AI glossary for business owners
Plain-English definitions of the AI terms I use in my masterclass, my Friday builds and on this site. Hover any underlined term on the site to see its definition. By Luke Pauldine, founder of The Modern AI Company.
Last updated
Agentic AI
Agentic AI is AI that acts on a goal, planning steps, using tools and checking its own work, instead of giving one answer and waiting. It's the idea behind AI agents and AI employees.
Read the full definitionRelated:AI agentAI employeeChatbot
AI agent
An AI agent is AI that takes a task, works through the steps on its own and hands back finished work instead of a single reply. In a small business, an AI agent and an AI employee do the same job.
Read the full definitionRelated:AI employeeAgentic AIMain agent and sub-agentsChatbot
AI architect
An AI architect is the person on the team who spots work AI can take over, builds the AI employee for it and keeps training it. It's a skill anyone on the team can learn, no coding required.
AI assistant
AI assistant is another name people use for an AI tool that helps with tasks. Once it's trained on your business and doing real work, it's the same thing as an AI agent or an AI employee.
Related:AI agentAI employeeChatbot
AI employee
An AI employee is a system you build in Claude to handle one part of your business the way you would. You hire it, train it on your business, connect it to your tools and put it on a schedule, and you approve what matters.
Read the full definitionRelated:AI agentFour levels of an AI employeeClaude SkillsClaude Projects
AI hallucination
An AI hallucination is when AI states something false with total confidence, like a made-up number, source or fact. It happens most when AI is missing the information it needs and fills the gap.
Read the full definitionAI note taker
An AI note taker records and transcribes your meetings. Mine is Granola, and because Claude connects to it, my AI employees can pull a call transcript without me downloading anything.
AI org chart
An AI org chart shows every AI employee you've built, what each one does and when it runs. Once you have more than a handful on schedules, it's how you keep track of who does what.
Related:AI employeeScheduled tasks
AI slop
AI slop is generic, robotic content that sounds like it came from AI, with the same phrases, the same structure and nothing specific to you. It happens when AI has nothing about your business or your voice to work from.
Read the full definitionAI-committed founder
An AI-committed founder is an owner who trains the AI personally instead of handing it to an assistant. The business lives in the founder's head, so AI only learns it from them.
Related:AI-powered companyAI architect
AI-powered company
An AI-powered company is an everyday business, in any industry, that runs its repeatable work through AI employees. It rests on four pillars: an AI-committed founder, AI architects, AI employees and a business brain.
API key
An API key is a long code that lets one piece of software talk to another. Treat it like a password: keep it out of chats and store it where only the tool that needs it can read it.
Artifacts
Artifacts are pages, dashboards and small apps Claude builds that you can open, keep and share, like a live ad performance dashboard. They're the fifth level on top of the four levels of an AI employee.
Autonomous employee (level 4)
The autonomous employee is level 4: it runs on a schedule, like every weekday at 6 a.m., so the work happens while you're at dinner. You still approve what matters.
Related:Connected employee (level 3)Scheduled tasksClaude Cowork
Bottleneck
A bottleneck is the repetitive, time-consuming task that slows everything else down. Finding yours is the first step, because that's the first AI employee worth building.
Business brain
A business brain is the organized set of files Claude works from: what you do, who you sell to, your pricing, your processes and your past work. It usually lives in a Claude Project, one for the company and one per department.
Related:Claude ProjectsShared memory
Chatbot
A chatbot answers one message at a time and waits for the next. Using AI only as a chatbot is where most people start, and it's why the results feel generic.
Related:AI agentAI assistantAgentic AI
Claude
Claude is the AI made by Anthropic. It's the platform I build every AI employee on, using its Projects, Skills, connectors, scheduled tasks and artifacts.
Claude Code
Claude Code is Anthropic's coding tool. It builds and changes software, automations and integrations from plain-English instructions, and it's what I use for the more technical builds.
Claude Cowork
Claude Cowork is the part of the Claude desktop app that works through multi-step tasks for you, using the files and folders you give it access to. It's also where you set up scheduled tasks.
Read the full definitionRelated:Scheduled tasksAutonomous employee (level 4)Claude CodeConnectors
Claude Design
Claude Design is Anthropic's tool for making visual work with Claude, like ads, slides, mockups and prototypes. It can work from your logo, colors and brand rules so the output stays on brand.
Read the full definitionClaude Enterprise, BAA and HIPAA
If you work in healthcare or another heavily regulated field, use Claude's Enterprise plan. It's the plan that can be set up for HIPAA with a business associate agreement (BAA).
Related:Model training settingOAuth
Claude models: Opus, Sonnet and Haiku
Claude comes in model sizes. Haiku is the fastest for simple jobs, Sonnet handles everyday work and Opus is the most capable for heavy jobs, using more of your plan to do it.
Read the full definitionClaude Projects
A Claude Project is a workspace that holds your instructions, memory and files, so every chat inside it starts already knowing your business. Think of it as the onboarding binder you hand a new hire.
Read the full definitionRelated:Claude SkillsBusiness brainCustom instructionsMemory
Claude Skills
A Claude Skill is a saved set of written steps, rules and reference files that Claude loads when your request matches the job. It's an SOP Claude can follow every time.
Read the full definitionRelated:Claude ProjectsSKILL.mdSOP (standard operating procedure)Voice skill
Compacting
Compacting is when Claude shrinks a long conversation down to a summary of the parts it thinks matter, so the chat can keep going. Details you cared about can get dropped, which is why a handoff summary into a fresh chat often works better.
Related:Context windowTokens
Confidence rule
A confidence rule tells an AI employee when to act and when to ask. Mine says: if you're 90% sure or higher, do it, and if not, flag it for a person.
