Being Fat Is Not Healthy

Ben Horowitz has a post called The Case For The Fat Startup on the All Things D blog. I don't agree with Ben's take on this issue but I have enormous respect for Ben and his partner Marc Andreessen. They have started and built multiple successful businesses and all I do is write checks. So take everything I have to say with that in mind.

I'd also like to say that my comments are only related to software-based businesses. I don't think it is applicable to greentech or biotech. Those sectors are much more capital intensive than software.

In short, since I started investing in the web in '93/'94, I have invested in about 100 software-based web companies. And the success rate of fat companies versus lean companies is stark. I have never, not once, been successful with an investment in a company that raised a boatload of money before it found traction and product market fit with its primary product.

Boatload is a subjective term. So is traction. So is product market fit. And so is successful. So let me try to define them in the way that I think about them. A boatload of cash is more than $20mm of invested capital. A boatload of cash is monthly burn rates of tens of millions of dollars. Traction and product market fit are customers or users buying or using your product in droves. It is the realization that you've found the sweet spot of the market you were going for. And successful is an investment that pays out multiples of the dollars we invested in it. Getting our money back is not successful in my book. Getting three times our money back is good. More than that is great.

Let me say it again. I have never been involved in a successful software-based web service that raised and spent boatloads of money before it found it's sweet spot. But it has happened. The Loudcloud story that Ben lived and tells in the All Things D post is proof that it can happen.

You can also win the lottery. The odds aren't great that you will. But millions of people play it every day. I don't.

The very best investments that I have been involved in established product market fit before raising a lot of money. That's how Geocities did it. That's how Twitter did it. That's how Zynga did it. That's how every single one of my top twenty web investments in my career did it.

Many of them also went on to raise and spend a boatload of money on the way to getting profitable. Not all of them needed to do that. But the thing that is true about every single one of the twenty most successful web software investments I've been involved in is that they had significant user or customer adoption before ramping up hiring and spend.

I think there are a number of reasons why that is true. Although Loudcloud was able to reinvent itself with hundreds of engineers on the payroll, I think it is very hard to be nimble and quick when you have hundreds (or even dozens) of engineers and other employees. It helps to be lean and agile when you are trying to fit your product to the market. It is also nearly impossible to pull off the kind of funding history that Loudcloud pulled off when you are not successful with your initial product. Ben explains that Loudcloud raised $350mm in four rounds of financing (including an IPO) in the first 15 months of its life. Marc Andreessen and Ben Horowitz can do that. Most of you can not.

All of this said, I think Ben does a service to point out that raising a lot of cash and making a large investment in the business is a big positive. But in my opinion you only want to do that once you are 100% sure and have ample evidence that your product has hit its stride, you've got yourself in the place you want to be in your market, and you can raise the capital without taking much dilution. If all of those boxes are checked yes, then go for it. But please spend it wisely.

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Comments (Archived):

  1. Satish Mummareddy

    I just read Ben’s post. I don’t think a first time entrepreneur can do what they did with loud cloud. πŸ™‚ But i think this is the one point to take from Ben’s article:””Two priorities for a start-up:Winning the market and not running out of cash. Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making β€œrunning lean” an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.””So raise as much money is necessary for the market you are going after. The key take away irrespective of the rest of the article is that “Running Lean is not the end goal nor is running fat” “Do what ever is right to win in your market” :)PS: Been a proud member of avc community for 2 years while living in DC. Found out that my wife matched for her residency ay UCSF yesterday. I’m off to the SFO but you all won’t notice the difference. I’ll hide in the background and comment rarely as usual. πŸ˜›

    1. fredwilson

      i’ve seen companies with little cash or even no cash win the marketcash on hand does not correlate well to winning the market in my mindgreat product and engineering execution does2010/3/19 Disqus <>

      1. Satish Mummareddy

        I completely agree with you that cash in hand does not correlate well to winning the market. I firmly believe that great product and engineering gets you early wins and traction. I remember that in 2005 we would go to trade shows and do live demos of our technology and researchers from IBM would come to our booth and ask us how we were solving some of the problems that they weren’t. πŸ™‚ The marketing guys in IBM’s booth were checking out our demo and sending their researchers over to our booth. :)The point that I was making was, once you have found product market fit, then don’t screw it up by not raising enough capital to be the winner in the market.When I was 22 I would have thought about raising as little as possible to not give up too much equity and be this cool story about how we built a company organically. :)Now I believe that if you have found product market fit and are getting customer traction, do whatever you can to create distance between you competition and your company. And that might mean different things in different markets: R&D in some(for example paypal survived because they figured out how to deal with fraud while their competitors were dropping like flies), figuring out the scaling issues in others, partnerships in others or a combination of priorities. Make sure that you have the capital to invest in the key priorities for the company.In some sense “let the company strategy drive the money you need” rather than “let the money you have drive your company strategy”

        1. Satish Mummareddy

          I can make up hypothetical situations but maybe let me pose the question to you. In your experience have you come across a company that had a great product and had nice early traction but got outrun because they didnt raise enough money. Or when something like that happens does it have less to do with money and more to do with some other strategic mistake in the direction that they took or were slow to react to an adjacent product that made them obsolete?

