CMAT ENTREPRENEURSHIP & INNOVATION SECTION NOTES!

Founder: Anyone can create a site and business cards then call themselves founders of a
startup. A real founder is a doer. It doesn’t matter how much of an impact or progress
you’re able to make as long as action has and is being taken. Founders execute.

Wantrepreneur: In short, a wantrepreneur is an idea person. No matter whether they have

a technical or non-technical background, they’re always planning to develop a startup app,
they have many ideas but they haven’t started yet. Many wantrepreneurs stay
wantrepreneurs. Don’t be a wantrepreneur!

Non-technical: When it comes to technology startups, founders are often classified into
technical and non-technical. Technical founders are those with a programming background
or have taught themselves code. Non-technical founders tend to be business or marketing
people. Not that technical founders can’t sell!

Validation: There are many metrics that signal idea validation but at the end of the day, it’s
about proving there is a need and demand for the product. One of the strongest validation
signals is when people pay for the product, use it and recommend it to others with similar
needs.

Scalability: The goal of every startup is to build a scalable business model. Thanks to
technology and automation, a startup product can serve hundreds of thousands of users
without needing the same number of service providers. A startup is called scalable when it
creates and validates a repeatable business model that addresses user needs around the
clock.

Accelerator: If you’re launching a startup, accelerators can help you move your idea quickly
by providing you with mentorship and fundraising opportunities during a few months
program.

Incubators: Unlike accelerators, incubators tend to offer longer term advisement programs
that help you with mentorship, connections and resources like a coworking space.
Accelerators are focused on speed and fundraising while incubators usually take earlier
stage startups and help them overcome early stage challenges.
Unicorn: There are only a few startups that reach and exceed a billion dollar valuation.
Those startups are called unicorns.

Dragon: There’s an even smaller number of startups that raise over one billion dollars in
one single round of funding. Those are called Dragons. Uber is one of those companies.

Bootstrapping: Over 90% of startups are self-funded. In fact, I would argue that close to
100% of startups start with their own funds especially nowadays that the funding bar is
getting higher. Bootstrappers are entrepreneurs that combine human capital (knowledge,
experience and skills) with savings to launch and grow a startup without raising capital. An
entrepreneur can also bootstrap the early stages and then raise funds for growth. A path
taken by most founders.

Iteration: At the end of the day, an idea is just an educated guess. What are the odds that
entrepreneurs will guess right all the time? When you realize you need to make a minor
change to the product, the target buyer or any important aspect of the business model, you
are iterating.

Pivot: Sometimes we’re confident the plan is right but quickly realize it isn’t. When there’s
a major change to the business model like the way you make money, ideal customer profile
or the solution (product), you are pivoting. Entrepreneurs must be open to iterations and
pivots even if they had spent a lot of resources getting the latest version right. For this
reason, spending too much time and money testing ideas or versions of a product is not a
wise execution strategy. Instead, build, test and adjust quickly.

Disruption: If you ask what investors look for in a startup, it’s founders that aim to create
products and business models that introduce an innovation that makes a significant
difference in the market and the world. Take the example of Uber that completely changed
how people commute.

MVP: To test ideas quickly without spending a lot of resources in building a product that
may or may not work, entrepreneurs are encouraged to create a minimum viable product.
It’s the first versions of the product that only include the core features that aim to test the
riskiest assumptions before building the next versions with more advanced features.
Lean: Minimum viable products are part of the lean methodology which entails going
through the build-measure-learn loop which essentially enforces the idea of building and
testing quickly instead of building an advanced product hoping that customers will come.

Agile: While lean describes the business side of the build-measure-learn loop, agile
development focuses on the development part of the loop and entails building
incrementally and iteratively while testing quickly.

Exit: Entrepreneurs build startups for many reasons. Many want to make a major impact in
the world while others, in addition to the impact, they aim to exit their ventures either
through an IPO or mergers and acquisitions.

SaaS: Nowadays, one of the most common startup business models are software as a
service. This is when you create a product with features that customers can use under a
subscription. Exactly like paying a monthly fee for hosting or using an email marketing
platform.

PaaS: SaaS companies need a platform to build their software on. Instead of building one
from scratch, a faster and cost-efficient way is to build it on top of an existing established
platform. SaaS companies use platform as a service companies like Heroku.

Acqui-hire: One of the most valuable assets in a startup, especially in the early stages, is the
team behind it. Building a passionate startup team that includes members with
complementary skills isn’t easy. Many established companies decide to aquire smaller firms
or startups just for the human capital (team) they built. Such acquisitions are called acqui-
hire.

