Word of the Week : Coupon - A negotiable certificate attached to a bond that represents a sum of interest due.
Above-the-Line Promotion
Methods of advertising a product or service that reach a mass audience. For instance, television advertising would be considered "Above-the-Line Promotion" because it reaches large numbers of people as opposed to a niche audience. This type of Promotion is generally used to build awareness of a brand, and its effectiveness can be difficult to measure.
Account
A record of a business transaction. Accounting is one of the most important aspects of running a company effectively. The two basic types of Accounts are Accounts Payable (money you owe to other businesses or individuals), and Accounts Receivable (money owed to you by others for goods and services delivered but not yet paid for).
Arbitrage
Exploiting securities in similar financial markets to gain profit from price discrepancies.
Assets
An asset is anything a business owns that contributes to the value of that business. Fixed (or "capital") assets are things like land, buildings and equipment - anything that will be a valuable part of the company on an ongoing basis lasting more than one year. Current assets are things like cash, inventory and accounts receivable, which are in flux.
B2B
B2B Stands for "Business to Business." The term comes from the world of advertising, where it means communications designed by one business to target other businesses. It has expanded to mean selling services and products to other businesses, rather than to consumers. A common example is IT products, like those offered by Microsoft, which are provided to other businesses.
B2C
B2C Stands for "Business to Consumer." Like B2B, the term B2C originated as an advertising term, and has expanded to include the act of selling products and services to consumers directly. Web retailers are an example of B2C companies, because they sell goods directly to consumers.
Barrier To Entry
An obstacle that prevents a company from entering into a specific market. Market
power and monopolies are often aided by barriers to entry.
Breakup Value
The value of a company if its assets were sold off independent of one other. For example if a company was stuggling or if the principals were looking to sell, they could compare what they may be able to sell their entire company for to what they would get if they sold of their assets individually, the sum of which is the break up value.
Burn Rate
The rate at which a new company uses up its venture capital to finance
overhead before generating positive cash flow from operations, or seeking additional funding.
Chief Executive
The head of the company, with overall responsibility for ensuring that the organization's daily operations run efficiently. The Chief Executive (or Chief Executive Officer [CEO]) is also responsible for carrying out strategic operations that will move the business forward and lead to profitability.
Competitive Analysis
The process whereby a company or business examines the landscape to see what similar businesses are doing, how they do it, and what opportunities and challenges exist in the marketplace. A competitive analysis is designed to help an organization determine how best to differentiate themselves in the marketplace, and also to find out how others are finding success.
Contingency
When the Dragons agree to make a deal, they may add a "contingency," which is a condition of their agreement. A contingency might be that no other partners are allowed into the company, for example - if this is not agreed to, or if the company breaks their word, the deal is off.
Coupon
A negotiable certificate attached to a bond that represents a sum of interest due.
Critical Mass
The size at which a business or market undergoes a fundamental change in regard to operations. An example of such a change is a company's achievement of increasing returns to scale.
Customer Acquisition
A sales and marketing process to gain new customers and clients.
Demand
The amount of desire customers have for a product or service at a given price point. Without demand, a product or service cannot succeed in the marketplace. Demand isn't entirely determined by price; it can also be affected by changes in consumer tastes and fashions, relative income levels, and effective advertising.
Demographics
Broadly speaking, demographics are the statistical data of a population, such as average age, income, education, etc. But businesses also use more specific demographic information to determine their strategic approach and to fine-tune their product or service offering. For instance, Mountain Dew aggressively targets a "youthful" demographic.
Distribution Channel
The method by which goods are moved from producer to consumer. This includes any individuals and organizations that help facilitate the transportation of products, as well as the actual route traveled by those products as they make their way to the consumer.
Dividends
Payments, taken from company earnings, that are made by a corporation to its
shareholders.
Economies of Scale
The cost advantages that a business obtains due to expansion. Basically, as a company grows bigger, it costs less and less to manufacture a unit of the product that company is selling. This is due to the lower costs that are available to a larger company, due to a number of factors: purchasing in bulk, getting lower interest rates on bigger loans, and more specialization of managers, to name three.