          1. fredwilson

            I can’t think of something that fits that description. I am sure there is an example but I can’t come up with one right now

        2. fredwilson

          Great commment. Its basically a blog post

        3. sigmaalgebra

          I’m not sure you are really talking about IBM Research here: I was at IBM Research as a researcher at Yorktown Heights. Contact with products, the product divisions, marketing, or customers was severely throttled.Our little group of three researchers shipped two IBM Program Products (then IBM’s highest quality software product category) and did have some customer contact — MET LIFE, GM, CIGNA, DuPont, Nomura Securities, and a few others, but that level of contact was very rare, obtained by unusual means, and not liked in the Research Division and more contact was severely throttled.If you had contact at a trade show with IBM technical people, then they were more likely from development and not Research.

          1. Satish Mummareddy

            I knew the guys from Watson that were at the trade show. πŸ™‚ I had met them a few years in a row and they know me well too- not going to name any names as i wish i had not mentioned IBM by name in my earlier comment. At the NRF Big Show in New York, IBM has a big booth and participates in the store of the future. They put forward a bunch of technologies that are 2/3/4 years out from product stage. We just happened to be the upstart small scrappy team that was already selling a product while IBM was using the vision of the technology to sell hardware solutions. πŸ™‚ I meant no offense to the guys at IBM research. Was just nostalgic about those days as a small young team we did something cool that the researchers at IBM respected. πŸ™‚

      2. AndreaF

        I agree with you but sometimes it’s unnecessarely bloody hard and takes way longer that it needs to run without cash. I am running my startup with no money and frankly I’d be much further if I had some.If you have something extremely innovative you can probably get some traction with no cash at all, but if you have a (only) good idea and a strong team, cash would help a lot.So, in general, it’s a lot about how you spend the cash you have rather how much you have.

      3. Ben Horowitz

        First, thank you for adding to the fun. I will post a full response shortly, but I think this comment exemplifies the fact that we are talking past each other :-). From the Venture Capital perspective, saying that cash doesn’t correlate with winning the market almost sounds correct. From the entrepreneur’s perspective, if you can’t build competitive advantage with money, then you need to quit. I’d like to hear from the entrepreneur who felt that the last 2 engineers that she hired didn’t have an impact on their competitive position. Imagine that it’s 2001 and you have 2 engineers and you are building VMWare. Are you not disadvantaged vs. Hyper-V even if you have “great product and engineering execution.” Child please.

        1. fredwilson

          wow. thanks so much for stopping by and commenting Ben.we are almost certainly talking past each other, but we are also talking to thousands of entrepreneurs so this discussion is would be fun and possibly helpful to talk this over live in front of an audience of entrepreneurs who can ask questions

          1. Ben Horowitz

            Sign me up! I also posted a more lengthy reply here that highlights where we agree.

          2. rafer

            I’d like to hear Fred’s take, but I really don’t think you addressed the fundraising side at all. Albert’s Sui Generis post still stands.

  2. Kevin

    Do you think the reason is psychological? Are people simply more driven when they have little or no funding and more creative and aggressive? Or is the issue more that over-funded teams without traction spend too much on the wrong things … in part because they can? Or something else?

    1. kidmercury

      IMHO psychology is a huge part of the issue. i think people do their best when they have their backs up against the wall and have nothing to lose.

      1. fredwilson

        And everything to gain. Ownership matters

        1. Elie Seidman

          I did the best work of my career – by far – in the fall of 2002 when I had 7 or so employees and basically 50K of cash in the bank. At one point I wrote another 50K check (I was the poorest guy in the room) just to make payroll. Somehow, the stress of “must do it now or die” brings out something powerful that is very hard to replicate when there is a cushion of cash creating “downside protection”.

          1. Mark Essel

            I think that’s a well we can’t keep on tapping. There’s gotta be some downside or health risks to living constantly in that fight or flight desperate state.

          2. Elie Seidman

            very much agreed. Startup life is not good for your health.

          3. johnmccarthy

            Agreed. When I first read the headline I thought Fred was exhorting all of us in startups to make sure we got to the gym every day. Which is good advice. I also thought he was channeling Dean Wormer “Fat, drunk and stupid is no way to go through life, son.” Also good advice.

        2. ShanaC

          So it is about creating ownership, but that may or may not be because of what is in the bank. Those are two very different issues.

      2. andyswan

        Burn the ships!

      3. Aviah Laor

        MBS? (management by stress)

        1. kidmercury

          lol i think so — worked wonders for me! although not so much for my formerly-black-but-turning-gray hair! πŸ™

      4. Jamie Hutson

        As Sun Tzu would say: “On Death Ground” Its amazing what you can accomplish when you have nowhere else to go.

    2. fredwilson

      I think its the latter and the residual effects of having done that

  3. johndodds

    The cash that matters is that which is in your prospective customers’ pockets.

  4. chipcorrera

    I agree with proving the business before adding fuel, but I also think much of it depends on market timing especially with emerging technology.