Alpha release: Since continuous testing is important to the success of software, teams run
alpha tests internally early on before releasing the beta version of the product for public
testing.

Beta release: Having conducted internal alpha tests, beta tests involve customers or
potential users who provide feedback and help the team make changes before launch.
Board of directors: Mentorship, guidance and connections are key to the success of a
startup. The board of directors tends to include members who can help the founders make
wiser decisions while contributing to areas like hiring, business development and
fundraising.

Business development: At a high level, there are two key roles in a technology startup. The
technical founder is responsible for building and improving the product. The non-technical
founder takes the business role whether it’s partnership development or strategic planning
and execution. Non-technical founders tend to be business developers.

Business model canvas: Instead of a hundred page business model, the business model
canvas categorizes the key areas of launching a startup like customer segments, value
proposition, key partners, revenue model and acquisition channels.

Hokey stick growth: Every entrepreneur strives to grow their startup exponentially. In
reality, such fast and predictable growth is rarely attainable. The common launch and
growth path is characterized by numerous fluctuations and near death experiences.

Pitch deck: Before making an investment, most of the time, investors expect a quick
presentation that highlights the key areas of a startup like team, product, market, traction
and plan. Entrepreneurs create and use a pitch deck for investor presentations.

Freemium: A common customer acquisition strategy for SaaS startups is offering a free plan
that includes a few product features while enticing subscribers to upgrade to paid plans for
more features and advantages.

Value proposition: Business is about solving a problem for a customer by offering a solution
that’s better or have unique benefits over the competition.

Consumer products: This can also be defined by looking at it from a B2C and B2B stand
point. Business to consumers companies create consumer products. Those are products
purchased and used by individual buyers not companies. For instance, Apple sells the
iPhone which is a consumer product. Furthermore, Uber offers a consumer product
although, over the years, it expanded to also offer enterprise solutions.
Enterprise products: Unlike consumer products, enterprise products are used by
companies.

Competitive advantage: It is how a startup is different from its competitors. Differentiation

can be through innovation, intellectual property, exclusive rights and partnerships or other
ways like niching down and capturing a small but growing market faster than anyone else.

Hackers: Describes a talented programmer who always finds a way to get a project done no
matter the obstacles.

Intellectual property: A protected invention through patents, copyrights, trademarks or

others.

Customer development: Part of the lean methodology, customer development is the stage
during which you discover and validate the customer mainly by interviewing them and
testing hypotheses qualitatively and quantitatively.

Product/Market fit: There are various definitions for p/m fit. Essentially, you reach p/m fit
when your customer acquisition cost is lower than the life-time value of your customers
and existing customers are referring buyers like them therefore lowering you acquisition
cost and increasing your net promoter score.

Growth Hacking: A successful marketing campaign achieves its target at a cost below the
return generated. Growth hackers use unconventional strategies to fuel exponential growth
at costs significantly lower than the “average” amounts needed to accomplish the same
results.

Evangelists: In the product adoption lifecycle, you find different categories of buyers
adopting the product in different time periods. The evangelists are those who come early
on, they are the first to believe in the product and convince others to adopt it.
The Chasm: Many startups succeed at acquiring believers, called the innovators, but fail to
capture the rest of the market. That gap between the innovators and the rest is called the
chasm.

SEO: Searching engines like Google and Yahoo are becoming more and more essential to
the growth of a startup. Without them, a startup has to continue investing in paid ads to
get new customers. Search engine optimization is the strategies and tactics through which
companies can gain higher search engine ranking.

Target market: Your ideal buyers. A group of customers with similar needs and objectives.
You can define your ideal customers through their demographics, psychographics and other
categories.

Traction: The evaluation of your key metrics. Investors will look at your traction over time
to evaluate the investment opportunity. As a startup founder, you can build traction even
before building a product. Companies like Buffer and Robinhood built a list of tens of
thousands of potential users before they released the first version of their products. One
common and effective way to build traction is through inbound marketing.

Inbound marketing: Time consuming but very effective over the long-run. This is when you
create valuable content for your ideal customers that obtains high search engine ranking
and pulls the lead to your site. Writing guides, producing educational videos and trainings,
releasing podcast episodes and creating infographics are some channels through which you
can deliver your content.

Outbound marketing: Inbound marketing requires an investment in time while outbound

marketing require a financial commitment as it entails paying platforms like Facebook,
Google and LinkedIn to push your product to the customer.

KPI: It stands for key performance indicators, the metrics by which startups judge their
performance, progress and targets. Some of the most common KPIs include customer
acquisition cost, customer lifetime value, monthly and annually recurring revenue.
Bounce: An important metric that measures how long website visitors spend on the page
before leaving. The goal is to have a low bounce rate meaning that the site content or
features are worthy of visitor’s time.

