A few definitions that everyone who wants to build a startup should know before they change their idea into a product. Basics for every stage of building and growing your business.

1. Startup in a nutshell
must-know definitions for start-up owners

2. 1Vision & Mission

3. You won’t sell anything if you don’t know who you want to sell it to. Sure, it’s possible to get some
customers without any plan, but accidental users with their unknown motivation won’t make your start-
up grow. When starting your business, you need to think about your target audience - people who will
most likely use your product. Who are they? What do they need? What do they like? Where can you
find them? What other products do they use? Once you know your audience, you can narrow down
your design, marketing and communication to attract this specific group of users. Don’t worry about
losing customers because you narrowed things too much. After all, it’s not like you’re limiting access to
your product to other groups, right? But if you try to market it to everyone you will most likely market it
to no one. Just take a look at Snapchat, Pinterest or Slack. It’s not hard to figure out who is their target
audience, yet millions are using these products. You want your target audience to be as clear as theirs.
You can find helpful tools for outlining a brand persona here:
https://xtensio.com/user-persona/
Target audience

4. Can you describe your business idea in the span of an elevator ride (approx. 30 seconds)?
You should. The ‘elevator pitch’ name comes from the idea of meeting someone important
(an investor or influencer) in an elevator and presenting him the idea for your startup. Think
about the most important problem your product solves and try to come up with 30 seconds
speech explaining what your product is about. You will need it, not only during your elevator
rides, you can be sure of that!
Elevator pitch

5. Some say that idea of a business plan is outdated, and in case of a startup, it’s mostly guessing.
But the truth is, most investors will still require you to present a business plan, so it’s good to
prepare one, even if you know that, in a startup world, where you have to be flexible and ready
for changes, it’s just impossible to follow it 100%.
Here’s a tool that may help you prepare a good business plan online:
https://www.liveplan.com
Business plan

6. Pitch deck is a more popular form of presenting your idea to investors. Short presentation,
usually in the form of a keynote or PowerPoint should show a product you are building or want
to build, business opportunities, target audience and other basic information your potential
investors will need to know. Here are some real pitch deck examples from people who once
had to present their ideas to investors and now run the biggest companies around the world.
Worth checking before you start your own pitch deck!
https://piktochart.com/blog/startup-pitch-decks-what-you-can-learn/
Pitch deck

7. 2MVP

8. Okay, maybe this isn’t the most accurate depiction of MVP (who builds a
fully developed motorcycle on their way to build a car?), but that’s a
general idea. Rather than trying to build a complicated product with
every feature you can come up with, ask yourself a question “What
problem am I trying to solve?” and start with your core features to
deploy a simple product. Ask users to test it and provide you with
feedback: What are they missing and what do they need? You may think
that you know exactly what your customers want, so deploying
something without all those features just won’t be enough. But EVERY
successful product went through iterations, and sometimes even
changed entirely before becoming successful. MVP that is relatively
simple and fast to develop will either confirm your initial hypothesis or
let you assess and create something that fits the market better.
Minimal Viable Product

9. Every product needs users, and it’s rare to get them without investing money. Whether it’s ad
campaigns, promoting content or investing in SEO, you have to be prepared for costs. How
much should you spend? Sky is the limit here, but you should ask yourself if it’s profitable.
CAC metric lets you calculate how much you’re spending on acquiring one customer and
compare it to how much profit you get from it. Dividing your marketing and sales costs by the
number of customers will let you find out your CAC value. High CAC means you are spending
too much, and probably not getting back enough. If so, it’s time to optimize your acquisition
process.
Customer Acquisition Cost

10. Acquisition
Whether you plan to get your customers by online or offline advertisement, growth hacking tactics or
just face-to-face talks, you need a plan for acquisition that fits your target audience. Think about the
goals you want to meet over a period of time. Acquiring new customers is probably the most difficult
part, especially at the very beginning. But if you look around, you can find great ideas and adjust them
to your product. Keep in mind that organic acquisition is always the most effective, so don’t invest all
your money in AdWords!

