Startup glossary
The startup terms founders actually use, in plain English. Every entry has a clear definition, the formula where there is one, a worked example, and the mistakes to avoid. Written through one lens: does this help you decide what to build, or whether it is working?
98 terms
Validation & Discovery
Beachhead Market
Beachhead Market is the first narrow, specific customer segment a startup targets to win completely before expanding. It is small enough to dominate with limited resources and similar enough that a win there proves the product and creates a base to attack adjacent markets.
Concierge MVP
A concierge MVP delivers the product's value manually, by hand, to real customers before any of it is automated or built into software.
Customer Discovery
Customer discovery is the process of talking to potential customers to understand their problems, behaviors, and willingness to pay, before committing to a solution.
Early Adopters
Early Adopters is the small group of customers who feel a problem so acutely they will buy and use an unfinished, rough product before the rest of the market will touch it. They are the people who have already tried to solve the problem themselves, which is why they tolerate your bugs and missing features.
Fake Door Test
Fake Door Test is a validation method where you advertise a product or feature that does not exist yet (as a button, ad, or pricing tier) and measure how many people click or sign up. The clicks tell you whether real demand exists before you spend time building it.
Ideal Customer Profile (ICP)
An Ideal Customer Profile (ICP) is a precise description of the customer who gets the most value from your product and is easiest for you to reach, win, and keep.
Jobs To Be Done (JTBD)
Jobs To Be Done (JTBD) is a framework that says customers "hire" a product to make progress on a specific job in their life, rather than buying it for its features.
Minimum Viable Product (MVP)
A Minimum Viable Product (MVP) is the smallest version of a product that lets you test your riskiest assumption with real users and learn whether to keep going.
Painkiller vs Vitamin
A painkiller solves an urgent, expensive problem people will pay to make go away. A vitamin is a nice-to-have that improves things but is easy to live without.
Problem-Solution Fit
Problem-Solution Fit is the point where you have confirmed that a real, painful problem exists for a specific group of people and that your proposed solution actually relieves it for them. It comes before Product-Market Fit and is validated through customer conversations and small tests, not by shipping a polished product.
Product-Market Fit
Product-market fit (PMF) is the point where a product satisfies strong market demand, shown by customers who keep using it, pay for it, and tell others about it.
Smoke Test
A smoke test is a lightweight demand experiment, usually a landing page with a real call to action, that measures whether people will sign up, pre-order, or pay before the product exists.
The Mom Test
The Mom Test is a set of rules for customer interviews, from Rob Fitzpatrick, designed to get honest answers by talking about the customer's life and past behavior instead of pitching your idea.
Total Addressable Market (TAM)
Total Addressable Market (TAM) is the total annual revenue available if you sold your product to every possible customer. SAM and SOM narrow it to what you can realistically serve and capture.
Value Proposition
Value Proposition is the specific reason a customer chooses your product over the alternatives: the concrete outcome you deliver for a defined buyer, why it beats what they use today, and why it is worth the price. It is a claim about value, not a feature list.
Wizard of Oz MVP
Wizard of Oz MVP is a validation method where customers interact with what looks like a finished, automated product, but humans secretly fulfill the work behind the scenes. The front end is real; the back end is faked manually so you can test demand and behavior before building the engine.
Product & UX
Aha Moment
Aha Moment is the specific point in a new user's first session where they first experience the core value of your product and finally get why it is worth using. It is the experience you want every new signup to reach as fast as possible.
DAU/MAU Ratio
The DAU/MAU ratio divides daily active users by monthly active users to measure how often your monthly users actually show up. A ratio of 20% means the average user is active about 6 days per month.
Design Sprint
Design Sprint is a time-boxed process (originally five days, often compressed to two to four) where a small team maps a problem, sketches solutions, builds a realistic prototype, and tests it with real users to answer a high-stakes question before committing real engineering. It trades weeks of building for days of structured guessing and one round of real evidence.
Dogfooding
Dogfooding is the practice of a team using its own product for real work, the same way a paying customer would. It turns the founders into daily users so problems and missing pieces surface before customers ever hit them.