  5. Jim Rogers

    You might be interested in a research piece that was done using our client database. The authors found that undercapitalization was not necessarily a determining factor in the failure of tech-based start-up. Initial indications point more strongly to management tactics as success factors. You can read the abstract of the piece at…. Food for thought.

    1. fredwilson


    2. ShanaC

      Quick question then, if it is about management, then it should be neutral to how much money poured in or not?

      1. Jim Rogers

        I initially might have thought that, but the data indicated that there was actually a statistically significant decrease in success (as defined in the study) for companies that raised larger amounts of capital. The professors felt this was an indication of a relaxing of managerial discipline, or evidence of a tendency to throw money at a problem rather than solving it in a capital efficient manner. That point was actually given to us in a private presentation, so it may not have been evident in the abstract. My apologies if it wasn’t clear.

        1. ShanaC

          It is fine. Thank you for the clarification.

  6. awaldstein

    Being lean in companies that are defining new behaviors like the ones you mention (Zynga. Geocities. Twitter.) mandates innovation and focuses on adoption. These folks created new behavior defined by the customers themselves.My bet is that with more dollars they would have focused on big back ends for services that weren’t defined yet.So yes…for these types of businesses, being hungry, but not starving is a healthy state.

    1. Aviah Laor

      exactly. It’s not all psychology, but also the ratio of employees who have daily touch points with customers and marketing vs all employees. In a small group, this ratio is 100%. Once people are detached from the front lines, they start optimize for their job – the back office, which is needed much later.

      1. awaldstein


  7. paramendra

    Thanks for sharing. A great read. Posts like this one from someone like you demystify the process for people like me to some extent. That is helpful.

  8. Alan Warms

    I agree completely Fred. And the other point here is often if you’re early stage the market is nowhere near defined yet – so you’re raising boatloads of money to go after …what? As opposed to figuring it out, establishing a trajectory, and then going large *if* need be.

  9. Murat Aktihanoglu

    I think Ben’s post really is about the what the real goal for the startup should be: winning the market, not being lean or surviving. Do whatever it takes to win the market, even if it means not being lean.

    1. fredwilson

      But what if winning the market and being lean are highly correlated?

      1. sigmaalgebra

        Thinking about ‘correlation’ is not a very good idea here; it’s seriously misleading.If all there is is ‘statistical’ correlation, say, from observed funding history, then this number ignores way too much to be meaningful for making decisions in particular cases. It’s like the efficient market hypothesis meets a guy on a motorcycle who asks a worker on the ramp at an airport where the plane is going, hears a city in PA, guesses that a certain steel company is about to get a tender offer, goes long in the stock, and cleans up big time (before he gets locked up!).That is, in particular cases have MUCH more information. To be more correct, what would be more important would he the ‘conditional’ correlation conditioned on the special data available in a particular situation. Still better, actually in an important sense the best possible, would be the conditional expectation conditioned on what is known; the common cross tabulation is a useful approximation here.In practical terms, the real issue in the particular case is what decisions are actually taken day by day. Then the correlation, or anything else, averaging over all of entrepreneurship is essentially irrelevant.If the correlation were really causality, then that could be different, but claims of causality here are far fetched.The particular case has so much extra data available that the average case, that is, taking the expectation, of a correlation is next to irrelevant.The LPs that use the CAPM make this same mistake. E.g., the guy on the motorcycle totally blew the doors off the CAPM. VCs and their entrepreneurs can do the same, one good case at a time. What matters are the particular VCs and their entrepreneurs and what they do, e.g., what ‘secret sauce’ they already know they have that the CAPM and the EMH don’t consider. Or, W. Sharpe was correct IF the only data one had was a big table of expected return and variance of return. That a VC and an entrepreneur have only that data is laughable, and with the extra data they do have the big table is next to irrelevant. Sorry, LPs: Your MBA prof likely didn’t understand this either.

  10. paramendra

    In Twitter’s case I disagree. (And I know you disagree with me, and I respect that, but I wanted to bring this up again with the wider audience here). And I am not arguing for fat here, just a different kind of fat.2009 was Twitter’s year, and Twitter missed the boat. 2010 is not looking like Twitter’s year. The buzz has shifted.…Twitter needed to go for a Netscape-like IPO and ride the Wave to eat into its ecosystem to integrate the fanciest parts of the ecosystem into Twitter itself. It needed to raise money to be able to buy companies.I feel like a mistake has been made.

  11. andyswan

    In business….no matter how fat you get, stay hungry.

    1. Mark Essel

      I’m living proof of that dream

      1. Dave Pinsen

        +1 on being fat and still being hungry. That’s what I get for having sushi for lunch. Too many carbs. πŸ˜‰

        1. Mark Essel

          Perhaps you should have had this for lunch?

          1. Dave Pinsen

            Ha!, the Viking funeral boat for a cat. We actually went to Minado today (there’s one on Long Island too — I don’t know how far Glen Cove is from you). Got a bone in a piece of tuna though, which is the first time that’s ever happened to me while eating sushi. Showed it to the staff. Hopefully that’s the last time too.

