Entrepreneurship Terms & Definitions

Entrepreneurship is often laden with terms and acronyms that can be mind boggling to new entrepreneurs. Below is a list of frequently used terms in the world of new businesses and start-ups. Don’t see one on the list? Let us know!

 

Accelerator - An organization that helps businesses rapidly grow through a combination of programs including but not limited to classes, mentoring, advising, and peer learning. It is akin to applying fertilizer to a garden.

Accredited Investor – Derived from securities laws, an accredited investor is an individual that has ample cash (assets or income) such that making a business (private equity) investment will not represent a significant amount of risk for them. Often times, businesses seeking capital only want to engage accredited investors because they don’t want to waste their time talking to (non-accredited) investors who may not be able afford the investment or find the investment too risky. A $10,000 investment, for example, represents significantly less risk to Bill Gates than to a college student.

Angel Investor – Typically an individual (but it can be an organization) that invests capital into a new or start up businesses in exchange for debt or, more frequently, equity in the business. While there is no exact definition of who an angel investor might be, they tend to early investors in a business and their investments range anywhere from $10,000 to $1,000,000.

Bootstrap - Operating or starting up a business with very little or limited funds.  Synonyms: prudent, thrifty, DIY.

Business Plan – A report or a document that describes in detail the full nature, plans, and goals of your business. Among founders of a business, a business plan’s real value is to make sure every aspect of the business is carefully considered. In doing so, the founders can also assess their strengths, weaknesses, and YDKWYDKs. Investors or lenders may ask for a formal, well-written business plan so that they can properly assess the value, potential and risk.

Copyright - A form of intellectual property that grants to the creator of original work the right to fully use and distribute that work.Written word, artwork, music, photographs are examples of works that can be copyrighted. Without a copyright, anyone can use and distribute a piece of work.

Crowdfunding - A means to raise funds from the general public. Although it can be used to raise capital, current federal and state securities regulations make it difficult to use crowd funding to raise equity capital, sites like Kickstarter, are a popular platform for entrepreneurs to “pre-sell” products to prospective customers. In this capacity, crowdfunding is useful for raising capital, validating offer ideas, and generating some promotional buzz.

Debt Financing – Getting funds or capital for your business by borrowing from a lender such as a bank, credit card, or any other third party. In exchange, you agree to return the funds with interest via a set payment plan. Typically you will need assets as collateral so that the lender can have some recourse in case you are not able to repay your debt.

Equity Financing – Getting funds or capital for your business from investors who, in return, want a share – or equity – of your business.

Exit Strategy – How you plan to leave your business. While that might seem odd to consider while you’re in the process of starting a business, it is important to investors so they have an idea when they can recoup their investment and when. It is also important as how you plan on leaving the business will impact your overall business strategy and direction. For lifestyle businesses, it is less important, however, something to consider as you plan for retirement or if you anticipate a change down the road.

Funding Round – Securing capital from equity investors may often take multiple rounds as each round generally reduces the risk (and potential payout) and have different purposes for the capital raised. For example, an apparel business may seek it’s first round of funding to build a prototype, a second round to do a limited production and promotion launch, and a third round to expand production and promotion to reach a national market.

Incubator - A business accelerator whereby participating businesses are physically located in the same nurturing space thus allowing ideas and guidance to flow freely among member businesses and between advisors and businesses. The incubator model akin to a greenhouse for growing plants.

Intellectual Property (IP) – Is an intangible asset that offers it’s owner (individual or organization) the exclusive right to “creations of the mind.” Examples of IP include patents, trademarks, trade secrets, and copyrights. IP is important to businesses and investors as they can offer a competitive barrier and thus reduces their risk.

Intrapreneur - Someone that is launching a new offering (produce or service) within an existing business or entity.

Initial Public Offering (IPO) – Companies start with private investors providing the initial rounds of capital. However, as a company grows, it’s capital needs may go beyond what a small group of investors can provide and so a company may seek raise capital from the general public. To so do, it must offer it’s shares (equity) to the public and allow those shares to be traded on public stock exchanges. The initial offering of shares to the public is called the IPO.

Lean Start Up Model – A business start up strategy based upon simple, iterative offer and business development cycles. This strategy minimizes risk by identifying customer needs, developing something to cater to those needs, launching the offer, getting feedback and updating the offer. For more info:

Lifestyle Business – A business who’s primary intent is to attain a particular level of income or allow the founder to pursue a certain lifestyle rather than pursue unbounded growth. Typical examples include: freelancers and “mom and pop” businesses. Because these businesses don’t necessarily offer substantial financial returns, investors are often not interested in investing in these types of businesses and so debt financing is often the only form of financing that is available.

