Are you aspiring to kickstart your own business but feel lost in the sea of jargon and technical terms? Fear not; we’ve got your back. As India witnesses over 90,000 startups, with over 100 turning into unicorns, it is essential to equip yourself with the necessary knowledge. So let’s break down 15 startup terms, from EBITDA to LOFA, that every aspiring entrepreneur should know.
List Of Startup Lingo
1. EBITDA: Know Your Metrics
EBITDA is a vital metric for any startup to analyse their profitability quickly. It stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. This formula helps to measure the company’s operating performance, excluding expenses not directly related to the business’s core operations.
2. Cash Flow: The Lifeblood of Your Business
Cashflow is the vital force that keeps your business alive and thriving. Cash flow refers to the quantity of cash flowing in and out of a firm over a specific period. It is a critical financial indicator of a company’s financial health. Every startup should be very conscious of this. A steady flow of cash is vital to meet short-term obligations and keep the business running smoothly.
3. Working Capital: Keep a Check on Your Liquidity
Working capital is computed as the difference between a company’s current assets and liabilities. It is used to assess a company’s liquidity – how easily it can pay off its short-term debts. In other words, it helps you determine whether you can cover expenses without disrupting your business operations.
4. CMS: Managing Your Website Content Like a Pro
In today’s digital age, having a robust online presence is crucial for any business. A Content Management System (CMS) is software that allows you to publish, edit, and manage digital content on your website or mobile app. It enables you to keep your website updated and manage the content efficiently.
5. CAC: Calculating the Cost of Customer Acquisition
The customer acquisition cost (CAC) is the total amount spent on acquiring a single customer. It is computed by dividing the total cost of marketing and sales expenses by the number of new customers acquired over a particular period.
6. LTV: Maximising Your Customer’s Lifetime Value
The lifetime value (LTV) of a customer is the estimated revenue that a business can expect over a customer’s lifetime. It helps to identify how much a customer is worth to your business and how much effort should be put into retaining them. Boosting customer loyalty, increasing repeat purchases, and up-selling can significantly impact LTV.
7. DAU: Tracking Daily User Engagement
Daily active user (DAU) is an essential metric for any product or service. It measures the number of unique users interacting with your product or service daily. It can help track user engagement, monitor trends, and optimise your product or service accordingly.
8. MAU: The Monthly Health Checkup
Monthly active users (MAU) measures the number of unique users who interact with your product or service monthly. This metric is critical in understanding your user base and making data-driven decisions to improve your offering.
9. ARPU: The Secret to Reaping Profits
ARPU stands for average revenue per user. It is the average amount of revenue that a business earns from each customer over a particular period. ARPU highlights the monetary value of each customer, allowing businesses to optimise their pricing strategy effectively.
10. CAGR: The Speedometer of Growth
CAGR stands for compound annual growth rate. It measures the growth rate of a company over a specific period. CAGR takes into account the initial value, final value, and time period to get an accurate representation of the rate of growth. An impressive CAGR can attract investors and indicate a promising future for your business.
11. COGS: Understanding Your Product Cost
Every business needs to know its cost of goods sold (COGS). It is the amount the business spends to produce the products or services it sells. The formula for calculating COGS is straightforward – it’s the total of direct costs, including raw materials, direct labour, and manufacturing overhead costs.
12. ARR: Predicting Future Revenue
Annual recurring revenue (ARR) is crucial for businesses that are based on subscription models. ARR is the anticipated annual income from a company’s subscription-based products or services. ARR is critical in making long-term projections, attracting investors, and building a sustainable business model.
13. MRR: Making Monthly Money Moves
Monthly recurring revenue (MRR) measures the monthly income generated from your subscription-based products or services. As with ARR, MRR is a key metric for projecting future revenue growth.
14. PMF: Building for the Market
PMF stands for Product-market fit. It is the holy grail of startups, as it means the product or service meets the market demand. PMF can make or break a startup’s success. Therefore, it’s important to get feedback early on, test the market, and iterate the product/service accordingly. Once you achieve PMF, it’s easier to attract customers and investors and scale up.
15. LOFA: A Letter of Intent for Acquisition
A letter of intent for acquisition (LOFA) is a non-binding agreement between a buyer and seller that outlines the basic terms of a potential acquisition. It’s the first step towards acquiring another company. A LOFA covers the purchase price, timeline, and other vital details. If the target company agrees with the LOFA, both parties can move forward with due diligence and other legal formalities.
As a budding startup Aspiring Entrepreneur, mastering these startup terms is essential to successfully navigate the intricate financial and operational landscape of your business. Whether it’s analysing profitability, forecasting future revenue, or devising the perfect product for your target audience, these terms are the first step to establishing a firm foundation to elevate your venture to new heights. So begin incorporating them into your entrepreneurial vocabulary today and witness your journey towards success soar to unprecedented levels of prosperity!