          2. Mark Essel

            I’ve been to the Glen cove Minado. Excellent all you can eat sushi.At a place by me, Ichican Chinese/japanese crossover I once got bad salmon. Syrup of Ipicap to get it out, and 6months sushi break.Sorry about the boneMy soapboxHttp://

    2. Matt A. Myers

      Stay hungry to me means always have expansion ideas and niche markets you want fill up (as long as it holds true to core values and goals).Does it mean anything different to anyone else? πŸ™‚

  12. William Mougayar

    I agree that pouring good money after bad idea/execution/products rarely does the trick. Too much money upfront when the company still hasn’t found its true north makes you spend it unwisely, and you run the risk of continuing to deviate from lifting off. High burn rates before real traction or predictable cash flow is like a ticking bomb. I would be curious to extract lessons from the several examples we already know about, where too much money contributed to the downfall or failures, e.g. Twine ($24 million). I can’t think of others now, but am sure there are recent ones. Unfortunately, often these failures get disguised or go silent.

    1. honam

      Joost is a recent example of a “fat start-up” that failed. Great team (successful founders & well known CEO), great investors (led by Sequoia), $45mm Series A funding at a very high price. Out of business in about 2 years.…There are plenty of explanations, blame and sometimes lawsuits to go around when a start-up fails. No-one argues over lean or fat during such times. But at the end of the day, 100% of companies go out of business for one reason. They run out of cash. You can get cash by generating profits or by raising money from investors. Smart entrepreneurs choose the former over the latter. Some entrepreneurs are great at raising money. It will only get you so far.Great companies produce so much cash, even as their businesses are growing by leaps and bounds, that they eventually have to consider stock buybacks, dividends or acquisitions (using cash, not stock).

  13. Nat Kannan

    Fred, excellent post. Good to see some empirical validation of your view, which most entrepreneurs will agree as right on the mark. In my experience while serving on a board of a promising startup, I watched in horror the imposed fattening of the nimble firm by VCs who agreed to invest if the entrepreneur brought in experienced managers to the team. These managers, in turn, did not want to join the firm without a two year runway of cash to support the team. The entrepreneur agreed to take a lot more money than his own plan called for and the vicious cycle derailed the firm when it ran out of cash.VC’s can help keep a company lean and nimble until it has rock solid traction in the market by not forcing highly compensated F-500 level executive team on start-ups. It is much less expensive to teach the entrepreneur good management skills by having a board member serve as a personal mentor.Nat Kannan

    1. fredwilson

      overfund the business and bring in a “world class management team”excuse me i have to go puke

  14. bijan

    great post & perspective.

  15. RichardF

    How about the neither fat nor lean model.The problem of not raising enough capital is that your exec team then waste too much time going out to raise more. It’s a real distraction to execution.The point of raising capital is to take you beyond the bootstrapping phase where everything is a struggle. Everyone is talking about the lean start up – I think that’s more to the vc’s advantage, in the current climate. Smaller losses if an investment goes down and more money to put into something elseOff topic Writing in Disqus on an iPhone is a crap experience. Won’t be doing that too often. They need an app.

    1. Mark Essel

      I’ve had major problems getting disqus to load on my mobile.

      1. RichardF

        it loads ok to read comments for me but for writing it was abysmal – to the point that really it interfered with my thought process! (well that’s my excuse anyway)

    2. ShanaC

      They’re scaling first.

      1. RichardF

        Maybe they are a little too lean and need some more capital from Fred! ;)Seriously though mobile web browsing is an ever increasingly important channel and for a site like Fred’s to have a comment feature that degrades to such a poor experience on mobile is not so good imo

        1. ShanaC

          while we are not here to discuss disqus (hehehe) they are actually a great example of what is going on. How much money should they have and when and what should they do with it (note, I am not going to infringe on what they do…)We see we have a product issue- would it be better for disqus to have a lot of money to fix the product and do all the work necessary quickly- (run fat) or to go through these errors and mistakes because they don’t have the cash and have to use some of their own?I’m in favor of a mixed approach. They need to be healthy. Run too lean, you’ll faint, run too fat, you’ll never gain ownership of the product as the market sees it.Clearly there is this mobile issue- they could do a ton of stuff to fix it. Having some money in the bank means they can afford to wait and ride out and test tons of interaction and technical issues (since I am guessing this involves the backend and its cranks and wheels) However, it also means you will most likely wait longer, and may not get exactly what you want.You could also throw together your app, and that may also not work, and be a short term development because of the run lean.hence the mixed approach. Run strong so you have enough time to iterate and design in house, under a little bit of pressure, but not so much that you don’t have flexibility to move.

        2. fredwilson

          agreed on the mobile experience. and as for more capital from investors, well let’s just say you are a mindreader

          1. RichardF


    3. fredwilson

      agreed that disqus commenting on iphone and android is not good. the question is should they try to fix it or come up with another model for mobile engagement?