Equity
The amount of the funds contributed to a business by the owners and stockholders of a business, plus retained earnings (or minus losses). Basically, a business's equity is the total amount of assets that business owns minus the total liabilities it owes.
Expenses
Also known as Overheads, Expenses are the indirect costs that must be paid in order to do business. These costs include paying for staff, renting a property or manufacturing plant, covering the price of supplies, and any other expenditures that must be covered in order to continue operating.
Export Agent
An intermediary who acts on behalf of a company or organization to sell their goods or services, or open up a new market, in a foreign country. Some export agents have exclusive rights to distribute certain products in a geographical area, and therefore they are an integral part of expansion plans.
Fixed Costs
The costs of doing business that remain the same, regardless of the level of output. Rental charges for a factory, for instance, are constant whether a company is producing a million units a month or none; therefore the cost of the factory rental is "Fixed."
Flow Production
Also known as Mass Production, this is a method of producing goods through an almost continuous manufacturing process. It is designed to produce many identical units in a short space, often through the use of robotics and conveyor belts.
Franchise
A legal agreement wherein one business (the franchisor) allows another business (the franchisee) to use its name and logo and sell its goods and services. In order to become a franchisee, an individual must pay an initial fee and supplement that with an annual payment. The benefits to the franchisee include a recognizable brand, a pre-existing customer base, and large scale (often national) advertising campaigns.
Fulfillment
The process of responding to customer requests and orders. Delivering products and services on time is an important part of creating long-term loyalty, but accurate and timely Fulfillment requires adequate resources and an efficient system of Distribution.
Gap Analysis
A method for a business to identify opportunities and challenges by looking at how well they're allocating resources. Basically, it's a way of checking into where a company is versus where it wants to be by comparing actual performance with potential performance. Gap Analysis can also be used to identify opportunities for growth and expansion by examining gaps in the market, such as an unmet consumer need.
Geographic Segmentation
Dividing a market based on the location and interests of that market's customers. Many international companies tailor their offer for different geographic regions based on the cultural interests and desires of individuals in those regions.
Gross Margin
The percentage of each dollar of revenue that a company gets to keep as profit. For instance, if a company's Gross Margin for the most recent quarter was 22%, then it would retain $0.22 from each dollar of revenue earned. Different industries have very different average Gross Margins; a software company will have a much higher Gross Margin than a manufacturing firm.
Hard Sell
A heavily persuasive and aggressive method of selling a product or service. Designed to force potential customers into making a decision quickly, hard sell tactics tend to focus on immediacy and psychological pressure to get people to act.
Hedge
Hedge is an investment intended to offset potential losses that may be incurred by a companion investment.
Hedge Fund
A private investment partnership that uses aggressive strategies and risk-management in order to generate high returns.
Horizontal Integration
The merging of two companies that share the same industry and stage of production - for example, when one car company merges with another, that's Horizontal Integration. The ultimate goal of Horizontal Integration is monopolizing an industry by consolidating like companies, thus gaining control over the market and improving costs through Economies of Scale.
Human Resources
The part of a company that deals with staffing and personnel. The Human Resources (or HR) department in a larger company is responsible for recruiting and selecting employees based on their fitness for a job, and also for training and developing existing employees of the company.
Incentive Program
A scheme designed to drive better sales or loyalty by rewarding regular customers for their loyalty. The rewards in question can be in various forms, from discounts to loyalty "points" programs. One of the best-known incentive programs in Canada is Shoppers Drug Mart's Optimum Points Card program, which rewards regular customers with points that save them money over the long term.
Incentivize
To provide an incentive to employees, customers or partners to engage with a company's products or services. Governments may also incentivize businesses to help with job creation. See "Incentive Program".
Insolvency
The inability to pay debts when they come due. Even though a company may have more assets than debts on paper, if those assets cannot be converted into cash to meet debts, then the company is declared Insolvent. This does not always result in business failure, as bankruptcy can often be avoided through debt rescheduling or Turnaround Management.
