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Business Terms Every Entrepreneur Should Know

The world of business and entrepreneurship has its own lexicon, one that is rife with acronyms and baffling terminology. If you’ve ever sat through a meeting and felt as though you’d been air dropped into a remote region with its own unique strain of the English language, you’re not alone.

We’ve collected some key terms and acronyms you’re guaranteed to come across in the business world.

Business Incubator
Business Incubators are programs that provide mentorship, office space, and access to investors and resources to help start-up companies grow. According to the Business Development Bank of Canada (BDC), they can last anywhere from a few months to a couple of years.

Business Accelerator
Whereas business incubators support start-ups, accelerators help new or established companies grow by providing mentorship, office space, and access to investors and resources. According to the BDC, they usually only last three to four months.

Seed Funding
This type of funding is the money that is initially used to start a business. According to the BDC, it can often come from friends and family or angel investors.

Angel Investor
An angel investor is a rich individual who invests his or her personal funds in a company in its early stages. According to the California Investment Network, angel investors are usually involved in the business in terms of providing assistance or advice, but they might own a smaller stake in the company than a venture capital firm would.

Venture Capitalist (VC)
While angel investors invest their own money in companies of their choice, venture capitalists invest using funds provided by third-party investors, according to the MaRS Discovery District website. They invest later than angel investors and their investments are also much larger. After investing in a company they provide strategies and assist with business development. According to the BDC, venture capitalists seek companies with the potential for high growth.

Burn Rate
Burn rate is the rate at which a new company uses up its capital before breaking even and making a profit. According to the Venture Creation University (VCU) program’s website, it is measured by how much money is used each month for overhead costs such as property taxes, insurance and marketing budgets.

Equity
The VCU program website defines equity as the ownership investors have in a business. Investors share ownership of the business, which means the original business owner doesn’t own 100 per cent of the company.

Pre-Money Valuation
Pre-money valuation is determining how much a company is worth before investing, according to MaRS Discovery District.

Post-Money Valuation
This is a combination of the pre-money valuation and the amount of the money that was actually invested, according to MaRS Discovery District. 

Business to Business (B2B)
This term refers to businesses that offer products or services to other businesses, rather than the public. According to the International Journal of Scientific & Technology Research (IJSTR), this type of transaction is typical in supply chains, which manufacture products using materials purchased from other companies.

Business to Consumer (B2C)
This type of transaction involves businesses selling their products or services directly to consumers. This includes anything from retailers to restaurants and pay-per-view services, according to the IJSTR.

Value Proposition
A company’s value proposition is a statement it makes about the reasons consumers should choose the company and its products or services over similar companies. According to MaRS Discovery District, a value proposition includes descriptions of what the company offers, the value or benefit of choosing it, how that value is created, and why it’s different from competitors.

Disruption
Disruption refers to major changes in an industry, which are usually caused by new, innovative products or services that create a market that previously did not exist.

Minimum Viable Product (MVP)
Companies might develop a product with the minimum set of features needed for early customers to provide feedback on the product. According to MaRS Discovery District, creating a minimum viable product is a good way to minimize the cost of development while using feedback to identify any key problems with the core features of a product and making improvements for future customers.

Total Addressable Market (TAM)
According to Mark Peter Davis, a venture capitalist, it’s important to distinguish a company’s total addressable market from the overall size of the market it’s targeting. While market size is the total amount of money generated in a certain industry or part of the economy, a company’s TAM is how much money it could make from potential customers within a more focused subsector of that industry. The addressable market is the specific part of the market to which a company would cater its products or services.

Return On Investment (ROI)
A return on investment is the comparison of a company’s profits to the amount of money it invested to generate them, according to the BDC.

Pivot
Pivoting involves making significant changes to a company’s business model to improve it or steer it in a successful direction. It may involve using an existing technology or product in a different way than the company initially intended. Eric Ries, a Silicon Valley entrepreneur who is credited with coining the term, describes it as “a change in strategy without a change in vision” in a video from Fast Company's series, The Pivot. 

Exit Strategy
An exit strategy is the plan a business owner follows to achieve liquidity and gain a return on investment, according to the BDC. It mainly involves the owner or investor selling some or all of their ownership of the company. There are a few different exit strategies a business might use. For instance, according to the StartupNation website, a common exit strategy is to sell the business. A company might also choose to merge with another one or have another business buy it out entirely. Some companies might just choose to shut down operations and sell, or “liquidate” all of their assets. Another option is to make an initial public offering (IPO), which involves selling the company on the stock market.

Key Performance Indicator (KPI)
Key performance indicators help determine how well businesses are performing in terms of achieving certain strategic objectives. According to the Advanced Performance Institute, KPIs don’t measure every kind of performance data that can be measured or counted, but rather focus on areas that are key to the proper functioning of a business.

Request for Proposal (RFP)
This is the process by which a business solicits proposals from candidates for business opportunities. According to MaRS Discovery District, RFPs are common for businesses that make sales through competitive bidding. The buyers invite suppliers to bid on products. Companies follow the criteria of an RFP and attempt to win over potential buyers by explaining their technology and how they intent to approach the problem outlined in the RFP.

Are any of these new to you? Let us know if there are any we’ve missed!

 

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