Article -> Article Details

Picture yourself standing on Shark Tank, ready to present your innovative concept to a panel of smart investors. As they say, stakes are high and precision is supremely vital. Just like successful entrepreneurs, you need to speak the language of business fluently. In this article, we will break down indispensable terms every aspiring business professional should know — from “burn rate” to “product-market fit.”

Familiarize yourself with these terms to convey your ideas, gain investors’ favor and flourish in the modern corporate world. Arm yourself with the understanding necessary to bring your vision to life and take advantage of opportunities in entrepreneurial environment. Let’s dive in!

1. Burn Rate

Burn Rate refers to the rate at which an organization depletes its cash reserves. Let’s assume that a startup has USD 1 million and burns USD 100,000 a month. Its burn rate will come out to be USD 100,000 per month. In case it continues burning money that way, then it will have no money left after 10 months. Uber and Ola burnt tremendous amounts of money in their nascent years because they used initial funding amount in getting scale and grabbing market share without really making a profit.

2. EBITDA

EBITDA is a concise form for Earnings Before Interest, Taxes, Depreciation and Amortization. It helps in gauging company’s profitability in a way that is independent of financing and accounting options. For instance, when a company makes USD 500,000 from sales and it incurred USD 200,000 of expenses (excluding interest and taxes), then its EBITDA will be around USD 300,000. It helps investors know the efficiency with which firm is running its business.

3. Churn Rate

Churn Rate is a measure of the number of customers who stop using services of a brand within a given time. For example, if a subscription service has 100 customers at the beginning of the month and loses 5 customers by the end of the month, churn rate would be 5 percent. High churn rates are an indicator of customer dissatisfaction. Companies like Netflix attempt to maintain this number low by constantly offering better content.

4. Valuation

Valuation refers to the determination of a company’s worth. It may be derived from factors such as assets, earnings capacity and market performance. For instance, if an emerging technology startup has cutting-edge products and huge growth prospects, it could be valued at USD 10 million despite earning minimal profits in present times, since investors are envisioning the future potential.

5. Seed Capital

Seed Capital is the early capital invested to begin a business. You have a wonderful idea for a new app but don’t have money to create it; you can look for seed capital from family or angel investors. The funding will be used to pay for initial costs such as bringing in developers or advertising.

6. Angel Investor

Angel Investor is the one who invests in startups in return for ownership shares or convertible debt. For example, if you are opening a new restaurant and an angel investor gives you USD 50,000 for 10% ownership, they believe in your concept and wish to share your triumphs.

7. SKU

SKU (Stock Keeping Unit) is a one-of-a-kind code for each product that is offered by an enterprise. Let’s suppose a clothing outlet offers t-shirts in various colors and sizes; each size and color will be assigned unique product identifier (SKU) to optimize inventory handling.

8. Product-Market Fit

Product-Market Fit happens when a product has fulfilled the needs of its target market perfectly. Consider Apple’s iPhone; it transformed how people interact with technology and communicate because it precisely satisfied consumer needs for style and functionality.

9. TAM

TAM, or Total Addressable Market, is the total revenue potential if a product or service had 100% of a market. For instance, if a product had 1 billion smartphone users worldwide and your app sold for USD 1 a download, your TAM would be USD 1 billion if all of your users downloaded your app.

10. Performance Marketing

Performance Marketing is an online advertisement campaign in which the advertisers are charged only after certain actions have been taken (such as clicks or sales). For example, if an online shoe store runs ads on social media and pays only when someone buys shoes through those ads, that’s called as performance marketing.

11. Economic Moat

Economic Moat is a term used to describe a firm’s competitive advantage that protects it from competition. For example, Coca-Cola has a strong brand loyalty that makes it hard for new soft drink firms to compete directly with them — this loyalty is defined as their economic moat.

12. QSR

A QSR, which stands for Quick Service Restaurant, is a fast-food restaurant such as McDonald’s or Subway where patrons can pick up orders quickly without being seated. QSRs are quick and convenient in an effort to draw busy people.

13. Blue Ocean Strategy

Blue Ocean Strategy advocates that companies produce new markets (or “blue oceans”) instead of fighting in overcrowded markets (“red oceans”). For instance, Cirque du Soleil, Canadian Entertainment Company, invented an original spectacle that blended circus arts with theater — by doing so; they were able to stay out of direct competition with conventional circuses.

14. CAC

CAC, or Customer Acquisition Cost, is the cost of acquiring a new customer. If you have spent USD 1000 on marketing and acquired 100 new customers, your CAC is USD 10 per customer. Knowing CAC assists companies in planning how much they can invest in marketing and still make profits.

15. IP

IP, or Intellectual Property, is a creation of the mind such as inventions, designs and brands that are protected from unauthorized usage by others under law. For example, Disney characters like Mickey Mouse are protected under IP laws — other companies cannot use these characters without permission.

Conclusion

Learning these business terms will make you powerful as you go through your MBA and future life as a business leader. Not only will every term add to your vocabulary, but it will also endow you with the information essential to participate competently in discussions regarding company plans and operations. Knowledge of these terms will make you think more strategically regarding complex business problems and opportunities while working to become a dominant figure in the corporate world.