Net Promoter Score (NPS)
Net Promoter Score (NPS) measures customer loyalty by asking how likely someone is to recommend your product on a 0-10 scale. The score is the percentage of promoters (9-10) minus the percentage of detractors (0-6), ranging from -100 to +100.
North Star Metric
North Star Metric is the single measure that best captures the core value your product delivers to customers, and that your team rallies around to guide what to build next. It is the one number that should rise when you are genuinely helping users, not just driving short-term vanity activity.
SaaS Onboarding
SaaS onboarding is everything between signup and the moment a user gets real value from your product. Good onboarding minimizes time-to-value; bad onboarding is why most trials die before pricing is ever a factor.
User Onboarding
User Onboarding is the sequence of steps a new signup goes through to reach first real value in your product. It spans the moment after signup through the aha moment that proves the product works for them.
Wireframe
Wireframe is a low-fidelity layout sketch of a screen that shows structure, content blocks, and where things go without colors, fonts, or final visuals. It is a thinking tool for deciding what a page does, not what it looks like.
Unit Economics
Annual Contract Value (ACV)
Annual contract value (ACV) is the average annualized revenue of a single customer contract, excluding one-time fees. A 3-year, $90k contract has an ACV of $30k.
ARPU (Average Revenue Per User)
ARPU (Average Revenue Per User) is the average amount of revenue you collect from each active user or account over a set period, usually a month or a year. It is total revenue in that period divided by the number of users, and it tells you how much each customer is actually worth before costs.
ARR (Annual Recurring Revenue)
ARR (Annual Recurring Revenue) is the predictable subscription revenue a business expects over a 12-month period, counting only recurring contracts and excluding one-time fees. It is the annualized version of MRR and the headline number SaaS founders and investors use to size a business.
Average Revenue Per Account (ARPA)
Average Revenue Per Account (ARPA) is your monthly recurring revenue divided by the number of active paying accounts. It tells you what a typical customer relationship is worth per month.
Burn Rate
Burn rate is how fast a company spends its cash reserves, usually measured per month. Gross burn is total monthly spend; net burn is spend minus revenue.
CAC Payback Period
CAC Payback Period is the number of months it takes to earn back the money you spent acquiring a customer, measured in gross profit, not raw revenue. It tells you how long your cash is tied up in each new customer before they turn a profit.
Churn Rate
Churn rate is the percentage of customers (or revenue) you lose in a given period. Logo churn counts customers; revenue churn counts dollars.
Cost of Goods Sold (COGS)
Cost of goods sold (COGS) is the direct cost of delivering your product to paying customers. For SaaS that means hosting, third-party APIs, customer support, and onboarding, not rent, marketing, or feature development.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win one new customer.
Customer Lifetime Value (LTV)
Customer Lifetime Value (LTV, also CLV) is the total gross profit you expect from a customer across their entire relationship with you.
Default Alive vs Default Dead
Default alive describes a startup that will reach profitability on its current trajectory before the money runs out. Default dead is one that will not, unless something changes. The terms come from Paul Graham.
Gross Margin
Gross Margin is the share of revenue left after you subtract the direct cost of delivering what you sold (cost of goods sold). It is usually shown as a percentage and tells you how much money each dollar of sales actually leaves on the table to cover everything else.
Gross Revenue Retention (GRR)
Gross revenue retention (GRR) is the percentage of recurring revenue you keep from existing customers over a period, counting churn and downgrades but excluding any expansion. It is capped at 100% and measures pure revenue durability.
LTV:CAC Ratio
The LTV:CAC ratio compares the lifetime value of a customer to the cost of acquiring one. The widely cited healthy benchmark is 3:1 or higher.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable subscription revenue a business earns every month, normalized to a monthly figure. It counts only recurring charges, not one-off fees.