Joint Ownership
Control of a company shared out equally between two parties is called Joint Ownership. When one of the Dragons agrees to invest in an entrepreneur's company, they usually ask for a percentage share in the company. If they were to ask for 50%, they'd be proposing a Joint Ownership agreement.
Keystoning
In retail, Keystoning is a pricing method of marking merchandise to sell at twice the wholesale price. In many product categories, keystone goods are considered overpriced, and retailers will generally sell at a 40% markup or less in order to remain competitive.
Law of Diminishing Returns
This "Law" states that as you add onto one factor of production (i.e. adding more workers, extra capital, extra machinery, etc.) while all other factors remain equal, the extra output generated by the additional input will eventually fall. For example, a factory that adds more workers will see greater production at first. Eventually, though, there will be too many workers and not enough machines, so that production will slow down - ultimately Diminishing their Returns.
Lease Purchase
A payment arrangement whereby a business purchases capital equipment and pays for it in installments over an agreed period of time. The company ends up owning the equipment only when they have paid every installment of the Lease.
LEED certified
The Leadership in Energy and Environmental Design (LEED) Certification program is an internationally recognized green building certification system, it has become the standard against which most other green building models are measured by to develop sustainable building designs.
Liabilities
The things a business owes. There are two types of Liability: current and long-term. Current Liabilities last for less than one year (a temporary debt owed to a bank, for instance), while Long-Term Liabilities must be paid down over a longer period, as with a mortgage.
Limited Partnership
A legal partnership in which some owners of the company are only allowed to assume responsibility up to the amount invested. Limited Partners do not have management authority in the company; at the same time, they are only liable for debts incurred up to the percentage of their investment in the company.
Loss Leader
A product sold at cost or below in order to encourage other profitable sales.
Market Positioning
Finding the right niche in a given market for a product or service. Effective positioning means emphasizing the strength of a product or service by contrasting it with the weaknesses of competing products. Market Positioning also refers to the process of influencing the minds of consumers so that they will think of your product or service in a specific way, again often by differentiating it from competing products.
Market Share
The percentage of a given market that a company controls. One major goal of many businesses is to grow their Market Share by taking it away from their competitors. Market Share is a useful indicator of a company's performance, since it judges the company against its competitors, and is therefore less dependent on bigger factors like the economy or changes in tax policy.
Mark-Up
The amount that a business decides to increase the cost of a product or service when selling to its customers. The Mark-Up on a product is often expressed as a percentage of that product's wholesale cost. For example, a business may choose to sell its goods with a 50% Mark-Up.
Merchandising
The retail methods and processes used to display goods and utilize shelf space effectively. Merchandising often involves specialized displays that are designed to catch the consumer's eye and increase sales for a given product through compelling communications and graphics.
Monetization
Monetization is the process of converting something to money. In Internet terms monetize refers to finding a way to generate income from items posted on the Web.
Negotiation
One of the most important skills you need in business, as well as in the Den. Negotiation is discussion with the aim of resolving disputes and settling the terms of an agreement or transaction. Effective Negotiation requires a shrewd understanding of your business's position and that of the person you're negotiating with, as well as the psychological acumen to judge the mood and tenor of the discussion correctly.
Net Profit
The amount of money you have left when you subtract your costs (everything you've had to pay to run your business) from your gross profits (all the money you've made). A common synonym for Net Profit is "the bottom line": it's what's left when you've accounted for all your debts. In business, Net Profit is a common measure of success - if you have a good, solid Net Profit, you're doing something right.
Normalize
The use of past or forecasted patterns of sales to define a company's earnings.
Objective
The goal of a business initiative, toward which resources are focused. A good objective is clear and concrete, so that the business can both plan to achieve it and measure its success in doing so. Developing a clear objective is essential to succeeding in business, and to convincing the Dragons to invest in your business or product.
On Spec
In the real estate business, selling something "on spec" means the builders have to front the costs - and if the homes don't sell, they could be on the hook for millions.
