Lean Startup Glossary

A/B testing is a way to compare two versions of a single variable, for example to test two versions of a web page simultaneously (or generally to perform a simple, controlled experiment for split audiences), to see which version produces the best results.

Adjacent market: A new market adjacent to the present one, to where one can easily enter.

Business intelligence (BI) refers to the strategies, software, applications and other technologies used by companies for data analysis in order to get useful insights and information facilitating better business decisions.

Business to business (B2B): A company that sells products or services to other businesses.

Business to consumer (B2C): A company that sells products or services to consumers (typically to individuals).

Beachhead market: A highly specific market segment a high-tech startup tries to occupy when “crossing the chasm” between early adopters and early majority customers.

Bootstrapping: When a startup is financed with personals funds of the founders, their families and friends, and later from the profit of the company.

Build-measure-learn loop is a process of building a product (usually not a full-featured product, but a minimum viable product), measuring customer response and learning from the experience. Through rapid iterations we can validate or invalidate our basic assumptions about the market need and whether the product satisfies this (product/market fit). It is a version of the PDCA (plan-do-check-act) / PDSA (plan-do-study-act) cycle, also called the Deming or Shewhart cycle.

Burn rate: The speed at which your startup is burning the founding and/or raised capital month by month, before the cash flow will be positive (breaking even, or making profit) or the company shuts down.

Business is an organization, that can earn a profit on the products or services it offers.

Business model is the description of how an organization creates, delivers and captures value.

Business model canvas (BMC): A nine box canvas created by Alexander Osterwalder to capture the most important aspects of the business model of a company.

Business plan is a document written by companies to describe in detail what they intend to do in order to achieve their business goals. Important parts are background, competitive analysis, marketing strategy and plan, operations plan and financial plan. Not recommended for early stage startups.

Call to action (CTA) is an instruction to persuade a visitor to take an immediate action before moving on to do something else.

Channel refers to the sales and distribution channel, through which your offer or product gets from your company to the customer.

Churn rate measures the ratio of customers who leave a service in a period of time (typically one month), usually in subscription-based business models.

Cohort analysis is the way to measure the behavior of a specific, unchanging group of customers over time. In practice the business measures the activity (or inactivity) of customers or prospects over their lifetime, who came into contact of your company during a set time interval (e.g. a week).

Competitive advantage is a company’s ability to outperform rivals in terms of quality, value-for-money, services, uniqueness, fashion, etc.

Cost of goods sold (COGS) is the amount spent on products to be sold or on raw material purchases, direct labor costs and related factory overhead to turn raw materials into products.

Cost per acquisition (CPA, also cost per action) is in ecommerce the amount you pay in a specific marketing channel to convert a customer, such as to make a purchase, to sign-up, to register or to make a download.

Cost per click (CPC) is the price you pay for each click in a pay-per-click (PPC) advertising campaign.

Cost per thousand (CPM, also cost per mille) is the amount of money paid for 1,000 advertisement impressions (appearance) in media.

Cross-selling is encouraging existing customers to buy complementary products or services.

Customer acquisition cost (CAC, also COCA – cost of customer acquisition) is a metric that measures the total cost needed to acquire a new customer. CAC is calculated for new customers and it is equal to the total marketing cost (including the cost of human resources and related overhead) divided by the number of new customers in a given time period.

Customer development is the process of identifying potential customers, their problems and needs, and finding out how to meet those.

Customer relationships describe the way a company or organization deals with its customers and the relationship it has with them in order to engage with its customers and improve the customer experience.

Customer relationships management (CRM) is the combination of practices, strategies and technologies a company uses for managing its relationships and interactions with potential and existing customers.

Customer segmentation is the process of dividing customers into groups based on shared characteristics (e.g. by demographic, gender, interests, or buying habits) so that companies can market to each group effectively with specific value propositions.

Disruptive innovation and technology significantly alter (often revolutionize) the way that consumers, industries or businesses operate. These completely change the way things are done, create a new market and disrupt an existing market.

Early adopters are the first group of your customers who are eager to find a solution to their problem. Therefore, they are willing to take the risk to use a less-than-perfect product. They are likely to help you to iterate until you arrive at a solution suitable also for other, not-so-forgiving segments of your market.

Earned media refers to the free exposure a company generates, all the content and conversation around your brand or product that has been created by somebody else. Examples are social media mentions, shares and retweets, reviews, press media coverage, and blog posts.

Elevator pitch is a brief description of an idea for a product, service or project in a way that a listener can understand it in a short period of time (typically between 30 to 60 seconds).

Exit strategy: The plan for how to sell your business and make for you and your investors a shed load of money.

Experiments are run by startups to test hypotheses, and that way are supposed to be designed as objective pass/fail tests.

First mover advantage (FMA) is a competitive advantage of being the first to a market with your product or service. More often than not heavy weight competitors will follow your company to the market you educated, so FMA can also turn out to be a disadvantage.

Follow-on market is a market you enter after you have occupied your beachhead market.