11. Conversion rate from prospects to active users (those, who not only visited your website or
downloaded your app but also signed up and started using your product) is one of those
measurements that you should follow, test and improve constantly. Good user experience
(especially around your sign up form), short, interesting description, above all, understanding
your product’s purpose should be helpful in activating your users. You can also use additional
tricks like dynamic content, remarketing, marketing automation, support chat, etc. but
everything you do should be based on data of your user's behaviour, not just guessing.
Activation

12. Acquiring users is just a waste of money and time if you don’t take care about the retention and
forget to give users something worth returning. Retention is often overlooked, but in fact, it’s
one of the most important metrics for your product. It’s better to acquire fewer customers and
invest in retention than to acquire lots of customers who never come back. Optimising your
retention rate should be done before investing in an acquisition, so once you spend money on
getting users to sign up, you don’t lose them immediately. Neglecting your current customers
and focusing only on getting new ones will cost you money. So before setting up a new ad
campaign, check on your current and inactive customers.
Retention

13. Seed capital
Seed capital is an initial funding for research and development phase of building a company. Usually,
this stage is self-funded (or with a little help from friends and family…) Sometimes investors would
chime in, in return for an equity stake, but since it’s a high risk, be prepared to hear a lot of “NO” at this
stage. But some angel investors would probably offer you a seed loan, that may be a good solution if
you don’t have your own funds for starting your business.

14. Investing rounds
After seed capital, next phases of funding are usually called series A, series B and series C. Main
differences between those rounds are the purpose of rising capital, the maturity level of the business,
and the type of investors who are involved. Series A is usually focused on optimising the company that
already showed some profits after the seed capital. Series B is for more mature business, and its
purpose is usually to grow the business, reach new markets and generate more profits than it was
possible during the series A. Finally, series C also aims to help business grow, but it’s meant for
already successful startups, which can give the investors the chance to earn at least double of what
they invested.

15. Angel investors invest in small startups or entrepreneurs. Often, angel investors are
entrepreneur's family member or friend. The capital angel investors support may be a one-time
investment to help the business propel, or an ongoing, regular injection of money to support and
carry the company through its difficult early stages.
Angel investor

16. Iterations are the changes of your product, based on what you learn throughout the process of
building it. It may be determined by users feedback, advice from an investor, new technical
opportunities or anything else that lets you see more than you did when you first thought of your
product. Iterations let you improve it, to get the best possible results in fitting the market. Some
product owners are reluctant when it comes to iterations, because they are sure their idea is
exactly what their users want. Those are the product owners you probably never heard about
because their product never succeeded.
Iterations

17. Turns don’t happen as often as iterations and, far too often, they don’t happen at all, causing
many potentially good ideas to fail. Turn is a complex change of a product, after learning that
your initial idea probably wouldn’t work (wrong target, competition or just wrong approach).
When planning, building and testing a product, you should be prepared not only for constant
iterations but also for a possibility of a turn, that will require you to change everything about
your approach.
Turns

18. 3Product Market Fit

19. Conversion is when your website’s visitor/ app user takes an action that you want him to
take. But what does it mean in your case? It could be signing up for an email newsletter,
creating an account with a login and password, making a purchase, downloading your app,
or something else entirely. Whatever it is, this action is what you are going to measure and
what you are aiming to optimise. This should always be based on insights and data, not on
your wild guess. Remember that CRO does not mean bringing more traffic to your website,
but to increase the ratio between visitors and active users.
Conversion rate optimisation

20. This metric shows how many customers stop paying for your product over some period of time.
Obviously, you want to keep churn rate as low as possible, but being realistic, it not possible to
keep it at the 0% level. Analysing churn rate is a great way to learn. Interview those who
abandoned your product and figure out a way to either win them back or to avoid the same
mistakes with other customers. Keep optimising your churn rate at least to the point it’s
profitable.
Churn rate

21. Most startups don’t succeed right away or even fail before they even get a chance to succeed.
But don’t get discouraged. Turnaround (pivot) means a positive reversal of a business that
wasn’t performing well, and it’s a very common case for startups. Of course, it doesn’t happen
out of nothing. It’s based on testing, analysis, iterations and good advisors, that can help a
startup experience a turnaround.
Turnaround (pivot)

22. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the income that you can expect each month. If you don’t offer
pricing plans, and your only option is “pay as you go,” you may not be able to calculate your MRR
metric in advance. In such case, you can estimate the expected revenue of your business basing on
the data from a previous period of time.