Net Revenue Retention (NRR)
Net Revenue Retention (NRR) is the percentage of recurring revenue you keep from a cohort of existing customers over a period (usually a year), after accounting for expansion (upgrades, seats, usage) and losses (churn and downgrades), excluding any new logos. It measures whether your existing customer base grows or shrinks on its own.
Rule of 40
Rule of 40 is a health check for software companies that says your revenue growth rate plus your profit margin should add up to at least 40%. It is a quick way to test whether you are balancing growth and profitability instead of buying growth you cannot afford.
Runway
Runway is the number of months a company can keep operating before it runs out of cash, assuming current burn and revenue hold.
SaaS Magic Number
The SaaS magic number measures sales and marketing efficiency: how much new annualized revenue each dollar of sales and marketing spend generates. It compares one quarter's ARR growth against the prior quarter's spend that produced it.
SaaS Quick Ratio
The SaaS quick ratio compares the recurring revenue you gained in a period to the recurring revenue you lost. It is (new MRR + expansion MRR) divided by (churned MRR + contraction MRR).
Total Contract Value (TCV)
Total contract value (TCV) is the full worth of a customer contract over its entire term, including recurring fees and one-time charges like implementation. A 3-year deal at $10k per year plus a $5k setup fee has a TCV of $35k.
Unit Economics
Unit economics are the direct revenues and costs tied to a single unit of your business, usually one customer, expressed through metrics like CAC, LTV, and contribution margin.
Fundraising
Angel Investor
Angel Investor is an individual who puts their own money into an early-stage startup, usually in exchange for equity or a convertible instrument. Checks typically run from $5K to $250K, and they invest at the earliest, riskiest point, often before a startup has revenue.
Cap Table
A capitalization table (cap table) is the record of who owns what in a company: founders, investors, and employees, with their shares, options, and ownership percentages.
Convertible Note
A convertible note is a short-term loan that converts into equity at a later priced round. Unlike a SAFE, it is debt: it carries an interest rate and a maturity date.
Dilution
Dilution is the reduction in existing shareholders' ownership percentage when a company issues new shares, typically during fundraising or when expanding the option pool.
Down Round
A Down Round is a funding round where your company's per-share price (and usually its valuation) is lower than the price set in your previous round. It means new investors are buying in at a markdown to what earlier investors paid.
Liquidation Preference
Liquidation Preference is a term-sheet clause that decides who gets paid first, and how much, when a startup is sold or wound down. It guarantees an investor a set return (often 1x their money) off the top of the exit proceeds before common shareholders like founders and employees see a cent.
Pre-Money vs Post-Money Valuation
Pre-money valuation is what a company is worth before new investment. Post-money valuation is the pre-money value plus the new money raised.
Pre-Seed Round
Pre-Seed Round is the earliest priced or convertible outside investment a startup raises, usually $100K to $1M, to get from a raw idea to early proof that the problem and a buildable solution are real. It buys time to validate, not to scale.
SAFE (Simple Agreement for Future Equity)
A SAFE (Simple Agreement for Future Equity), created by Y Combinator, gives an investor the right to equity in a future priced round instead of shares today. It is not debt and carries no interest or maturity date.
Seed Round
Seed Round is a startup's first priced (or note-based) round of outside capital, raised to turn early traction into repeatable growth and reach the metrics that justify a Series A. It usually lands somewhere between a few hundred thousand and a few million dollars.
Series A
Series A is a startup's first priced equity round led by an institutional venture capital firm, typically raised after seed-stage traction to scale a proven model. It usually runs from a few million to roughly $15M and sets a formal company valuation through the sale of preferred shares.
Term Sheet
A term sheet is a mostly non-binding document that lays out the key terms of an investment, including valuation, amount raised, and investor rights, before the full legal paperwork is drafted.
Valuation Cap
A valuation cap is the maximum company valuation at which a SAFE or convertible note converts into equity, no matter how high the next priced round values the company.
Venture Capital (VC)
Venture Capital (VC) is money invested by professional firms into early-stage, high-growth startups in exchange for equity. VCs raise pooled funds from outside investors and bet on a small number of companies returning the entire fund, so they need each bet to have a shot at being huge.
