One of the first decisions you’ll make when you start a business is what to call it. But how do you name a business effectively? Is a business name just a label, or does it actually impact your bottom line?
According to Company Name Fluency, Investor Recognition, and Firm Value in the Journal of Financial Economics (JFE), No. 109, 2013 by finance professors T. Clifton Green and Russell Jame, the answer is clear: your business name can significantly affect your company’s financial performance and valuation.
Key Points
- Fluent Names Boost Financial Performance: Short, easy-to-pronounce names attract more investors and customers, leading to better business performance.
- Keep It Short and Simple: Shorter business names are easier to process, improving recognition and are viewed more positively.
- Use Familiar Words: Business names derived from dictionary words are more memorable, easier to pronounce and contribute to better outcomes.
The Science Behind Business Naming
So now you’re wondering: how do I name a business in a way not only that attracts customers but also drives success?
“… companies with names that are easy to mentally process (i.e. fluent names) will experience higher levels of breadth of ownership, improved liquidity, and higher firm values.”
The research specifically studied companies traded publicly on the stock market, but in our experience, a fluent name can mean better business performance for companies large or small.
“the evidence supports the view that companies with fluent names more easily attract investors”
And from our insights, that also means customers.
Whether you’re running a small local business or building a larger enterprise, the fluency of your name matters. It can be more powerful for small businesses and startups but applies across companies of all sizes and industries. We believe that businesses with more fluent names attract more customers, generate greater word-of-mouth referrals, and ultimately achieve higher financial performance.
What Makes a Business Name “Fluent”?
When considering how to name a business effectively, it’s important to understand what makes a name “fluent”, or easy to process mentally:
- Length: Shorter business names are typically easier to process than longer names. Consider Sony vs. Massachusetts Mutual Life Insurance Company.
- Pronounceability: Names that are easy to pronounce perform better in the marketplace, like Microsoft vs. Wachovia.
- Familiarity: Business names containing dictionary words are more recognizable than made-up terms or uncommon proper nouns. Think about Apple or Alphabet vs. Accenture.
The Financial Impact of Your Business Name
Here’s where things get interesting for entrepreneurs trying to figure out, “How do I name a business for maximum financial benefit?”
According to the Green and Jame research:
“A 1-step increase in name fluency, such as reducing name length by 1 word, is associated with a 2.53% increase in market-to-book ratio, which would translate to $3.75 million in added market value for the median-size firm in the authors’ sample.”
A more fluent name creates familiarity and affinity with customers, leading to greater recognition and trust, which ultimately impacts your sales and bottom line performance. That’s not just branding theory – that’s real money!
Examples of Fluent vs. Non-Fluent Business Names
To illustrate the concept, consider these examples:
Fluent Names (Higher Financial Performance):
- Google (the dictionary spelling is googol)
- Intel
- Oracle
Less Fluent Names (Lower Financial Performance):
- PNC Financial Services Group
- Bristol Myers Squibb
- National Oilwell Varco (they have shortened it to NOV)
How Do I Name a Business Correctly? Practical Tips
Before you begin, check out our blogpost: How do I Choose a Great Name? We have lots of Do’s & Don’ts to help you and keep you out of trouble.
Based on the research findings, here are practical steps to follow when naming your business:
1. Keep it Short and Simple
The research showed that shorter company names are easier to process than longer names. Aim for one or two words, or two to three syllables when possible.
2. Ensure Easy Pronunciation
Ease of pronunciation has an impact on fluency and decision making. If people struggle to pronounce your business name, they may unconsciously view your company more negatively.
3. Use Familiar Words When Possible
Company names that contain dictionary words are on average easier to pronounce than proper nouns or coined expressions (like PharMerica or Genoptix). When possible, use recognizable words.
Caution here: in certain industries (e.g., cosmetics, clothing, beverages, food), many desirable words may already be taken. Avoid finalizing your name choice until your IP attorney has thoroughly vetted it for trademark availability. {link to trademark page}
4. Test Your Name Candidates
Before finalizing your business name, test it with your target audience. See how easily people can read, remember, and pronounce it. [link name testing page page]
5. Consider a Name Change if Necessary
If your current business name is underperforming, consider a rebrand. The research shows that corporate name changes increase fluency on average, and fluency-improving name changes are associated with increases in breadth of ownership, liquidity, and firm value.
The Bottom Line on Business Naming
When you ask “How do I name a business?”, remember that the answer has real financial implications. Choose a name that is:
- Short
- Easy to pronounce
- Made of familiar words
- Memorable
This approach isn’t just good branding – it’s good business. The research suggests that fluent names more easily attract investors and ultimately contribute to higher valuation. It also applies to helping to attract customers. Whether you’re naming a startup, planning a rebrand, or launching a new product line, apply these principles to create a name that works as hard as you do.