Connected employee (level 3)
The connected employee is level 3: it can reach your tools through connectors, like Gmail, your calendar or your CRM, and put its work where it needs to go.
Related:Trained employee (level 2)Autonomous employee (level 4)Connectors
Connectors
Connectors link Claude to the apps you already use, like Gmail, Google Drive, your calendar or your CRM, so it can read from them and put work back into them. You sign in through OAuth instead of sharing a password.
Related:MCP (Model Context Protocol)OAuthConnected employee (level 3)
Context window
The context window is how much of a conversation AI can hold in mind at once. When a chat gets long, older details fall out and the answers get foggy, so it's time to start fresh with a summary.
Read the full definitionContractor (level 1)
The contractor is level 1: a skill running in a plain chat. It knows how to do the job but nothing about you or your business, so it starts from scratch every time.
Related:Four levels of an AI employeeTrained employee (level 2)
Custom instructions
Custom instructions tell Claude how to operate every time: its role, your rules and how you like answers laid out. They sit at the account or project level, so you don't repeat them in every chat.
Feedback loop
A feedback loop is how an AI employee gets better. After a run, ask Claude what it learned during the chat, tell it what to keep and have it update the skill.
Related:Claude SkillsConfidence rule
Four levels of an AI employee
The four levels are how an AI employee grows: contractor, trained employee, connected employee and autonomous employee. Each level adds one thing, from knowing the job to running on a schedule.
Related:Contractor (level 1)Trained employee (level 2)Connected employee (level 3)Autonomous employee (level 4)
GEO (generative engine optimization)
GEO, or generative engine optimization, is getting your business recommended when people ask AI tools a question instead of searching Google. Each AI tool pulls from different sources, so ranking on Google doesn't necessarily carry over.
Related:SEO (search engine optimization)
Human in the loop
Human in the loop means a person reviews and approves AI's work before it counts, like reading an email draft before it's sent. It's how you get AI's speed without handing it your reputation.
Read the full definitionLarge language model (LLM)
A large language model, or LLM, is the AI underneath tools like Claude. It's trained on a huge amount of text and predicts the next words, which is how it writes, summarizes and reasons through a task.
Read the full definitionRelated:Claude models: Opus, Sonnet and HaikuTokensContext windowAI hallucination
Main agent and sub-agents
A main agent can split a big job across sub-agents that each handle a piece, then combine the results. Claude does this on its own when a task is large, like reading a stack of transcripts.
Related:AI agentAgentic AI
Markdown file
A markdown file (.md) is a plain text file with simple formatting, like # for headings. It's the easiest format for Claude to read and write, which is why skills and project files use it.
Related:SKILL.mdClaude Skills
MCP (Model Context Protocol)
MCP, short for Model Context Protocol, is an open standard that lets AI tools like Claude connect to other apps and data. It's the bridge between Claude and your CRM, email or files.
Read the full definitionMemory
Memory is what Claude keeps from past chats, like key facts about you and your work. In a Claude Project it's a summarized memory of the chats you've had there.
Model training setting
Claude's privacy settings let you choose whether your chats can be used to improve its models. Check the setting when you set up your account, and your chats stay private either way.
Related:Claude Enterprise, BAA and HIPAA
OAuth
OAuth is the sign-in method connectors use. You log in to the app itself and approve access, so Claude never sees your password. Never type a password or login into a chat.
Plugins
A plugin is a package that bundles several skills with connectors and commands, so you add a whole setup at once instead of one piece at a time.
Related:Claude SkillsConnectors
Prompt engineering
Prompt engineering is writing instructions that get AI to do exactly what you want. For a business owner it mostly comes down to explaining the task clearly, the way you would to a new hire.
Read the full definitionRelated:Claude SkillsCustom instructionsSOP (standard operating procedure)
Scheduled tasks
Scheduled tasks run a job for you at a set time, like every weekday at 6 a.m. or every Friday at 4. They're what turn a connected employee into an autonomous one.
SEO (search engine optimization)
SEO, or search engine optimization, is getting your website to show up in Google and Bing for the things your customers search for.
Shared memory
Shared memory is the information every AI employee in your business can read, like your company profile and brand rules, so each one starts from the same facts.
Related:Business brainMemory
SKILL.md
SKILL.md is the file inside every Claude Skill. It holds the skill's name, the description Claude reads to decide when to use it and the steps to follow.
Related:Claude SkillsMarkdown file
SOP (standard operating procedure)
An SOP is the written, step-by-step way a task gets done. Every AI employee starts as one, because AI can't follow a process that only lives in your head.
Related:Claude SkillsBottleneck
Tokens
Tokens are the small chunks of text AI reads and writes, roughly a short word or part of a word each. They're the gas mileage of AI: every message and reply uses some, and your plan gives you a certain amount.
Read the full definitionRelated:Context windowClaude models: Opus, Sonnet and HaikuCompacting
Trained employee (level 2)
The trained employee is level 2: the same skill running inside a Claude Project with your files, pricing and voice. It knows how to do the job your way.
Related:Contractor (level 1)Connected employee (level 3)Claude Projects
Voice skill
A voice skill teaches Claude how you talk: your phrases, the words you never use and how you structure things. Anything written in your name runs through it so it doesn't sound like AI slop.
Related:AI slopClaude Skills
Workflow automation
Workflow automation is having software run a repeatable process for you. With AI it can handle steps that need judgment, like reading an email and drafting the right reply. You need the workflow written down before you can automate it.
Related:SOP (standard operating procedure)Scheduled tasksAI employee