Legal & Equity
409A Valuation
409A Valuation is an independent appraisal of a private company's common stock fair market value, named after IRS Section 409A. It sets the minimum legal strike price for stock options you grant to employees so those grants are not treated as deferred compensation and hit with penalty taxes.
Founders' Agreement
Founders' Agreement is a written contract among a startup's co-founders that locks down who owns what, who does what, how decisions get made, and what happens to a founder's equity if someone leaves. It turns a handshake and a shared dream into terms you can enforce when things get tense.
Incorporation (C-Corp vs LLC)
Incorporation (C-Corp vs LLC) is the act of forming a legal company entity, and the choice between a C-Corporation (a separate taxable entity built for outside investors and stock) and a Limited Liability Company (a pass-through entity that is simpler and cheaper to run). The right pick depends on whether you plan to raise venture money or stay self-funded.
Option Pool
Option Pool is a block of company shares set aside to grant as stock options to future employees, advisors, and contractors. It is reserved up front (usually 10 to 20 percent of equity) and dilutes the founders, not the new investors, when created before a round.
Vesting
Vesting is the schedule that turns promised equity into earned equity over time, so a founder or employee actually owns their shares only after staying and contributing for a set period. Until shares vest, the company can take them back if the person leaves.
Vesting Cliff
Vesting Cliff is the minimum time a founder or employee must stay before they earn any of their granted equity. Leave before the cliff and you walk away with zero shares; cross it and a chunk vests at once, with the rest vesting gradually after.
Growth & GTM
AARRR Pirate Metrics
AARRR Pirate Metrics is a five-stage framework for tracking how users move through your product: Acquisition, Activation, Retention, Referral, and Revenue. Coined by Dave McClure, it gives a founder one number per stage so you can see exactly where users drop off.
Activation Rate
Activation Rate is the percentage of new signups who reach the first moment that proves your product works for them (the aha moment), within a set window. It measures how many people actually get to value, not just how many show up.
B2B SaaS
B2B SaaS is subscription software sold to businesses rather than individual consumers. The buyer is a company solving a workflow, revenue, or compliance problem, which means budgets are bigger and purchase decisions are more rational than in B2C.
Content Marketing
Content Marketing is the practice of creating and distributing useful content (articles, guides, videos, tools) to attract a defined audience and pull them toward your product instead of paying for each click. It is a compounding, owned channel: the work you publish keeps earning attention long after it ships.
Conversion Rate
Conversion Rate is the percentage of people who take a specific action (sign up, buy, book a demo) out of everyone who had the chance to. It turns raw traffic into a single number that tells you whether a step in your funnel actually works.
Enterprise SaaS
Enterprise SaaS is subscription software sold to large organizations, typically at $25k or more in annual contract value. Deals involve procurement departments, security reviews, legal negotiation, and sales cycles of 6 to 18 months.
Freemium
Freemium is a pricing model where the core product is free forever for everyone, and you charge only for premium features, higher limits, or advanced capabilities. The free tier is the top of your funnel, and revenue comes from the small slice of users who convert to a paid plan.
Go-To-Market (GTM)
A go-to-market (GTM) strategy is the plan for how a company reaches its target customers and convinces them to buy, covering audience, channels, pricing, messaging, and sales motion.
Lead Magnet
Lead Magnet is a free, specific resource (a checklist, template, calculator, mini-course, or report) you give away in exchange for a prospect's contact details, usually an email. It exists to turn anonymous traffic into known leads you can follow up with.
Positioning
Positioning is the deliberate choice of how you want a specific customer to file your product in their head: who it is for, what it replaces, and why it is the obvious pick. It is the one sentence a prospect repeats to a colleague when they explain why they bought.
Product-Led Growth (PLG)
Product-led growth (PLG) is a go-to-market motion where the product itself drives acquisition, conversion, and expansion, usually through a free trial or freemium tier, with little or no sales team.
