Tech Startup Vocabulary 101 For Real
TechCrunch posted an article two days ago called How To Speak Startup. It seems as if a lot of people were counting on the article to have actual answers to what these terms mean in the world of tech startups. Well since I am an active CEO in a tech startup, and I use these words pretty much every day, here is my real take on the terms:
Growth hacking is when you leverage existing platforms to gain critical mass (see critical mass). This method entails figuring out a way to grow your startup with little to no money quickly. Think AirBnB and how they leveraged Craigslist to get an influx of millions of users until they were sent a cease-and-desist letter. You can’t stop the bomb though, once they gained critical mass, they were happy to cease and desist since they already grew exponentially.
A Unicorn is a startup company valued at over $1 billion. Think Facebook, AirBnB, Uber, Snapchat, etc.
Critical mass is the moment that your startup reaches a tipping point where you potentially cannot even afford your servers or you have reached a number of users that is driving your company a lot of revenue or a lot of investors. For a new tech startup this could mean reaching 10 million users in just one year or less.
Acqui-hire is when a large player in your space (Facebook, Google, eBay, Match.com, etc.) buys your company because of the talent it has. They mostly go after engineers, developers, growth hackers. Then they use that talent to beef up their own products while usually leaving the product they purchased from you in the dust.
Failure is simply a learning experience, every time you fail in a start up, you learn many lessons that you use for the next one, not to be repeated. As in anything in life, failure is not an option, so learn from your mistakes, and you will be successful.
When you pivot your startup, it is normally because you found a vertical, or horizontal, that makes more sense for your business model. Or it simply means that what you intended your product to be is not what your users are using it for. So you pivot to a new idea, to ensure the company’s’ success. For example, say your tech startup is text messaging for pets. After a few weeks you find out that pets can’t really text on the phone. But somehow they’re able to access the camera with their paw, and they like taking Selfies. Well then you pivot to a dog Selfie app.
SaaS stands for Software as a Service: think Salesforce, or cloud based services. Really anything that provides a service that you would normally have to install a bulky program for. Then you are limited to use that program on the computer that you installed it on. Whereas SaaS you can access from any computer or device and it is linked/synced throughout all the platforms.
When you hear the term pre-money valuation, it means how much is your company worth before you get money from investors. Yes, this number tends to be challenging to come up with, but if you do the research on your market, and look at valuations for other companies, how much technology you’ve built, how many users you have, any IP that you own, patents, and other types of variables, you can come up with a fairly accurate pre-money valuation.
A post money valuation is what you are worth after receiving an investment. For example, if your pre-money valuation is $500,000 (a common amount) and you receive $100,000 in funding for 10%, your post money valuation will then be $1.1 million.
An exit is when you successfully reached critical mass, built a product people love, received investments (usually), and a larger company in your market purchased you for a large amount of money. For example, Instagram exited for $1 billion when Facebook acquired them. Same goes for when they bought WhatsApp for $19 billion, which was a huge exit. Typically, when founders exit in a big way, they build more products since now they have exit potential and credibility backing them. Of course there is always the possibility of being acquired before you even launch. Twitter bought Vine before they launched, and Google buys companies pre-launch all the time (see Acqui-hire).
I’ve been a serial entrepreneur since 1988. When I was in eighth grade, I sold accessories and music that I purchased in Europe to my classmates in Philadelphia. I created a comic book that I sold to classmates in ninth grade. I became a DJ in high school and started an event hosting company in college that made me a decent income (more than the job I got out of college at a software company). In 2003 I started my own tech consulting company. In 2004 I wrote and published a sci-fi fantasy novel, as well as a publication that could save FedEx billions of dollars a year. I opened my own eBay brick-and-mortar franchise that I invented (Stuff Sold) in 2005 (3 stores). In 2009 I wrote, produced, and directed a feature length film that won audience choice award at a film festival in 2010 that is being currently distributed worldwide. And for the past four years I’ve been building and launching tech startups, whereas I’m in the middle of raising a seed round for my current tech startup. That’s what a serial entrepreneur is.
A Seed Round is usually the first institutional round typically from angel investors (wealthy individuals who usually invest $100k to $500k). Usually when you are raising your Seed Round you’ve already gone through what’s called a Friends and Family Round (just what it sounds like). The Seed stage is typically less than $500,000 but sometimes goes all the way up to $1 million.
Next in line is the Series A round where you typically approach VCs (venture capitalists) for anywhere between $1 million and $5 million…and sometimes more.
Scalability is whether or not your business can handle the influx of millions of users, whether your software is capable, your server infrastructure is capable, or if you can meet the demand of the widgets you are trying to sell with the manufacturing process that you currently have. So maybe today you can create 100 units of your new Smart Toilet, but can you make 100,000 tomorrow? Another example is if your new mobile app has 10,000 users on it, and receives funding, can it handle 10 million users in a few months? Investors like a company that is scalable.
Agile development typically means that it is fast to change, adaptable, and that you are continuously improving your product. When something is agile, it is light on its feet, meaning you can move fast with effective results.
A very popular term is lean methodology. If anyone has ever read the book by Eric Ries “The Lean Startup”, you’ll realize that running a business of any type, is really like running a laboratory. You have to constantly run micro experiments, learn fast, and fail fast. The more you can do with little to no money, and the more results you can analyze the better. Then use those data you gather to help make your decisions properly.
Iteration is the process that the founders of a tech startup use to continuously change and improve their product. As an example, you come up with a new idea for a drone rental service, and you test out your new app with the rental service to 100 beta testers. Then using the feedback from these 100 users, you iterate your app and platform to what they think works best. Then you show them the product again, get their feedback, and change it (iterate) again. Repeat this process over and over (iteration), until you have a platform that everyone is happy with. Then you can gain critical mass and close a Series A round!
If you think I missed any crucial terms, feel free to leave them in the comments, I’d love to hear some feedback and reply to your comments!