Shark Tank Terms
Have you ever watched “Shark Tank” and thought, “Wow, this is cool, but what do all these Shark Tank terms mean?” You’re not alone. This show is a hit, not just because of the drama and dreams it showcases, but also because it’s a sneak peek into the big, bold world of starting your own business. But, let’s be honest, sometimes the terms they throw around can make you scratch your head.
So, I thought, why not break it down together? If you’ve ever wondered what “equity” is, why everyone’s obsessed with “valuation,” or what a “convertible note” might be, you’re in the right place. And don’t worry, I’ll keep it as easy as chatting with a friend.
We’re going to take a tour through some of those fancy “Shark Tank” terms but in a way that feels closer to home. I’ll use examples from businesses we know and love right here in India to make it super relatable.
Whether you’re dreaming of starting your own thing one day or you’re just curious about what goes on in the business world, stick around. We’re about to make sense of all those complex-sounding terms, one step at a time. Let’s get started!
Investment Terms
1. Equity
Explanation: Ownership in a company. If you own a certain percentage of equity in a company, you own that proportion of it.
Example: If you and a friend start a new app development company in India and each invest ₹50,000, you both own 50% equity in the company. This means you each own half of the company.
2. Valuation
Explanation: The estimated worth of a business. This figure is what investors and the market believe a company is worth based on various factors.
Example: Byju’s, an Indian ed-tech company, reached a valuation of over $10 billion, indicating investors and the market see it as worth that amount, considering its growth prospects and financial health.
3. Capital
Explanation: The money that business owners use to fund their company’s operations and growth.
Example: To start a new restaurant in Bengaluru, the owner might need ₹20 lakh for space, equipment, staff, and supplies, utilizing savings, loans, or investments as capital sources.
4. Seed Funding
Explanation: The initial capital used to start a business, often provided by angel investors or early-stage venture capitalists.
Example: A health-tech startup in India receives ₹30 lakh in seed funding from angel investors to develop a mental health tracking app, covering early-stage costs.
5. Venture Capital
Explanation: Money invested in startups and small businesses with potential for significant growth, provided by professional investors or venture capital firms.
Example: Ola, the Indian ride-sharing company, received venture capital from investors like SoftBank to fuel its expansion, technology development, and market competition.
6. Angel Investor
Explanation: An individual who provides capital for business startups, usually in exchange for convertible debt or ownership equity.
Example: Ratan Tata, investing in startups such as Ola and Paytm, provides crucial early-stage capital in exchange for equity, supporting their initial growth.
7. Convertible Note
Explanation: A form of short-term debt that converts into equity, typically during a future financing round, offering investors a chance to initially lend money as a loan.
Example: A Bengaluru-based AI startup uses a convertible note for initial funding, allowing early investors to convert their loans into equity at a preferential rate later on.
8. Syndicate
Explanation: A group of investors pooling resources to invest in larger projects, spreading the risk and leveraging collective knowledge.
Example: An investment syndicate on AngelList India pools money to invest in a fintech startup, allowing them to contribute more substantial amounts collectively than possible individually.
9. Leverage
Explanation: Using borrowed capital for an investment, aiming for the profits to exceed the interest payable on the borrowed amount.
Example: A real estate developer in Mumbai buys a property using a mix of own funds and a bank loan, hoping to sell it at a profit, thereby leveraging the investment to maximize returns.
10. ROI (Return on Investment)
Explanation: A measure used to evaluate the efficiency or profitability of an investment, calculated as the percentage return on the invested amount.
Example: Investing ₹1,00,000 in Reliance Industries shares and seeing their value rise to ₹1,10,000 after a year results in a 10% ROI, showing a profit of ₹10,000 on the original investment.
Marketing Terms
1. Brand Awareness
It’s like when you think of ordering something online and immediately think of Amazon or Flipkart. That’s brand awareness. These companies have become so well-known that their names pop up in your mind the moment you think of online shopping. They’ve done a lot to make sure you remember them, through ads, delivering packages quickly, and offering a lot of options.
