Startup terms in plain English.

The builder pins the last of nine simple picture cards to a cork board as Play offers her another; behind them, two suits wrestle a gigantic book whose pages blow away.

Startup advice is full of short words like MVP, activation and churn. Each one counts something, and it helps you only once you know what.

Here are nine of them in plain words. Each comes with an example from one small product and the common mistake that makes its number mislead.

Five words for what you build and who uses it.

Eric Ries defines the first in "Minimum Viable Product: a guide" (2009). Activation and retention are steps on the path Dave McClure drew in "Startup Metrics for Pirates" (2007), from a first visit to paying, and conversion is the share of people who move from one step to the next. Every example follows one product: a tool that turns a job application into a summary a recruiter can send to her client.

MVP: Minimum viable product: the version of a new product that teaches you the most about customers for the least effort. Example: a page where a recruiter uploads one application and gets one summary back, and nothing more. Common mistake: building a smaller copy of the whole product. If it teaches you nothing about customers, it is not an MVP, however small it is.
Activation: The first time a new user gets what they came for; Dave McClure calls it a happy first visit. Example: a recruiter saves her first checked summary. Common mistake: stopping at the sign-up. A new account shows interest; a finished task shows the product worked.
Conversion: The share of people at one step who go on to the next. Example: of the recruiters who saved a summary in their first week, the share who started paying. Common mistake: quoting a conversion rate without its two steps. From a visit to a payment and from a trial to a payment are different numbers.
Retention: The share of a group that is still doing the task after a set time. Example: of the recruiters who signed up in one week, the share who still save summaries a month later. Common mistake: reading one number for all customers together. Loyal early customers can hide new ones who leave in their first weeks, so follow each sign-up week as its own group.
Churn: The share of paying customers who stop paying in a period. Example: the recruiters who cancelled this month, divided by the recruiters who were paying when it began. Common mistake: reading low churn in your first months as good news. Customers who joined recently, or paid for a year upfront, have not had a chance to leave yet.

A rate needs its group and its period.

Activation, conversion, retention and churn are all shares: a count divided by a group. Name the group and the period every time, or two numbers that look alike will not compare.

With a handful of customers, one person moves a rate a long way. An early rate is a reason to look closer, not a result.

Four words for the money.

David Skok's essay "Startup Killer: the Cost of Customer Acquisition" (2009) states the test these numbers serve: a business fails when winning a customer costs more than that customer brings in.

MRR: Monthly recurring revenue: what your subscribers pay you each month while their subscriptions run. Example: a recruiter on a yearly plan adds a twelfth of her payment to each month. Common mistake: adding one-off payments, or putting a whole yearly payment into the month it arrived.
CAC: Customer acquisition cost: what you spent on sales and marketing in a period, divided by the new customers it brought. Example: a month of ads and a stand at a recruiters' meetup, divided by the recruiters who started paying that month. Common mistake: counting only the ads. The people and tools that went into selling cost money too, and leaving them out makes customers look cheaper to win than they are.
LTV: Lifetime value: the gross profit one customer brings in for as long as they pay you. Example: what a recruiter pays each month, minus what serving her costs, for as many months as recruiters stay on average. Common mistake: using revenue instead of gross profit. A customer who pays a lot but costs nearly as much to serve is worth little.
Gross margin: The share of revenue left after the cost of delivering the product, such as model use, hosting and support. Example: take a recruiter's monthly payment, subtract her model use and her share of the hosting, and divide what is left by her payment. Common mistake: leaving out the costs that grow with every customer, such as AI model use, so the margin looks better than it is.

Ask what the number counts.

When someone uses one of these words, ask three things: what it counts, for which group and over which period. Copy or download this page to keep the definitions beside your own numbers.

Gross margin needs a number most new products do not have yet: what one customer costs you. The next lesson works it out.