      1. Tereza

        If I had to choose I’d say another model, that’s app-ish.But a migration plan with a near-term incremental improvement would be good. Maybe automatic enrollment in the email comments, plus ability to access context (but not full upload) through the link in the comments. Or maybe a button to request a text email simply listing all the comments — ‘read-only’. Not fabulous, just temporary.It’s such a bummer when you get fired up about a topic but then what you took so long to formulate suddenly disappears, before you sent it. Then you realize you spent way too much time on Disqus VC Blog Porn today anyway, so you just let it drop and get on with your business. But you’re still left there, uhh, unfulfilled.If it’s afternoon, i’m starting to skip AVC on mobile, anticipating there are so many comments by then it’ll never load. Fred they’re both cursed and blessed to have you pushing the bounds of the system.But I was particularly surprised when an email reply of mine didn’t post correctly yesterday. That was a first for me.

        1. RichardF

          mirrored my feelings exactly yesterday Tereza.

      2. RichardF

        maybe both! They need a short term fix for sure imo. Even if it’s just a link with “comment by email” that cranks up the email programme so anyone with a Disqus registered email address can send a comment in (same as the reply by email functionality that exists at the moment )Unless they have a real game changer in mind for mobile engagement I think they probably require a leaner (excuse the pun) version of Disqus for mobile, that loads on detection of a mobile browser. I was being sarcastic when I said they need an app for that.The mobile web experience imo should generally mirror the full on line experience unless you can make it better than that with an app (which some of the best apps actually do) and features degrade gracefully if bandwidth is the issue (that’s a problem that’s not going away in a hurry) or it’s browser incompatibility. If in practice that’s too hard to do quickly then get the lite, text based version out that either loads on browser detection or a button giving me the option to switch to the lite version. Get that part done asap and work on the fancy stuff later.At the moment I’d settle for being able to see who had commented I don’t even need the avatar, just the name) on the blog, their replies and be able to make a comment or reply to someone myself.

  16. Gustaf Rosell

    One of your absolute best posts. I agree almost entirely, and have as a serial entrepreneur (and a few times on the VC side) succeeded gloriously and OK with the lean model, and failed once, dramatically and in high style, with a boatload of cash.The exceptions are in certain capital or very research intense areas like optical networking, obviously drugs and some areas of green tech. Most of green tech is really just old industrial stuff with a new label anyhow.Personally I am stil struggling with how to find the right feeding mechanism for lean startups, respecting the interests of both the investors and the entrepreneurs, both when it comes to valuations/shareholding and the need to have some peace in the race for the next round. Maybe in your next post?

    1. fredwilson

      we are experimenting with a model in which we back an entrepreneur and provide multiple rounds of financing ourselves as the business develops. no commitments on either side. but an expectation on both sides. it has worked well so far, but it requires a fair bit of trust between the VC and the entrepreneur and that is in short supply for good reason.

  17. enrolled agent study guide

    I totally agree with andyswan. Most reasons for getting into business is for profit. Most never stop growing and setting new goals for their businesses simply because they would lose momentum and ultimately defeat their main purpose of setting up the business.

  18. Morgan Warstler

    “Marc Andreessen and Ben Horowitz can do that. Most of you can not.” No truer words.

    1. ginsu

      Reading the comments, it strikes me that people are saying that it’s not just that Marc and Ben can raise money that most people can’t, but also – possibly even rarer – that they can make good decisions while swimming in cash.As Ben says above, *if* you can spend money wisely, of course it’s a competitive advantage – apparently that’s a pretty big “if.”Ironically, most people advocating less capital are essentially saying that money makes entrepreneurs lose focus and discipline. But shouldn’t the best entrepreneurs remain focused and disciplined regardless of their cash position? Is it possible that Ben is saying that he doesn’t wish to invest in entrepreneurs who have focus and discipline only when they have no money?

  19. AlanPearlstein

    Excellent post Fred and I couldn’t agree more. It’s easy to see how the entreprenuers can get caught up in their idea and push for tons of cash based on blind faith. It’s less easy to understand how the money side gets caught up in it.

    1. fredwilson

      i have gotten caught up in it. it has ended badly for me. not going to do that again.

  20. Spencer W

    I thought loudcloud was a very very very looooooong play. Like 8 or 10 years of pushing the rock, virtually under the radar with little or no visible ‘media’ recognition beyond the announcement when they launched. Not that I am countering your point, I think with the cost of ‘infrastructure’ virtually at zero for dev/launch (compared to 5yrs ago) have changed the game in favor of the low burn, quick traction, low BEP concepts/apps/co’s.For an investor to bone up 10mm today, in front of a clear market signal, could only occur in a concept which could a perceived ‘game changer’ application. Like? I don’t know. Some applet that raised the efficiency of solar collectors by 1 or 2 orders of magnitude (30% eff??)??My point is that there are places where one could invest a ton of cash, but the market place for that is limited to some really really “big thinkers” (do not confuse these guys with the ones investing the money…more later).For the rest of us, getting code up, users using, cash in bound and determining the marketing strategy to cost effectively create adoption and having some rough plan to service and scale it is the New play, the ‘2010’ play. Not sure that fits in the portfolio plan of about 99% of the ‘really smart guys’ (aka: partners in big vc funds) so the opportunity is clearly IN FAVOR of making lots of low cost bets in the market.In fact, if you look at the underlying change here, the investment game has done a 180 shift change from 1994 such that the large VC funds are only able to play in proven market concepts OR in new markets which necessitate high risk, large lump sum investments (10mmPlus) in fixed or cap intensive assets based plays.This is not venture capital by the way. This is M&A investing. M&A IS the holy grail for the “really smart” guys; aka: VC’s as it more closely fits their B-School pedigree’s and rote learned skill sets in financial model, deal making and self generated mindsets of invincibility (aka: grand canyon egos).What ‘zero cost’ infrastructure has done is changed the world of investors and company creators seriously in favor of the latter. The “really smart” guys today are going to figure out how to play with 100 guys who do not need them to succeed and who cannot succeed (big) without them.That’ll be all about relationships…not egos and money.[insert end of rant icon here]