Overheads
Another term for Expenses, Overheads are the indirect costs that must be paid in order to do business. These costs include paying for staff, renting a property or manufacturing plant, covering the price of supplies, and any other expenditures that must be covered in order to continue operating.
Partner
An individual who owns a share (or percentage) of a business. In many cases, visitors to the Den are asking one or more of the Dragons to become partners by buying a percentage stake in their organization.
Pricing Strategy
The choices that a company must make regarding how to prices its products relative to its competitors and the market. Having the lowest price to market is not always desirable, since that may harm the perceived quality of a product or service, but setting prices too high will also scare away customers.
Product Life Cycle
The stages that a product goes through, from its introduction into the market through to its eventual decline and potential removal from the market. The four stages are Market Introduction, which involves high costs and the creation of demand; Growth, in which demand increases; Maturity, in which costs are lowered and more competitors enter the market; and finally Saturation and Decline, in which it becomes unprofitable to produce and distribute the product.
Product Portfolio
The combination of Products offered by a company (sometimes referred to as the Product Mix). Finding the correct range and number of products to offer is an important part of succeeding in business - offer too few products and you may not attract enough customers, but offer too many and your resources may prove to be insufficient to the task.
Public Relations (PR)
Any activities undertaken by a business to improve its public image and perception. PR tactics include press releases, charitable donations, and sponsorships. Companies may hire outside firms to perform PR functions, since they have greater expertise in the field.
Quality
The characteristics and features of a product that determine how able it is to meet its stated or implied needs. Quality often refers to how well a product or service meets the customer's expectation. As such, Quality is often a somewhat perceptional and subjective attribute. Nevertheless, achieving consistent and high Quality is a goal for most businesses, since it helps create customer loyalty and build market share.
Quality Control
A business process whereby products are tested to ensure conformity with a given standard of reliability, safety or accuracy. Quality Control is an important part of production, since it can affect the reputation of a company and its products if neglected.
Raw Materials
The unprocessed Materials used to make finished products or other goods. A toy manufacturer may, for instance, need petroleum in order to create plastic for their products.
Response Marketing
A method of marketing using electronic or standard communications channels to solicit a direct response from consumers to a business, without any involvement of retailers, agents or other intermediaries. Direct mail, direct-response advertising, database marketing, and telemarketing are all means of response marketing.
Retained Profits
Also known as retained earnings, this is money that a business has made in the past. Rather than returning it to investors or spending it, the company chooses to hold on to it for future use, such as investment or infrastructure spending.
R.O.I. (Return on Investment)
A performance measure used to judge how efficient and effective an investment is, based on the gains received from it. Companies want to make investments with a positive R.O.I. - that is, investments that will give the business back more than they cost. R.O.I. doesn't always refer only to monetary gain: an investment in advertising may create a positive brand perception, which might be counted as a positive return.
ROI (Return On Investment)
A performance measure used to judge how efficient and effective an investment is based on the gains received from it. Companies want to make investments with a positive ROI (return on investment) - that is investments that will give the business back more than they cost. Of course, ROI doesn't always refer only to monetary gain: an investment in advertising may create a positive brand perception, which might be counted as a positive return.
Royalty
A percentage of sales or profit paid for the privilege to use copyright or patented products and services.
Sales Forecast
A prediction of future sales based on past sales performance. An accurate Forecast must take into account the economic climate, general sales trend in the industry, company capacity for production, market research, and demand for the goods or services being offered. Many visitors to the Den offer rough Sales Forecasts to convince the Dragons of the merit of their goods or services.
Secondary Research
Information pertinent to the business that already exists as a result of external studies. For instance, statistics and reports that are published in industry magazines are one source of Secondary Research. Rather than incurring the cost of performing original research, many companies rely on this type of information for help in decision making.
Service Companies
Service Companies may offer products or Services (or both) to the public. A Service is a non-physical offering, such as housecleaning or courier deliveries, that a company provides in exchange for money.
Share One
Share One of the equal parts into which the ownership of a company is divided. Publicly traded companies issue Shares to raise capital - individuals or other companies can purchase Shares and in the process become part owners of the business. When one of the Dragons buys into a pitch, they usually do so in exchange for a "percentage share" of that pitcher's company.