Sales Funnel
Sales Funnel is the staged path a prospect travels from first hearing about you to becoming a paying customer, where each stage has fewer people than the one before. It is both a model of how buyers move and a measurement tool for finding where they drop off.
Sales-Led Growth
Sales-Led Growth is a go-to-market motion where human salespeople, not the product itself, drive revenue by sourcing, qualifying, and closing deals through demos, calls, and negotiation. It fits higher-priced, more complex products where a buyer will not just sign up and pay on their own.
Usage-Based Pricing
Usage-based pricing charges customers for what they consume, such as API calls, messages sent, or gigabytes stored, instead of a flat fee or per-seat price. Revenue scales with usage rather than headcount.
Vertical SaaS
Vertical SaaS is software built for one specific industry, like restaurants, dental clinics, or HVAC contractors. It contrasts with horizontal SaaS, which serves a function (email, CRM, invoicing) across every industry.
Virality (K-Factor)
Virality (K-Factor) is the number of new users each existing user generates through referrals or invites. A K-factor above 1 means the product grows on its own without paid acquisition, because every user brings in more than one replacement.
Operating
Bootstrapping
Bootstrapping is building and growing a company using personal savings and revenue from customers, rather than raising outside investment.
Build vs Buy
Build vs Buy is the decision of whether to build a capability in-house or buy it from a vendor (SaaS, library, API, or contractor). For a founder it is mostly a question of where your scarce engineering time actually earns you a moat.
Customer Success
Customer success is the post-sale function responsible for making customers achieve the outcome they bought your product for, so they renew and expand. It is proactive retention work, distinct from reactive support.
Founder-Market Fit
Founder-Market Fit is the degree to which a founder's specific experience, skills, network, and obsession give them an unfair advantage in the exact market they are attacking. It is the match between who you are and the problem you picked, before you have a product or any traction.
KPI (Key Performance Indicator)
KPI (Key Performance Indicator) is a single number you commit to tracking because it tells you whether a specific part of your business is working or breaking. A good KPI is tied to a decision: when it moves, you know what to do next.
Micro SaaS
Micro SaaS is a small, narrowly scoped software business run by one or two people, typically solving a single problem for a niche audience. The goal is profit and independence, not venture scale.
Moat (Competitive Advantage)
A moat is a durable competitive advantage that makes it hard for competitors to copy or displace you, such as network effects, switching costs, brand, or proprietary technology or data.
OKRs
OKRs (Objectives and Key Results) is a goal-setting framework where you pick a small number of qualitative Objectives (what you want to achieve) and attach 2 to 5 measurable Key Results to each one (how you will know you got there). It forces every goal to have a number you can grade.
Opportunity Cost
Opportunity Cost is the value of the best thing you give up when you choose one option over another. For a founder, it is the return you forfeit by spending time, money, or attention on this idea instead of the next-best use of those resources.
Pivot
Pivot is a deliberate change to one core part of your startup (the customer, the problem, the product, or the business model) while keeping the rest of what you have learned intact. It is a structured course correction, not a fresh start.
Ramen Profitable
Ramen Profitable describes a startup whose monthly revenue covers the founders' basic living expenses, enough to eat ramen and keep going without outside funding. It is not real profit, just the point where the team can survive on the business alone.
SaaS Business Model
The SaaS business model delivers software over the internet for a recurring subscription fee instead of a one-time license. Revenue compounds as long as customers stay, and gross margins typically run 70% to 85% because serving one more customer costs almost nothing.
Scope Creep
Scope Creep is the uncontrolled growth of a project's features and requirements after the plan is set, usually without a matching increase in time or budget and without evidence that the additions are needed. It is how a two-week MVP quietly becomes a six-month build nobody asked for.
Technical Debt
Technical Debt is the future cost of shortcuts and quick fixes you take to ship faster now. Like financial debt, it accrues interest: every messy hack, skipped test, or copy-pasted module makes the next change slower until you pay it down.
White-Label SaaS
White-label SaaS is software built by one company and rebranded and resold by another as its own product. The reseller owns the customer relationship; the vendor owns the code and infrastructure.
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