s shares to be traded on a country’s stock exchange. They must adhere to a set of rules for listing on that exchange, such as previously recorded profits, issued / paid capital, etc. There are many advantages but disadvantages for a company to list, but this is a subject for another day.

10. Financial evaluation

Earlier I told you about the unicorn and the $ 1 billion valuation. But what is this assessment and how is it done? An assessment of a startup is made taking into account several parameters such as the product it is doing, the back team and the traction it might have. Also, similar companies in the field in which you operate are also taken into account, at what values ​​they have been evaluated, the revenues, expenses and startup profit you take are taken into account.

For example, for startups in the US, a $ 20,000 investment is worth $ 400,000, and a $ 100,000 investment leads to $ 1 million in financial evaluation (2012 data).

If you got here, it means you’re interested in starting a startup. For a successful business, you only need to know business terms, but listen to the advice of others.

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