Sole Proprietor
The only owner of a business. This individual has complete ownership over their company, but this means they also assume Unlimited Liability, meaning that if anything goes wrong, they will be fully responsible for the financial outcome and covering any losses.
Strategic Investor
Individual or firm that adds value to the investment through contacts,
experience and knowledge of the market.
Target Market
The most likely potential customers for a given business. Determining the right Target Market for a product or service usually requires market research. Understanding the Target Market is the first step in creating a strong marketing strategy, and deciding on the correct Market Positioning for a company's products or services.
Turnaround Management
Analysis and planning by an outside Turnaround professional or group of professionals designed to bring a business back to profitability. Turnaround Management is often required when a business is at risk of bankruptcy, or has already declared it. By reviewing the company's management, costs, and reasons for failure, the Turnaround team attempts to revitalize the business and make it profitable once more.
Turnkey
The term Turnkey refers to something that is ready for immediate use. For instance, if a contractor builds a "turnkey home," they complete every aspect of the home so that it's ready for people to move in. Some pitches to the Dragons are based on Turnkey solutions - businesses that provide buyers with a complete and ready-to-use product.
Undervalued
A term for a company, product or service with a perceived value that is higher than its purchase price. The Dragons are always on the lookout for a company, product or service that is worth more than it appears to be. An Undervalued commodity often has potential for powerful future growth that will drive its profits and value higher than its present price.
Unlimited Liability
The responsibility of one or more owners of a business for the total amount of debt and other liabilities that a business accrues. Unlike a limited liability, in which the responsibility for a company's debt is limited by a prior agreement, an Unlimited Liability agreement means that the partners who have signed it are putting their own personal assets on the line if the company defaults.
Valuation
An estimation of the worth of an asset or a company. Valuation is based on an analysis of the company's management, the composition of its financial structure, the likelihood and estimated amount of future earnings, and the market value of current holdings. Some aspects of a Valuation are subjective - determining how effective a company's management team is, for example - while others are based on objective realities, such as current cash flow.
Venture Capital
Money used to finance new companies or products. Dragons' Den contestants are looking for Venture Capital from the Dragons; the Dragons themselves are looking to invest their capital wisely so that they can recoup big gains later. Venture Capital is often awarded to new companies with high earning potential, but because of the uncertainties involved, there is also a high risk factor.
Venture Management
A fairly new management style based on taking risks, being agile, and acting quickly. As opposed to traditional management, in which safety and predictability are prized because they offer the possibility of long-term success, Venture Management is all about experimentation and faith. The high-risk/high-reward nature of this technique is pretty familiar to the Dragons.
Wage
The amount of money paid by a business to an employee in exchange for their work. Wages are usually paid on a bi-weekly or monthly basis, and are an important part of the Overheads that a company must consider when planning their financial approach.
Working Capital
The money needed to keep a business running from day to day. In order to keep functioning, a business must have more assets than liabilities. Working Capital is often a concern for a new business, which must ensure that there is enough money available to pay the bills as it finds a customer base and tries to become profitable. The Dragons' money is often used as Working Capital to keep a business running on the way to success.
X-Inefficiency
Based on the theories of economist Harvey Leibenstein, X-Inefficiency is the difference between the efficient behavior of firms as assumed by economic theory and the reality of their observed behavior. Economists believe that over time, due to market competition, only companies that are highly efficient at producing goods at low costs will survive. In practice, however, some companies continue to survive and even thrive despite inefficient practices.
Yield
The profit received as the result of investment in a stock or bond. More specifically, Yield may refer to the annual income provided by an investment, often expressed as a percentage of its cost or current value: "The Yield on these shares is ten percent at the current market value."
Zero-Base Budgeting
Setting a new budget for the year ahead without taking into account the previous year's budget and expenses. Essentially, a company will create a Zero-Base Budget when its circumstances and/or finances have changed. Because no precedents are used, each expense must be justified.
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