    1. Mark Essel

      Interesting way to see momentum shifting to smaller organizations tackling focused problems. They don’t need or want big investments. That makes an army of lean and mean startups that don’t grow the same way as traditional corporations. One thing you didn’t mention Spencer is the shrinking of the requirement for co-location to form a business about web technologies. I think Automattic (and several other companies) are proving that big and co-located isn’t necessary to grab a lion’s share of a market.

    2. fredwilson

      a damn good rant. you know what yo are talking about

  21. Harry DeMott

    While Ben and Marc are in the VC business – they are probably first and foremost entrepreneurs. And while you are quite entrepreneurial, you are first and foremost an investor. And I believe, therein lies the different points of view. It was the blubber that allowed Loudcloud to survive the winter and reinvent itself as a leaner and more potentially relevant start up – and I think what Ben is saying is that as a founder, you should go hard after your market with every advantage you have (and cash is clearly an advantage in terms of attracting and retaining talent, signaling to partners and investors that you are worthy of business etc….) and if you flame out – you have the opportunity to give it another shot without starting over again with a new set of investors – or wiping out the investment and starting all over again in a new corporate form. As an investor, you view this as an anathema. An investor in a fat company has little control over the investment, and the managers there always know that they have more than one shot – their backs are not to the wall – and so the VC’s interests are not necessarily aligned. So between the two posts there is probably a pretty good dynamic tension which forms the ultimate market for capital.

    1. fredwilson


    2. nabeel

      That was one hell of an accurate response.

  22. Emily Hickey

    Hi Fred! It’s Emily Hickey from Tracked – this is such an awesome post, thanks! This def resonates with my experiences re: bootstrapped successes vs. well-funded disappointments, I think in part bc of the following causes: – When you have money and what seems like a long *time*, you work from your imagination vs. reality. You think of how cool something will be at scale and not whether or not people will start using it at your first, second, third releases. Envisioning at-scale product value might be a rational approach in your head but it’s a different and easier exercise than thinking about ‘why would someone use this now’ – and also ‘how are we going to make them aware of it.’ This latter thinking is aka the ‘minimum viable product’ concept.- You see a lot of new launches where the product beta is totally overbuilt and I find those intimidating and off-putting as a user. From a product team standpoint, that team probably waited way too long to release and invested too much in that launch product – leaving probably too little time to test and refine. Time on the clock is so critical..- Lots of money in general means you don’t test on a small scale before you invest in a product direction – And then as the product doesn’t go anywhere, you can continue to try to solve problems with new features, more dev work, redesigns etc. You can avoid actually trying to market the thing for a pretty long time.So if i had to sum up the issues w being too fat: you work from imagination vs. reality, you don’t test, and you avoid figuring out your marketing plan. Of course lots of under-funded start-ups do this too, you just don’t ever hear about them!

    1. fredwilson

      nice avatar emily. who is that little person?

      1. Emily Hickey

        Ha thanks Fred! That’s Tee, he’s now ~ 11 months old πŸ˜‰

  23. sweller

    Fred, I agree with you on this one.I suspect that creating speed and scale with hundreds of employees costs a lot more than speed for a small group of agile engineers. There’s a reason why the Navy created the Seals. I am a big believer that small group of focused, talented people can create and achieve really impactful results.In general, tho, Ben’s article was really useful to me. It really got me thinking about how start-ups in different industries and markets require far more up-front investment to gain speed and compete than in other markets. Greenfield opportunities are few and far between, so creating momentum in some fields requires far deeper pockets. You might not even realize that until you are knee deep in it. Even from my own experiences, you (and your investors) need to be really honest to yourself about the amount of capital you need in order to go up against those in your market. It’s not always easy, but if you pick investors that have attacked that market in the past, you’re much better aligned.I’m always very impressed with the investments you choose — you have an obvious talent for identifying the next greenfield opportunity.

  24. David Semeria

    What if you need more than seed money merely to *launch* the service?

    1. Aviah Laor

      agreed, but that just another class of “lean”. I searched wikipedia for Fedex: they started with 25 cities. It can’t be done with a tiny seed round, but still 25 cities is “lean” in terms of Global shipping company.Still, maybe the tendency to start very small blurs such opportunities.

