Understanding Revenue Language: What Founders Really Mean
In the world of startups, discussions about revenue can often be misleading. Entrepreneurs frequently use industry jargon that may sound impressive at face value but often requires translation to understand the true implications. Below is a helpful guide to deciphering what founders really mean when they discuss their revenue in various contexts.
“We are aiming for a $1M ARR with 40% MoM growth”: This statement typically indicates that a company has recently progressed from $100 to $140 in Monthly Recurring Revenue (MRR). At this growth rate, it will take approximately 17 years to achieve the coveted $1 million Annual Recurring Revenue (ARR).
“We have reached a $1M run rate”: This commonly means that a single enterprise client has made an upfront payment of $83,000, after which they promptly canceled their subscription just five days later.
“Our GMV stands at $10M”: Many startups use Gross Merchandise Value (GMV) as a metric to attract attention. However, it’s essential to note that their actual take rate might be just 0.1%, making this figure less impressive than it seems.
“We have $300K in committed revenue”: Often, this is a polite way of stating that three prospective clients have expressed vague interest during a call, promising to confirm by saying, “Yeah for sure, send us the contract.”
“We’ve closed $500K in deals this quarter”: This phrase typically refers to the existence of $500,000 in non-binding Letters of Intent (LOIs), meaning that while some potential deals are in the works, no actual payment has been made.
“We are pre-revenue but have a strong pipeline”: In reality, this can translate to having a single potential customer—like a family member—expressing a willingness to buy.
“We see strong product-market fit signals”: Often based on anecdotal evidence, this phrase might mean that one individual reached out with an offer to assist with search engine optimization, rather than indicating robust market validation.
“We are profitable”: This statement may simply mean that the founders have not compensated themselves for the past 14 months, leading to a situation where their financial well-being depends largely on external perceptions.
Navigating the landscape of startup vocabulary can be challenging. For entrepreneurs looking to convey clearer, more accurate representations of their revenue figures, seeking resources—such as the guide provided by Y Combinator—can prove invaluable.
For more detailed insights and tips on how to articulate revenue effectively, refer to the Y Combinator guide linked below.
View the YC Guide on Revenue Language
One Comment
This post offers a sharp reminder of the importance of transparency and precision in startup financial communication. While entrepreneurs often use aspirational or stylized language to present their progress, stakeholders—investors, partners, and team members—benefit from a clearer understanding of what these metrics truly represent.
For example, “revenue” can be easily conflated with “run rate” or “deal pipeline,” which don’t necessarily translate into sustainable revenue streams. It’s crucial for founders to distinguish between commitments, intentions, and actual cash flow. Overpromising on metrics like GMV or pipeline size without context can mislead investors and obscure the company’s true growth trajectory.
From my perspective, establishing standardized, clear metrics early on helps maintain credibility and aligns expectations. Regularly updating stakeholders with specific data—like active paying customers, churn rates, or actual recurring revenue—rather than vague projections or aspirational figures, fosters trust. The YC guide seems like a valuable resource in this regard, emphasizing honest communication as a cornerstone of sustainable growth.
Ultimately, clear and truthful articulation of revenue not only facilitates better decision-making but also builds the integrity necessary for long-term success in the competitive startup ecosystem.