The Devil’s Dictionary is a satirical dictionary written by the American journalist and author Ambrose Bierce. This humorous book was originally published in 1906 as The Cynic’s Word Book. One of my favorite writers, Jason Zweig of the Wall Street Journal, is the author of the newly published and wonderful book: The Devil’s Financial Dictionary.
What follows are a dozen terms used in the venture capital industry, defined in Devil’s Dictionary fashion.
- “Burn Rate” – the speed at which available cash is being consumed. Expenses such as inter-floor office slides, nerf guns, office space with water views, corporate retreats to other continents, dog chefs, and free Kind bars are sometimes put in a numerator of a fraction and expenses like salaries and electricity in the denominator, with the resulting number expressed as what is known as “an idiocy ratio.”
- “Chicken and egg problem” – describes a “which one came first?” problem, such as jump starting a multi-sided market. Explains why the first sale of fax machines was probably not just one machine. Which reminds me of a story: A chicken and an egg are lying in bed. The chicken is smoking a cigarette with a satisfied smile on its face and the egg is frowning and looking a bit pissed off. The egg mutters, to no-one in particular, “Well, I guess we answered THAT question!”
- “Dog and pony show”- a presentation that is long on showmanship and light on substance originally used in the United States in the late-19th and early-20th centuries to refer to small traveling circuses that toured through small towns and rural areas and startup pitches at Angel investor clubs composed of proctologists, dentists and beauticians.
- “Ducks are quacking, so feed them” – describes what some startups do when it is easy to raise cash (e.g., feed amateur Angel investors shares in return for cash). If a business does not hear ducks quacking and has no cash reserves raised during a period of time that was “quack rich,” the business may soon auger into the ground at high speed. Cash is financial Valium.
- “Exit strategy” – a plan to generate cash from the sale of a business or part of a business. The more a founder talks about his or her “exit strategy” the less attractive the investment. See also: Mercenary. Gary Larson has a Far Side cartoon strip in which one chicken is shown talking to another while they sitting on beach chairs holding umbrella drinks saying: “Man, they made me a free-range chicken and I never looked back.” A founder who is driven to be sitting in a beach chair holding an umbrella drink is not likely to be successful.
- “Growth hacking”- a glorified term for sales and marketing using analytics. Using the word “hacking” as part of the term makes a non-technical person sound more like an engineer who seems to have a cooler job since they use words like grok, DevOps and Rails.
- “Hockey stick”- what a line on a chart representing something like revenue growth looks like when that distribution is calculated as a goal seek in a spreadsheet (up and to the right, to infinity and beyond).
- “Pivot”- a new direction or path for the business if the original idea turns out to be crap. Scott Adams of Dilbert fame writes: “For example, a company starts out selling PEZ dispensers online and later pivots to become eBay. You didn’t hear about all of the companies that failed so the pivot stories probably sounded more prevalent than they were. It’s similar to how a story of one shark attack makes you think there’s a Great White under every surfboard. The human brain assumes that whatever it hears most frequently must be the best reflection of reality.”
- “Ramen profitable” – Just enough profit to afford to eat ramen with the “profits” of the business. Profit is unfortunately an opinion whereas absolute dollar free cash flow is a fact. While there may sometimes technically be “profit” based on someone’s definition/opinion there may not actually be cash to buy ramen. The instant noodles are usually purchased by the case or even a pallet from a “cash and carry” store or Costco.
- “Runway”- the number of months the available cash will last if the current burn rate continues. Not to be confused with “run away” which is what you should do when founders use words like “paradigm” or “e-business” in their pitch deck.
- “Telling someone their baby is ugly”- giving someone the news that their idea or creation is doomed to fail. Best done by someone else. See: delegate. As H.L. Menken once said: “When A annoys or injures B on the pretense of saving or improving X, A is a scoundrel.”
- “Zero-billion dollar market”- A small unattractive market for a venture capitalist, often fought over by a group of businesses that reminds you of several bald men fighting over a hair brush. H/T Eugene Kleiner.
Jason Zweig- The Devil’s Financial Dictionary. https://www.amazon.com/Devils-Financial-Dictionary-Jason-Zweig/dp/1610396995
Scott Adams: http://blog.dilbert.com/post/103051127931/the-pivot