      1. sigmaalgebra

        FedEx remains one of the most successful (partly!) venture funded startups. One key to their success, with their small start, and I remember 15 cities instead of 25, was that the CAB was still in business. So, FedEx was both flying planes AND driving trucks, and that was CAB-illegal unless were an ‘unscheduled air taxi’ service which meant could only fly planes with max total takeoff weight of less than 25,000 pounds. Fred Smith used the Dassault FanJet Falcon DA-20 with max weight 28,660 or so and got an exemption. So, his competition was just the scheduled commercial airlines, who could not drive trucks, air freight forwarders, who drove trucks but didn’t fly planes, and air freight which only took really big loads. So, he was able to get started.FedEx initially planned to serve just 90 US cities (I wrote the software for the fleet scheduling). By the time the DA-20 and its 28,660 was hurting the business, President Carter appointed Alfred Kahn who abolished the CAB and, thus, let FedEx fly whatever they wanted, and they have been tough to stop since.So, part of the FedEx success was they got in early where the CAB kept out the big boys, grew up, and then saw the CAB abolished. So, there was a time window.Still, the early days of FedEx generated some good business war stories from some of the struggles.

        1. Aviah Laor

          amazing. What did you write the software with?

          1. GraemeHein

            Stone tablets and a chisel…

          2. Aviah Laor


          3. sigmaalgebra

            When I joined FedEx, at Georgetown U. I was the systems programmer in the academic data center, supervising user support, and teaching computer science courses. Yes, this was before my Ph.D. So, my wife and I were living in MD, half way to Bal’mer since she was getting her Ph.D. at Hopkins Homewood.So, I resigned the system programmer position but got appointed a Lecturer to finish teaching the courses and, then, wrote the software from my living room.At the time, about the best way to write software was to get a time-sharing account on CP67/CMS (later VM/CMS) at NCSS from Stamford, CT, and I did. There I used my favorite programming language, PL/I I had learned working on passive sonar at the JHU/APL. There is a LOT that’s nice in PL/I.So, the scheduling software took me the last 6 weeks of the course time plus two more weeks in Memphis and was 6000 lines, including blank lines and comments.The Board was VERY concerned: The fear was that the scheduling could not be done. The company was at risk. So one evening Roger Frock and I used my software to schedule all planned 33 planes to serve all planned 90 cities and printed out the schedule. At the next senior staff meeting, Fred’s remark was, “Amazing document. Solves the most important problem facing the start of Federal Express”. Two representatives, one an aeronautical engineer and the other a finance guy, of our Board Member General Dynamics went over the schedule and reported, “It’s a little tight in a few places, but it’s flyable”. The Board was pleased and satisfied, and $55 million in funding was enabled.For more, could have set the problem up as 0-1 integer linear programming set covering, with one column for each airplane and one row for each city, used Gilmore-Gomory column generation and branch and bound, and gotten schedules that could have saved FedEx millions a year in operating cost. I’d hired George Nemhauser, then at Cornell, to help me with that.But my wife was still at Hopkins, and the stock I had been promised in “two weeks” was then 18 months late. I was riding jump seat back to MD occassionally to see my wife again. The company was close to folding, which I expected and didn’t mind, but it wasn’t in even a tiny fraction my company; I owned none of it. My office was next to Fred’s. I was the first Director of Operations Research. I had saved the company twice and was working with Nemhauser and some others on saving the company millions a year in operating costs, but I had no stock. So, I went for a Ph.D. I was too literal, occupational hazard of math and computer people! My last day Fred’s promise was that I was in line for $500,000 in stock; if so I would be worth maybe 1000 times that now; eventually FedEx DID pass out some stock. I got the world’s most expensive Ph.D.! But, the best of the Ph.D. work was terrific stuff! I may yet beat Fred (Smith)!

    2. fredwilson

      come up with another idea unless you have a track record that people will blindly back.

  25. pepe

    It takes smart people less money to succeed.

  26. marklanday

    Fred, nice post. I see a lot of start ups be penny wise and pound foolish. “It takes money to make money”.For example, start ups would be wise to retain a search firm in executive recruitment. This allows them to hire top talent, not just talent following someone on twitter or looking for a job, but the best. The $75k or so search fee more than pays for itself by hiring the best, particularly early on with a start up. A measurable example would be, the difference the top sales person and the bottom sales person. Spending money on recruitment services helps a start up achieve success.

    1. AndreaF

      If you think that paying $75k to a recruiter to help you hire some key staff is fine you clearly have never worked in a real startup. I can run the entire business for 4-6 months for that amount. And if you had had some professional working experience you should have plenty of talents who whould come on board with you without the need of any fee.

      1. kidmercury

        damn, first round knockout by AndreaF. congrats!

      2. marklanday

        Yes, a founder should be able to attract top talent. I have worked with many start ups. In fact, over 1/3 have gone public or been acquired by public companies creating liquidity for founders/employees and investors. Industry will have an impact on your burn rate. $75k may last you in a web centric or service business, but in an industry with a high cost of goods it may not. Point is that, $75k to bring in a key executive that will take you to the next level is money well spent.

        1. AndreaF

          I assumed we were talking about web centric / software-based start ups. I am in agreement that bringing in key executives is absolutely critical for a start-up, in fact, possibly the most important factor in success. And therefore not an area where one should try and save the most money. I mean, the team IS the start up. But there are many things I would spend $ 75k on before giving it to a search firm, even a very good one.