2. Market Penetration
Imagine Jio entering the telecom scene in India. They offered data and call services at super low prices, and suddenly, everyone’s using Jio. This move got them a huge chunk of the market, really fast. That’s what market penetration is all about – selling more of your product or getting into new markets in a way that shakes things up, just like Jio did.
3. Target Market
Ola cabs decided they’re not just for anyone who needs a ride; they specifically want to help people who are looking for easy, convenient city transportation. They’ve tailored their services, like offering city taxi rides, bike rides, and even auto-rickshaws, to fit the needs of urban commuters. That’s their target market – city folks looking for a quick and easy way to get around.
4. Unique Selling Proposition (USP)
Maggi noodles are all about that “2-minute” magic. In a world of instant noodles, Maggi stands out by promising you a tasty snack or meal in just two minutes. This promise, their USP, makes Maggi different and better in the eyes of noodle lovers who are short on time but still want something delicious.
5. Customer Acquisition Cost (CAC)
Let’s say you’ve started a new app that delivers groceries to people’s homes. The money you spend on ads, offers, or any other way to get someone to download your app and place their first order is your CAC. It’s like fishing – the bait, rod, and effort you put in to catch a fish is your investment to ‘acquire’ one customer.
6. Return on Investment (ROI)
You invest ₹100 in making fancy, handmade soaps, and then you sell them for ₹150. Your ROI is the extra ₹50 you earned minus any costs you haven’t counted yet, like maybe the stall you rented to sell your soaps. It tells you how good an investment was by showing you how much more money you made than you spent.
7. Lead Generation
Imagine you’ve got a website selling custom t-shirts. You start a campaign on social media, showing off your cool designs and offering a discount if people sign up on your website. The people who sign up are your leads – potential customers who’ve shown interest in your products. Brands like Myntra do this all the time to get people interested in what they’re selling.
8. Conversion Rate
If 100 people visit your t-shirt website and 10 of them actually buy a t-shirt, your conversion rate is 10%. It’s a score that tells you how good your website is at turning visitors into buyers. A high conversion rate means you’re doing something right, like having an easy checkout process or really persuasive product descriptions.
Financial Terms
1. Gross Margin
Imagine you’re selling handmade candles. You sell each candle for ₹500, but it costs you ₹300 to make one (wax, scent, jar). Your gross margin is the difference, which is ₹200. It’s like the “pure profit” on each candle before you pay for other stuff, like the rent for your shop or your website fees. It tells you how much you’re really earning on what you sell.
2. Net Profit
After selling those candles, let’s say you earned a total of ₹1,00,000. Now, subtract everything you spent to make that happen (materials, rent, marketing, etc.), say ₹70,000. What you have left, ₹30,000, is your net profit. It’s what’s really yours after you’ve paid all the bills.
3. Break-even Point
You’ve started a café, and you’re figuring out how many cups of coffee you need to sell to cover all your costs (rent, beans, salaries). If it turns out you need to sell 100 cups a day to just cover costs, that’s your break-even point. Sell 101, and you’re making a profit. Sell 99, and you’re dipping into your pockets.
4. Liquidity
Say you’ve got a bunch of chairs in your café. If you suddenly need cash, selling chairs isn’t quick. Cash in the till, however, is ready to use. That’s liquidity – how fast you can turn things into cash. Cash is king because you can use it right away, unlike those chairs.
5. Debt Financing
Imagine you want to expand your café but don’t have enough cash on hand. You take a loan from the bank, and that’s debt financing. You get the money now, but you’ll need to pay it back, plus interest. It’s like borrowing money from a friend, but this friend charges you for the service.
6. Equity Financing
Instead of taking a loan, you let a friend invest in your café. They give you some money to grow, and in return, they own a part of your café. If the café does well, they do well. That’s equity financing – raising money by selling pieces of your business.