Freemium is a pricing strategy and a business model, when your consumers receive basic services for free and then can upgrade to a paid service for additional features and/or usability.

Gamification is when you add a game layer (or something closely resembling gaming) to a website or product to increase user engagement.

Get, keep and grow are steps companies take to drive customers into and through a sales channel. Activities include the acquisition of customers, retaining and encouraging them to buy more and to refer new customers.

Gross margin is the difference between revenue and the cost of goods sold (COGS) divided by revenue to arrive at a percentage.

Growth hacking is a term describing data and experiments driven inexpensive techniques to achieve scalable and quick growth.

Hockey Stick is the shape of the growth curve, when your startup grows rapidly (sometimes exponentially), so as your sales at least double every year. Venture capitalists love it.

Hypotheses are explicitly or implicitly in your Lean Canvas and are educated guesses startup founders can validate or invalidate through experiments.

Innovation is the creation of new products and services or new ways to engage and convert customers to arrive at a sustainable and profitable business model. Technology, processes, even the business model itself may represent innovation.

Intellectual property (IP) is a collection and ownership of ideas, concepts or design (which are all intangible assets). The three fundamental ways to protect your intellectual property are through the use of patents, trademarks and copyrights.

Iterate: After running a process or test an element of your Lean Canvas with less than desirable results, you make small modifications and rerun the test, in order to achieve better results. Can be done repeatedly.

Landing page is a web page your customers arrive at intentionally or unintentionally when clicking a link (in a web page, an ad or an e-mail). Usually designed to match the sending medium (e.g. an advertisement), but it can even be your home page.

Lean canvas is an adaptation of the original business model canvas (BMC) to the situations of startups by Ash Maurya.

Lean startup is an organized, data driven and economic approach to iterate customer and product development in order to satisfy needs and build only what customers have already expressed definite interest in. Instead of writing a business plan a lean startup develops tests and validates (or invalidates) the elements of a coherent business model, makes iterations or pivots to find problem/solution followed by product/market fit before trying to scale the business.

Lifetime value of a customer (LTV, also customer lifetime value, CLV) is a prediction of the gross margin (profit) a person or company will likely to generate throughout their lifespan as a customer. In strict terms, it can also be defined as “the monetary value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship”. Additionally, a way the net revenue of further customers brought in by the given customer can also be added (in case this is consistent and predictable).

Market penetration rate is the percentage of your product’s sales volume relative to the total sales volume of all competing products in your market.

Marketing communications is the methods and tactics adopted by companies either directly or indirectly to their existing and prospective customers about their brand, products and services in a creative manner to finally enhance sales. Methods include branding, advertising, online and offline promotions.

Minimum viable product (MVP) is the leanest version of your product with the smallest group of features to prove that your idea is sound and to get valuable feedback from customers. Often this is not a real product just a landing-page with pictures (e.g. screen shots) or a simple mockup of a physical product. When offering a service the functionality is often imitated by hand work (concierge MVP). With a low-fidelity MVP version we aim to validate the customer problem/need, while with a high-fidelity version (also called minimum viable business product, MVBP – which should be a real product) we can get feedback about the validity of our solution.

Monetize: How your business or product is or will be able to make money.

Monthly recurring revenue (MRR) is the monthly regular income from customers – the ultimate metric for subscription and SaaS based businesses.

Multi-sided business model is a multi-actor model where your users and customers (who pay for your product) are distinct segments. Business is conducted through intermediary platforms where the segments are effectively matched. Examples are eBay, PayPal, Alibaba and Facebook.

Net promoter score (NPS©) measures customer satisfaction and is expected to predict business growth. It is calculated based on the answers customers give (0-10) to the following question: How likely is it that you would recommend [brand] to a friend or colleague?

One metric that matters (OMTM) is a metric you focus on and optimize at the current stage of your startup. It is usually a high level, but still actionable metric which will most likely change as you enter a new stage of startup development.

Owned media is the set of digital communication channels and properties that a company exercises complete control over, such as websites, blogs, social media, email newsletters, forums and so on.

Paid media is media exposure purchased by a company to reach its target audiences. Examples include display ads, PPC advertising, sponsored content, third party direct mail.

Pay-per-click (PPC) is an internet advertising model, when the advertiser only pays for qualifying clicks on the ad. Most often the starting point is a search engine, a display advertisement, an affiliate program or social media, while the destination is a landing page on your website.

Persona is a description of a semi-fictional end user character profile that represents the demographics and observed buying behavior patterns of your ideal customer. Some companies pick a real person as a persona, others rather consider it as an avatar.

Pitch deck is a brief (10-15 slide) presentation that covers all aspects of your business in a concise and compelling way. It is designed to give a short summary of your company, your market, your goals and your startup vision most often to potential investors.

Pivot is a substantive change in one or more of the boxes of the lean canvas, such as a change of product, customer segment, distribution and sales channels or way of monetization.