A/B testing: In order to learn what may optimize important metrics, you could run a test
with different variations like call to action or copy. Those are called A/B tests. Nowadays,
many platforms can help you run A/B tests with a click of button.

LTV: Stands for lifetime value of the customer. The basic formula to calculate LTV is
multiplying the average revenue per account by gross margin and dividing the total by
customer churn rate. Today, many platforms can help you calculate and project your LTV.

CAC: One of the most important metrics in business is the customer acquisition cost. In
other words, how much does it cost you to acquire a customer? Without knowing this
number, it is hard to budget marketing campaigns or make any projections.

Churn: One of the most asked investor questions is, what is your churn rate? That is, what
percentage of your paying users cancel the service. Your goal is to make churn as low as
possible.

Retention: Keep churn low and retention high. A high retention rate signals a healthy
business especially if it is significantly higher than churn.

Activation: Most software as a service startups offer a free trial period or a freemium plan.
The company will only make money if the users activate their membership after the trial.
The goal is to increase activations and there are many strategies that can help you boost
this number. For example, a good onboarding process makes a difference.

Angel: If you’re seeking funding for an idea, angel investors are the best groups to look for.
They tend to be individual investors, family and friends looking to support and fund a
promising venture at an early stage for a potentially high return.

VC: Unlike angels, most venture capitals invest for a living. Usually, they are interested in
startups with traction and proof that an investment will help accelerate their path to goals.
Seed: Right after an angel round comes a seed round, although there is no required
sequence to follow. Companies that receive a seed round tend to have found a viable
business model with customers.

Series A, B, C: Companies that receive a series A round tend to have reached

product/market fit and the funds will help them scale faster. Series B and C are for startups
that continue to grow towards an acquisition or IPO.

Cashflow: The amount of money flowing in and out of the business. Free cash flow is the
amount left in the business after paying expenditures. Free cash flow is used as a
profitability measure of the business.

Pre-money valuation: It is important for founders, investors and other stockholders to

know the valuation of a startup before they receive capital. This helps in determining
startup value after it is funded.

Post-money valuation: The value of a startup either increases or decreases after a round of
funding. It decreases if the new funding round puts a lower valuation on the startup to
what it was worth before getting funded. To calculate a startup’s post-money valuation,
divide the investment dollar amount by the percentage received by the investor in the
company. The formula for pre-money valuation is the company’s post-money valuation
minus the dollar amount invested in the business.

Burn: One of the most asked investor questions is, what is your burn rate or how much do
you project you will burn over the next 18 months? It simply means the amount the startup
will spend over a predetermined period.

Cap table: Investors and founders use a cap table to organize the stakes of each owner or
investor in the startup.

Crowdfunding: A new funding model that allows entrepreneurs to raise money from a large
group of backers or angel investors without necessarily going through the venture capital
route.
ROI: Every startup expects a return on investment in time and money whether it is on
marketing, hiring, acquisitions or other initiatives.

Term sheet: Upon interest between investors and founders, a term sheet is used to outline
the terms of the investment. Term sheets don’t guarantee an investment. They’re also used
as a starting point for negotiations.

Sweat equity: Self-funded entrepreneurs turn human capital (time, skills and knowledge)
into financial capital (money). Human capital is equivalent to sweat equity since it doesn’t
require a monetary commitment but can lead to future financial returns.

Run rate: One of the key startup metrics is run rate. It projects the performance of the
startup in the future based on current data. For instance, if a startup generates $100,000 in
the first quarter, its 12 months run rate is $400,000 ($100,000 x 4).

Revenue: At the top of your financial statement comes revenue which is the amount you
generate before paying expenses. Revenue as a standalone metric is not an accurate
measure of startup performance since expenses, especially in the early stages, can be
significantly higher than the amounts generated.

Income: Having deducted expenses from revenue, the difference is the income you retain
in the business for reinvestment or withdrawal. Income is a better performance metric in
measuring the stability and health of the business. On the other hand, high revenue even at
losses (negative income) can signal potential.

Vesting: In order to ensure investors and employees’ long-term commitment to the startup,
vesting schedules require stock option holders’ (employees) involvement in the startup for
a predetermined period, usually 4 years, before they can claim their shares.

Cliff: With vesting, a cliff period is used to require stock option holders to remain with the
startup, usually for at least 1 year, before they can claim a percentage of their shares. Both
vesting and cliff periods help employers align employees’ interests with startup
performance.