7. Cash Flow
Running that café, money comes in from customers and goes out to pay for beans, milk, rent, and wages. Cash flow is this movement of money in and out. It’s crucial because you need to make sure there’s always enough cash coming in to cover what’s going out, especially since you can’t pay your suppliers with smiles.
8. Operating Expenses
Every day, you open your café, and there are costs just to keep it running – electricity, wages for your barista, and Wi-Fi. These are operating expenses. For Zomato, it’s what they pay their delivery partners and customer support. It’s the cost of doing business.
9. Inventory
In your café, you have coffee beans, milk, and cups – that’s your inventory. It’s everything you need to make and sell your coffee. Big Bazaar has its shelves stocked with goods from shampoo to sugar – that’s their inventory. It’s all about having what you need to sell, at the ready.
Legal Terms
1. Intellectual Property (IP)
Intellectual Property, or IP, is like the secret recipe to your grandma’s famous biryani or a unique app you’ve designed. It’s something original that you’ve created from your thoughts or imagination. For instance, the formula for Coca-Cola is an IP. It’s a closely guarded secret because it’s unique and valuable, setting Coca-Cola apart from other soft drinks.
2. Patent
Think of a patent like a protective shield for your inventions, like a new kind of eco-friendly water bottle or a revolutionary tech gadget. If you get a patent for your invention, it means no one else can make, sell, or use it without your permission for a certain period, usually 20 years. This is how the creators of Velcro protected their invention, ensuring they could benefit from their unique idea.
3. Trademark
A trademark is a special sign, symbol, or phrase that shows something comes from your company and not from someone else. It’s like your business’s signature. For example, the “swoosh” logo of Nike is trademarked, which means only Nike can use that symbol on sports gear. It helps customers identify Nike products easily.
4. Non-disclosure Agreement (NDA)
An NDA is like making a pact with someone where you both agree to keep secrets. Startups often use NDAs when they’re talking about their new ideas or business plans with potential investors or partners. It’s a way to ensure that the people you’re sharing your big idea with won’t go and spill the beans to the world or, worse, steal the idea for themselves. Imagine sharing a unique business idea with a potential investor; an NDA ensures that your discussions remain confidential.
5. License
A license is basically asking permission to use someone else’s creation and agreeing to pay them for it. It’s like renting a movie or a song. Spotify, for example, doesn’t own all the music it streams. Instead, Spotify pays licensing fees to music labels and artists to legally play their songs on its platform. This way, artists get paid for their work, and Spotify users get access to a vast library of music.
Product and Development Terms
1. Prototype
A prototype is like the first draft of your product, built to see if your idea can take shape in the real world. Imagine you’ve thought up a new type of spill-proof travel mug. Before mass-producing it, you create a prototype. This initial model helps you and others see how it looks, feels, and functions. It’s the step that comes before making the final product, allowing you to tweak and improve your design.
2. Minimum Viable Product (MVP)
An MVP is the simplest version of your product that you can launch to the public. It’s got just enough features to attract early users and validate your business concept. For instance, when Flipkart first started, it was essentially an MVP – just a website selling books. This approach helped the founders understand if people were interested in buying online before they added more products and features.
3. Product-Market Fit
Product-market fit happens when your product perfectly satisfies a strong demand in the market. It’s like finding the right key for a lock. A classic example is WhatsApp. It met a huge need for easy, free messaging without any ads, fitting perfectly into the market’s demands. When you’ve got people eagerly using and talking about your product, you’ve likely hit the product-market fit.
4. Scale
Scaling is about growing your business smartly. You’re not just getting bigger; you’re also becoming more efficient and keeping up the quality. Imagine a home-based bakery that starts getting hundreds of orders. To scale, the owner might need a bigger kitchen, more bakers, and a delivery system. But all while making sure the cakes are as delicious as they were when it was just a small home operation. It’s about expanding without losing what made your business special in the first place.
