It might seem daunting to enter the startup world and be exposed to new terminology. Learning the language can be frustrating and feel alienating.
That’s why SPN wants to provide a few helpful starting points for someone entering the entrepreneurial ecosystem for the first time.
Our team sat down and put together our list of the ten most common terms we encounter when talking to startups and entrepreneurs:
10. MoM or WoW or YoY
The “o” stands for over. These are terms that reference a period of time as a comparison group for growth. Month over Month. Week over Week (you should be so lucky). Year over Year. These terms are often written rather than spoken – so your “mom” is the woman who birthed/raised you. Your MoM growth is your month over month growth – and is written.
Go to Market. This is a description of strategy – and again this is usually written. A GtM is usually how a company intends to enter the market, i.e. what marketing strategy is going to lead to which new customers signing up (and paying).
CRM means customer relationship management and is usually followed by software. Like other types of enterprise software (for example, ERP (Enterprise Resource Planning), BI (Business Intelligence), etc.) CRM software is a productivity software that is utilized by companies to keep track of their customer relationships. Often this software doubles as software that tracks potential customers and people that are in a sales campaign (often called leads).
SaaS (Software as a Service) – pronounced like “sass”. SaaS software and its brethren (Infrastructure as a Service (IaaS), Platform as a Service (PaaS)) are tools that are usually built online and paid in a recurring fashion (often monthly). Examples of SaaS platforms include Microsoft Office 365 and most CRM software platforms.
VC is tricky because it means a class of people – venture capitalists or and individual within the class of people – an individual venture capitalist – or it could mean the firm that represents this group – as in a VC firm, shortened to just VC. In many ways this reminds us of LOL which almost always means “laughing out loud” but in rare cases has been shortened by an elder to “lots of love”. While not generally confusing, VC has a variety of meanings that shift around subtly and so it is important to track all iterations.
Annual recurring revenue and its close cousin MRR – monthly recurring revenue also can be a little tricky. The same acronym ARR can mean annual run rate (or in some weird finance instances Annual Rate of Return) – and this is not the same thing as recurring revenue. Annual recurring revenue means revenue that is signed up to recur every year. So, for example, I might sell a SaaS product to a client that auto-renews a year from now. This would be considered ARR (annual recurring revenue). Here’s where this gets tricky my run rate is derived from my MRR (monthly recurring revenue) – but it is a forecasted amount based on my current amount today and my projection of that growth continuing. This is very different – one is based on annual contracts and one is based on forecasts of growth.
Customer Acquisition Costs – pronounced “kak” like “hack” but with a “k” sound. Acquiring customers is critical to any startup, but understanding how (which channels) and at what price (which is what the CAC is used to abbreviate) the customer is being acquired is really important. This number can be hard for certain types of companies to calculate – but generally it is total acquisition costs (generally marketing and sales expenses (minus discounts)) divided by the number of new customers. This allows a firm to understand its unit value.
Lifetime Value – many firms have clients that will pay for a period of time and then leave (called churn in many software industries). Understanding the length of time that an average customer stays with a firm and what the average customer spends per month (or year) allows the firm to create a lifetime value calculation. This is very useful for companies that have regular churn levels because it isolates the length of time and the unit metrics for a specific customer.
Average Revenue Per Unit. This is a critical one and is related to other unit measurements but it essentially measures the average price paid by customers against the number of things that they are buying. Particularly for companies that are selling products, ARPU is a great way to keep track of customer trends and product related pieces. For example, let’s imagine that I run an e-commerce site that sells shoes. I sell a $50 pair and a $100 pair – my revenue is $150, and my ARPU is $75. Whereas if I sell 50 $1 pairs and 1 $100 pair, my revenue is still $150, but now my ARPU is $2.94. These are very different businesses. This unit measurement is a great way to understand a firm’s financial tension between commodity and specialized.
Internal Revenue Service. Pay your taxes, kids. This probably is a no brainer for many experienced entrepreneurs and business people, but there exist folks that do not know what the IRS is and how it affects their business. Simply put, the number one most important thing to do in business is to sell something to customers…and often that creates a tax liability owed to the IRS or the equivalent department in your state (in Iowa and Nebraska, it is the Department of Revenue or “DOR”).