Glossary of Key Terms
Glossary of Key Terms
| Term | Definition |
| Advocacy | A conversational pattern where team members assert, claim, or push for their point of view. The text notes that business discussions are often heavy with advocacy and light on inquiry. |
| Agility | The ability to execute with focused flexibility, allowing a venture to be shaped by market forces over time by testing, adapting, and rapidly iterating its concept. |
| Anchoring | A cognitive bias where the mind gives excessive weight to the first information received or the first idea conceived, encouraging founders to cling to an original concept. |
| Bootstrapping | Launching a business with minimal expense and scant starting capital. The text suggests that even well-funded entrepreneurs can benefit from a bootstrapper’s mindset. |
| Burn Rate | The negative cash flow created during a startup’s launch phase; the rate at which the company is spending its capital. |
| Business Model | Dictates how the pieces of a business system will be configured together as a profitable whole, addressing what is offered, for whom, and why. |
| Candor | A personal attribute for bursting the “feel-good bubble,” involving the willingness to be truthful and unedited, especially when the truth is difficult to share. |
| Cognitive Biases | Mental and emotional filters that help people make sense of information but can also lead to errors in reasoning and perpetuate the Passion Trap. Examples include confirmation bias, anchoring, and overconfidence. |
| Confirmation Bias | The tendency to select and interpret available information in a way that confirms pre-existing hopes and beliefs. |
| Core Concept | The organizing logic and rough shape of the business a founder wants to create, forming one side of the “math story” coin. It includes the definition of success, strategy, and required capabilities. |
| Crowdsourcing | A practice that allows entrepreneurs to build and test sophisticated products at unprecedented speed and minimal cost by utilizing a large, distributed group of people. |
| Curiosity | A personal attribute for bursting the “feel-good bubble,” characterized by a ravenous appetite for new knowledge and a willingness to question what one is missing. |
| Earned Optimism | A valuable form of optimism that rests on clear, honest self-assessment and willful preparation, as opposed to uninformed hope. |
| Escalation of Commitment | Also known as the “sunk cost fallacy,” it is the tendency to continue or increase commitment to an endeavor based on prior investment of money, time, and energy. |
| Execution | The fourth domain in the four-quadrant framework for new venture success, focused on skillfully implementing the plan with agility, openness, and stamina. |
| Feel-Good Bubble | A state where a venture team’s perceptions and conversations are distorted by politeness or prejudgment, and where early biases harden into dogma, preventing the confrontation of reality. |
| Founder Readiness | The principle of bringing one’s absolute best to the entrepreneurial effort by understanding what one brings to the business and anticipating the business’s impact. It is considered the most fundamental driver of a startup’s early success or failure. |
| Humility | A personal attribute for bursting the “feel-good bubble,” defined as the opposite of hubris; accepting the reality of one’s blind spots and the fallibility of one’s judgment. |
| Icarus Qualities | Entrepreneurial characteristics (e.g., confidence, risk-taking) that are vital for startup flight but can become liabilities if taken to extremes, causing founders to “fly too close to the sun.” |
| Illusion of Control | A cognitive bias that causes business owners to overrate their abilities and skills in controlling future events and outcomes. |
| Inquiry | A conversational pattern where team members seek to understand another person’s opinion or gather information about a situation or issue. |
| Integrity of Communication | A principle that means embracing the raw reality of a venture, where anything is discussable, conversations include all relevant data, and new information is welcomed regardless of whether it is “good” or “bad.” |
| Iteration | A cycle of learning where an idea leads to action, which leads to a result that is evaluated to create a new and improved idea for the next cycle. Healthy iteration is key to startup agility. |
| Left-Hand Column | A learning exercise where one column documents what was said in a conversation, and the left-hand column documents the unshared thoughts and feelings, representing what was undiscussable. |
| Market Orientation | An approach that immunizes a startup against the Passion Trap by obsessively emphasizing the market, striving to know customers, and executing on market opportunities. |
| Math Story | The driving narrative of a business with numbers attached, defining the organizing logic, money-making formula, and path to breakeven and beyond. |
| Minimum Viable Product | The version of a new product that allows a startup team to learn as much as possible about the customer with the least amount of effort, designed to get early feedback and validate learning. |
| Overconfidence | A cognitive bias that leads founders to treat their assumptions as facts, see less uncertainty and risk than actually exists, and develop rose-colored plans. |
| Passion Trap | A self-reinforcing spiral of beliefs, choices, and actions where a founder’s intense emotional attachment to an idea leads to critical miscalculations and missteps. |
| Perch Management | A term used by J.C. Faulkner to describe focusing on what it takes to get to the “next perch” or logical step, from which a new vista opens up and another destination is chosen. It is an approach to managing in uncertainty. |
| Pro Forma | Latin for “according to form,” these are financial forecasts that lay out a startup’s expected economic path (e.g., profit and loss, cash flow) over a future period if all goes as planned. |
| R = M x V | A formula reflecting the fundamental truth of a startup’s profitability. R=Return, M=Profit Margin, and V=Velocity (the rate at which assets create revenue). |
| Reality Distortion Field | A term describing a leader’s charismatic rhetorical style, indomitable will, and eagerness to bend any fact to fit the purpose at hand, creating a psychological cocoon around the team. |
| Representativeness | Also known as the “belief in the law of small numbers,” it is the tendency to reach conclusions based on a small number of observations or a few pieces of data. |
| Runway | A metaphor for the period of time and amount of capital a startup has before it either achieves liftoff (profitability) or runs out of resources. |
| Scrutiny | A personal attribute for bursting the “feel-good bubble,” defined as the discipline to confront the most brutal facts of one’s current reality. |
| Staying Power | The ability of a venture and its founder to keep moving forward, treating time as a competitive advantage. It involves strategies at both the venture and founder level to strengthen and lengthen the startup runway. |
| Strategic Agility | The ability to spot and seize game-changing opportunities, which is crucial for fledgling ventures in new or emerging markets. |
| Sunk Cost Fallacy | See Escalation of Commitment. |
| Valley of Death | A term used by venture capitalists for the period after a founder has begun to spend capital but has yet to find a steady stream of revenues. |