5. Beta Testing
Beta testing is like the final rehearsal before your product’s big show. You release it to a small, controlled group of users who can provide feedback. These users test the product in real-world conditions to find any bugs or issues. Zoho, for example, releases beta versions of its software to users who sign up to test. This process helps Zoho fine-tune its products, ensuring they’re as good as they can be before the official launch.
6. Feedback Loop
A feedback loop is an ongoing process where you use customer opinions to make your product or service better. Let’s take Swiggy, the food delivery app. Swiggy listens to what users say about their experience—whether it’s the app interface, delivery time, or food quality. Then, they use this feedback to make changes, like improving the app or working with restaurants to ensure better service. It’s about constantly listening, adjusting, and improving to keep your customers happy and loyal.
Strategy Terms
1. Pivot
Pivoting is when a business completely changes its strategy because the original plan isn’t working out.
A classic example is OYO Rooms. Initially, OYO started as a platform to book budget hotels. Realizing the model had limitations, they shifted gears to directly lease and franchise hotels, giving them more control over the customer experience. This pivot was a game-changer for OYO, helping it expand rapidly.
2. Bootstrapping
Bootstrapping means starting and growing your business using your own money or the revenue it generates, instead of taking funds from investors.
Imagine a graphic designer who starts a freelance business from their home office. They use their savings to buy a computer and design software and pay for their website. As they get clients and earn money, they reinvest that back into the business to grow, all without taking a loan or giving up any equity.
3. Exit Strategy
An exit strategy is a way for investors to sell off their stake in a business and make a profit. Think of it like planning your exit from a party before you even arrive.
For instance, when Flipkart was bought by Walmart, the founders and early investors sold their shares in the company, making a significant profit. This acquisition was their exit strategy, allowing them to reap the rewards of their investment.
4. Market Segmentation
Market segmentation is the process of dividing a broad customer base into smaller groups of consumers with similar needs or preferences. It’s like dividing a pizza into slices so everyone gets the toppings they like.
For example, a car company might segment the market into luxury buyers, eco-conscious buyers, and budget-conscious buyers, offering different car models for each segment to better meet their specific needs.
5. First-mover Advantage
The first-mover advantage is what you get by being the first to enter a new market. It’s like being the first person to find a great spot at a campsite.
Flipkart gained a first-mover advantage in India’s e-commerce space by being one of the first companies to offer a wide range of products online with convenient delivery options, helping it establish a strong brand and loyal customer base before many competitors entered the scene.
6. Blue Ocean Strategy
The Blue Ocean Strategy is about creating a new market space where there’s little to no competition – essentially, finding or creating your own ‘blue ocean’.
OYO Rooms did exactly this by targeting the untapped budget accommodations segment, offering standardized rooms at affordable prices across India. This strategy allowed OYO to grow without facing direct competition in its niche at the start.
7. SWOT Analysis
A SWOT Analysis involves evaluating a company’s Strengths, Weaknesses, Opportunities, and Threats to make better strategic decisions. It’s like a self-reflection for businesses.
Tata Motors, for example, conducts SWOT analysis to understand its position in the automotive market better. By recognizing its strengths (like a wide range of vehicles), weaknesses (like dependence on the Indian market), opportunities (like the growing electric vehicle market), and threats (like increasing competition), Tata Motors can plan its future moves more effectively.
Negotiation Terms
1. Counteroffer
Imagine you’re selling a vintage guitar, and you want ₹20,000 for it. A buyer offers ₹15,000. You counteroffer by saying you’ll take ₹18,000 and throw in a guitar case. A counteroffer is basically a negotiation dance where you go back and forth until you find a middle ground that works for both parties.
2. Due Diligence
Suppose you want to buy a small café. Before you hand over your hard-earned money, you take a good look at everything: the café’s financial records, customer base, the condition of its equipment, and even its reputation. This thorough check-up is due diligence. It’s like making sure the used car you’re about to buy doesn’t have a dodgy engine or hidden debts.