Pricing is the method and tactics of determining how much a company will charge for a product or service, which is relevant to both the producer and the customer. Often includes complex calculations and experiments to find a price that yields maximum profit.

Primary market research is market information collected through original research, directly from the source i.e. the potential customers, usually by yourself (but you can also hire someone to do it for you). Typical examples are face-to-face or telephone interviews, surveys and observations of potential customers.

Problem-solution fit is the stage when your potential customers realize they have a real problem or unsatisfied need you can solve or satisfy. Therefore, at the end of this stage you have to know who your customer is and what the problem is to be solved in an effective and feasible way. You need to have at least qualitative proof (but preferably data) to support these, usually obtained via interviews. In a late stage or during follow-up interviews you have to be able to describe your solution on a way that your prospective customer can visualize your unique value proposition.

Product development is the lean startup way for developing and building the product iteratively (continuously collecting feedback from customers) following agile principles and methods.

Product-market fit is the stage when you not only demonstrate the ability to create value for the customer, but you can also monetize part of that value (make revenue). In other words you prove your business model is working in a small scale. During the process you build an initial (low-fidelity) minimum viable product (MVP) and validate it. This is followed by building an advanced (high-fidelity) MVP, presented and sold to at least your early adopters to their satisfaction. At the end of the stage you can claim that you have a desirable product and it is presented to the right market of a decent size.

Return on investment (ROI) is a financial ratio used to calculate the gain or loss generated on an investment relative to the amount of money invested. Most common calculation is to divide the benefit (or return) by the cost of investment (i.e. the invested amount of money), where the return is the difference between the current value of investment and the cost of investment. This ratio is commonly used by investors, but it can also measure the success of a marketing campaign.

Runway is how long your startup can survive (until the cash runs out) if your income and expenses remain constant. The total cash remaining divided by the monthly burn rate gives the runway in months.

Serviceable addressable market (SAM) (or served available market) is the portion of the market that you can reach with your sales channels – a subset of the TAM (total addressable market).

Serviceable obtainable market (SOM) is the share of market you can realistically serve (obtain), it is the market a startup targets – a subset of SAM.

Software-as-a-service (SaaS) is a software licensing and delivery model in which access to the software is provided on a subscription basis (in other words, you sell subscriptions to use your software). The software is centrally hosted rather than being on the server of the customer.

Sales funnel is a graphic representation of the steps that someone has to take in order to become your customer or the buying process that companies lead customers through when purchasing products. Different authors define these steps slightly differently. A few of those are: awareness, interest, consideration and purchase; attention, interest, desire, action (AIDA); get, keep, grow.

Scalable: A scalable startup can grow fast and efficiently and can generate and easily handle increased market demand without a big increase in the overheads.

Secondary market research is when a business finds and uses information that has been collected in the past by others. Some examples are: researching the internet, reading reports by government agencies and trade associations, reading newspaper articles and company reports.

Split testing see A/B testing.

Startup is an early stage company or project designed to find a repeatable and scalable business model.

Term sheet is a nonbinding, bullet-point style agreement (similar to a detailed letter of intent), laying out the basic terms and conditions under which an investment will be made.

Total addressable market (TAM) (or total available market) is the total market for your product, usually expressed in financial terms, i.e. TAM is the annual revenue your business would earn if you achieved 100% market share on that market.

Traction is a measure of customer engagement with your product and business model. In more strict terms, it is the rate at which you create customers. It shows the progress of a startup, and the momentum it gains as the business grows.

Unfair advantage is one of the blocks of the Lean canvas. It is your special competitive advantage that may be copied or bought with great difficulty only, for example deep domain knowledge, exceptional know-how and/or team. Investors love it.

Unique value proposition (UVP) (sometimes referred to as a USP, a unique selling proposition) is a short and clear statement describing the main benefits of your offer and what distinguishes you from your competition.

Up-selling is encouraging existing customers to buy more units or upgrade to a higher priced product.

User experience (UX) refers to how you feel when you interact and use a product, system or service. More precisely, it is an individual’s perceptions, emotions and attitudes about using a particular product.

User-generated content (UGC) refers to any type of content (such as media files, comments, blogs) created and published by users.

Venture capital is a form of private equity capital most often offered to startups with high growth potential. Thus offering a promise of high return for the venture capitalists (VCs) for taking the risk.

Viral coefficient is the number of new users or customers generated (brought in) by existing users or customers. Although difficult to achieve, if you manage to increase it over 1, your business will grow exponentially, with little effort.

Viral loop is the process of satisfied customers/viewers passing content and information to others (friends, followers) almost endlessly, especially on the internet, producing exponential increases in customers, users and traffic in a short time.

Viral marketing are the marketing activities used to encourage customers to refer others to the business to spread information about a brand, product or service from person to person, most often through the internet.

Web/mobile channels are marketing (and often fulfillment) channels using the internet to deliver messages and products to desktops, laptops, tablets and smartphones via websites, email, SMS, social media and apps.

List of abbreviations for startups and e-commerce