Minimum Viable Product (MVP) – The first offering that a new business releases that contains the minimal set of capabilities needed to get marketplace acceptance. The MVP is intended to be launched using minimal investment and is not to generate significant sales, but rather gain valuable feedback so that it can be modified for a more robust offering in the near future.

Non Disclosure Agreement (NDA) – a contract between you and another party (prospective investor, partner, employee, etc.) that states certain information conveyed to the other party is confidential and should not be disclosed to any other party. While this is a legally binding contract, it amounts to more of a “gentleman’s agreement” as it can be very difficult to enforce. Nonetheless, you should always have the other party sign a well crafted NDA if you plan on disclosing confidential information.

Peer Mentoring – Getting advice and guidance on your business from fellow entrepreneurs (peers). These typically happen in group settings where one entrepreneur shares a particular problem or challenge that they have and seek the advice of others. Peer mentoring can be a valuable resource as you are able to tap into the collective experiences of many peers who may have experienced the exact same challenges.

Pivot - An intentional, sudden and strategic change in the direction, structure or model of your business. For example, a house cleaning service that uses homemade cleaning supplies may switch from selling cleaning services to selling cleaning products because the owners found the product business more profitable and more aligned with their interests, skills, and desires. While pivoting is essential to many new businesses as they identify how best they can pursue an opportunity, pivoting too frequently is not good because the business never has the opportunity to establish traction.

Pre-Revenue – A business that has launched but has yet to close any sales. For example, you’ve launched a printing business, made the initial investment, and are in the process of installing the printers that you have leased, but have not yet opened the doors for any paying customers. You are considered “pre-revenue”.

Small Business Development Centers (SDBC) – A network of federal, state, and regional agencies set up to help entrepreneurs launch their businesses and help small business owners run and grow their businesses. These agencies offer classes, advising, and programs as part of their offerings. Because SBDC are government funded and offered via local colleges, many of their services are subsidized or offered for free.

SCORE (Service Corps of Retired Executives) – A non-profit, volunteer organization that offers advice, workshops and programs to help entrepreneurs and small business owners. Many of their services are free or significantly discounted.

Secret Sauce – A slang-like reference to a piece of Intellectual Property that is a company’s “raison d’etre” (reason for existence). It is often used in the following context: “ABC company’s secret sauce is a proprietary algorithm that predicts with 99% accuracy a company’s stock price in the next 24 hours.”

Traction - The ability for a business to move forward, achieve progress, and gain customer acceptance. Because there are so many unknowns that a business faces when starting up, it may be a while before it is able to operate with “traction”. Instead it may take a few iterations before it takes a foothold in it’s market.

Trade Secret – Information such as a formula or process flow that offers it’s owner a unique or competitive advantage. Because trade secrets are not protected through legal rights, owners must carefully guard and keep confidential it’s trade secrets.

Trademark – A form of intellectual property that associates a sign, design, or expression to that identifies a particular product or service. For example, Kleenex is a trademark of Kimberly-Clark Worldwide, Inc. that identifies their brand for facial tissue.

Validation - A means to test, verify or refine key ideas, premises, assumptions, and how well an offer might be received among it’s target market. Validation is important because it helps identify and reduce risks. Validation might be in the form of a simple survey, how well received a crowd funding campaign may be, or market reaction to an initial beta launch.

Valuation - The “street value” of a business. For publicly traded companies, a company’s valuation is a direct function of the stock price. For privately held businesses, the valuation is a more ambiguous number that is really based upon a price in which a seller is willing to sell and a buyer willing to buy. For a privately held business, a formal valuation can be performed by an independent 3rd party. In addition to determining the price for company transactions, a formal valuation may be needed for insurance, tax or legal purposes.

Venture Capital (VC) – Capital provided to early-stage (young) businesses in exchange for equity (shares). VC investors are typically only interested in high-potential / high-growth businesses.

You Don’t Know What You Don’t Know (YDKWYDK) – First-time entrepreneurs may not be aware of the issues, challenges, or factors that can have a significant impact or role in their business. For example, an entrepreneur may not be fully aware of the role that branding has in how customers might perceive their company and may, as a result, choose a name, marketing slogan, or logo that is detrimental to their business. For this reason, it is important that entrepreneurs take advantage of as much educational and mentoring opportunities as possible so that there is less YDKWYDK.

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