3. Term Sheet
Let’s say you’ve created an app, and an investor is interested in funding your project. Before getting into detailed legal contracts, you both agree on a term sheet. This document outlines the basics: how much they’ll invest, the equity they’ll get, and other key terms. It’s like agreeing on the rules of a game before you start playing.
4. Equity Stake
If you own shares in a company, you have an equity stake in that business. For instance, if you and a friend start a bakery and you own 60% of the shares while your friend owns 40%, your equity stake is 60%. It means you own a majority of the bakery and get a bigger slice of the profits (and the cakes).
5. Valuation Cap
You’ve created a new type of energy drink and need funding. An investor offers you money through a convertible note, which will turn into equity during your next funding round. To protect the investor, you agree on a valuation cap—say, ₹1 crore. This means, no matter how valuable your company becomes, the investor’s conversion price is based on this cap, ensuring they don’t get diluted too much if your company’s valuation skyrockets. It’s like agreeing on a maximum price for concert tickets, regardless of how popular the band becomes.
Miscellaneous Terms
1. Disruption
Disruption happens when a new product changes the way things are usually done, shaking up the industry.
Smartphones are the perfect example. Before smartphones, mobile phones were mostly for calls and texts. Then smartphones came along, turning phones into mini-computers, cameras, and entertainment centers, totally changing how we communicate and consume media.
2. Lean Startup
The Lean Startup method is all about making businesses more efficient by building products quickly, testing them with real users, and then improving them based on feedback.
It’s like cooking a new dish; instead of spending hours making a huge meal, you cook a small portion, taste it, and adjust the recipe as needed before serving it to guests. This approach helps companies avoid spending time and money on products nobody wants.
3. Customer Lifetime Value (CLV)
CLV is the total amount you expect a customer to spend on your products or services over the entire time they do business with you. For example, if you’re a Netflix subscriber paying ₹500 a month and you stay subscribed for 5 years, your CLV to Netflix would be ₹30,000. It helps businesses understand the value of keeping customers happy over the long term.
4. Burn Rate
Burn rate is how fast a company uses up its capital before it starts making money. Imagine a startup like Paytm in its early days, spending a lot on marketing and offers to attract users.
If Paytm was spending ₹1 crore a month but not making any money yet, that ₹1 crore is its burn rate. It’s a race against time to start earning before the money runs out.
5. Bootstrapping
Bootstrapping means starting and growing your business using your own money, rather than taking funds from investors.
Chumbak, for example, began with the founders’ savings to create unique and colorful lifestyle products. They grew the company by reinvesting profits back into it, which allowed them to maintain control without outside influence.
6. Crowdfunding
Crowdfunding lets you raise money for a project or venture by getting small amounts of money from many people, typically via the internet.
Kickstarter is a popular platform where creators can pitch their ideas to the public. If people like the idea, they can pledge money to support it. It’s like pooling together lunch money with your friends so you can all buy a pizza.
7. Incubator
Incubators help new startups succeed by providing them with essential resources like office space, mentorship, and sometimes funding.
The Indian Angel Network, for instance, offers support to early-stage businesses to help them grow and navigate the challenges of starting up. It’s like a greenhouse for startups, providing the right conditions for growth.
8. Accelerator
Accelerators are programs that give startups a boost, often through a combination of investment, mentorship, and resources, over a set period.
Y Combinator, one of the most well-known accelerators, has helped companies like Airbnb and Dropbox get off the ground. It’s like a boot camp for startups, preparing them for the big leagues.
On The End Note
And that’s it! We’ve gone through some “Shark Tank” words, breaking them down with examples you can relate to. Now, whether you’re thinking about starting your own business or just like watching the show, these terms should make a lot more sense. It’s all about making the big world of business feel a bit friendlier.
So, next time you’re watching “Shark Tank,” you might just understand everything they’re talking about. And who knows? Maybe one day, we’ll see you up there, sharing your own ideas. Until then, let’s keep learning together, one simple step at a time.