23. It’s really great if your startup was created because of a mission. But let’s be honest, this is
business, so money is important. If you’re not earning, (or at least have a plan of monetising
your product) most investors would ignore you, and with no funds at all, you would fail soon.
You should have a plan for income before you create your product, but after that, it’s a right
moment to test and optimise, change pricing, offer annual plans, and fit your product to the
market. Remember that best way of monetising is NOT acquiring new users, but getting the
current users to pay.
Revenue

24. Net income
This is a metric of total earning of a company. You can calculate your net income by subtracting all
costs of running your business (employees, offices, taxes, hardware and software, etc) from your
overall revenue. This number will show you and your investors how profitable your company is.

25. A/B testing
Very popular way of choosing the best solution for the product, based on data rather than guessing. A/
B testing means comparing two different approaches and choosing the one that gives better results. It
may be comparing two different claims or images on your page, different pricing plans or different
email subjects. No matter what you’re testing and what tools you’re using to analyse it, you should set
your goals clearly, so you know what question are you going to answer. Always keep your A/B tests
simple. The more parts you test in one take, the more difficult it will be for you to conclude which part
of the test influenced its results.

26. Multivariate testing
More complex way of testing your designs, business model, communication, etc. Multivariate testing
lets you change more than one aspect at once, and compares all possible combinations. For example,
testing 2 versions of a headline, an image and CTA button, you will get 8 different combinations, and
you'll be able to choose the best performing one. Remember that multivariate tests conducted on
small groups of users can not only be useless but also misleading.

27. Some customers would stay with you, some will leave. Lifetime is a metric that measures how
long do your customers stay with you. Consequently, lifetime value tells you how much you can
expect to earn on one customer during this period. It’s easy to guess that your customer
acquisition cost should be lower than customer lifetime value. Some sources say that optimal
ratio is 3 CAC: 1 LTV, and that’s what you should aim for. If your CAC is higher than LTV, you
won’t be able to get any return on the investment. Before you change your pricing to increase
LTV, take a look at tips to optimise your CAC and conversion optimisation.
Customer lifetime value

28. 4Scale

29. User/market traction
Traction generally describes a demand for your product, demand you have evidence for. Ideally,
traction would be proven by sold out samples of your product, but that’s not easy to achieve for early
stage startups, so you can start with opinions that prove the need for your product on the market. If
you’re scaling your product or a service, you will want to grow market traction and present it in
numbers. The more organic the demand for your product is, the easier it will be to grow those metrics.

30. Customer Renewal Rate
Or customer retention rate is a metric, showing you how many of customers, who were initially
interested in your product, return to it after registration, after the first month, after a year, etc. As
mentioned before, not analysing this rate is a big mistake. Except being up to date with your CRR and
optimising, you should also try to look at it from a different perspective, over bigger periods of time
(like year-to-year comparison) to see the entire picture.

31. Revenue per employee
Once your business starts scaling, you will probably need more employees. If you’re in tech, you will
learn that it’s possible to generate higher revenue per employee than in other fields (Take a look here:
http://www.businessinsider.com/top-tech-companies-revenue-per-employee-2015-10?IR=T/#12-
ibm-244447-per-employee-1). It doesn’t mean you should treat your team members as money making
machines, but tracking how much revenue you get per employee will help you understand the value of
people you work with. Try to optimise this metric by adjusting your company workflow and salaries.

32. KPIs
What are your goals? What should you measure? And how to measure it to get valuable information
that lets you grow your business? Key Performance Indicators, if set properly, will not only demonstrate
your performance but also help you set better goals and directions for the future. KPIs can be set for
the entire company or just particular fields, to give you more detailed insight.

33. OKR
Similarly to KPIs, OKRs are a way of setting and measuring goals of your company. OKR stands for
objectives and key results, so when setting OKRs for your company (or a field, or for yourself…) you set
an objective first (We want to scale in next 6 months) and measurable key results second (we can grow
our user base 80% over this period). KRs should always be set a little higher than your expected
growth, so you and you put a little work into achieving them.
Find more details here: https://untitledkingdom.co/blog/okr-strategy-in-recruiting/