  27. Tereza

    Really interesting topic that cuts to the core for me right now.Hunger is critical and lean correlates with hunger. So that’s good.BUT. Bootstrapping is hard. If you’re not independently wealthy, and have obligations, you have to keep some money coming in, both to cover your living as well as invest in the business. And I guess the ability to do that demonstrates some skill of the entrepreneur. But it’s a lot of energy not going into the business, because we’re keeping non-relevant plates spinning in the air.The place where I’m finding takes a hit is speed to market.You may have great charisma and ability to attract lots of amazing people to contribute to your business. I am very blessed to be getting a huge amount of free service from incredible people right now.However, if someone is doing you a favor, and wedging you into their queue of business, you can’t very effectively crack the whip on timeline. Not if you care about sustaining these relationships for the long term.So you have a lot more leverage over speed is to pay people. It buys you the whip.Or, find hungrier, less-proven people to help you. If they have something to prove, you have leverage to push for speed.

    1. Tereza

      We can’t see who “liked” our comments anymore? boo-hoo-hoo. :-(Is that part of what will be Disqus’ premium analytics services?

    2. Matt A. Myers

      Love your whip metaphor. ;)I think we’re in the same boat. Another boat I’m in with money I’ve had to spend hiring contract workers is that if they’re good someone snags them up pretty quickly on salary.It becomes frustrating to say the least, but motivating (the hunger thing) to get to the point of the smaller pieces of investment needed to get to get work done to reach the next steps to bigger chunks of funding…Ahhhh – Momentum is a good feeling to be in.Sounds like you know what you’re doing though, so I wish you the best of luck. πŸ™‚

      1. Tereza

        Well, Matt, can I just say, “PHEW!”I felt I’d done a great Reveal. And yet, all I got for it was a meager anonymous ‘Like’. And the sound of one hand clapping.You, my new BFF, get an enthusiastic Twitter Follow from me. Thank you!

    3. $2353470

      I completely agree with what you said about ‘hunger’ but am quick to distinguish hunger and greed for some who might misunderstand. I like the term “unsatisfied” (also distinguished from “dissatisfied”) because it doesn’t sound *quite* so much like personal consumption (such metaphors !). I moved from a long/strong intrapreneurial pattern to return to entrepreneurial effort and think constantly about what (external of me) still needs to be done. Sometimes that increases the strain on maintaining a livelihood, but I have no kids to feed. So there are always things, in many dimensions, left to be done. We just have to get to them when the resources and circumstances are right. Still, like you say, money for benefits in TTM speed and “time to Rel 3” speed would be great. Since the current project is converting a proven premise software package to SaaS, faster TTM is not really a shortened spaghetti/wall experiment.

      1. Tereza

        alas I do have a couple of mouths to feed. stressful!

  28. Mark Essel

    Tell me about, but my fiance’s pasta and baked deserts are sooo good ;)I almost fell outta my chair when I read that Ben and Marc raised 21e6 with their first round a month in. Now reading that they’re serial successful founders it makes a tiny bit more sense.Plus they laid off a few hundred employees, that’s a rough “change of direction”.

  29. theschnaz

    I think Ben made a lot of good points, investing in the business to beat competitors, the goal is to capture the market and money in a down economy can be a big advantage, but his story sounded alien to me. As Fred stated, “Loudcloud raised $350mm in four rounds of financing (including an IPO) in the first 15 months of its life. Marc Andreessen and Ben Horowitz can do that. Most of you can not.” I’d love to be in the position Ben was, but I don’t see it happening soon.So what’s a person to do?Lean startup aren’t about spending less money, they’re about spending less money before product/market fit; especially for new markets. Web service startups are relatively inexpensive to start, so one can create something and get feedback from users. When people like the service and there is traction, you should consider fueling the business with additional capital.

  30. Henry Blodget

    The only thing I’d add as a consideration is the terms on which someone is willing to give you a boatload of money. If the terms are so good that the money’s basically free, take it.

    1. Steven Kane

      and that happens how often? 1:1,000,000,000see my comment above – horowitz and andreesen assertion that their experience is replicable is ridiculous. and damaging to young fledgling entrepreneurs

    2. AlanPearlstein

      Henry, Are there really VC’s that give away a boatload of money for nothing? If so, please give them my phone #

      1. Tyler Willis

        I have personally witnessed several occasions where the entrepreneur has been able to raise 500K or 2-3MM on exactly the same terms. While that money is “essentially free” there is a hidden cost of loss of control (angels/no seats in the 500K, VCs/board seats in the 2-3MM).Given that choice, an entrepreneur might decide it was worth a little loss in control to take the 2-3MM in order to have more ammunition.

  31. JoshuaGarrison

    I agree with Geocities, Zynga and Twitter investment model, since as you said, they place the brand into the market even before making any money or thinking about it. Getting fat from the very beggining is not the best idea. However, getting the attention of what you need to do it is a great idea

  32. Guest

    I think the most important part of seed funding is the networking with VCs, and the access to other important individuals. Secondary to that is the validation of your idea or product, and the input of those who have seen what it takes to be successful. That’s why I wouldn’t let just any VC firm invest a seed round into a company I start.

  33. Steven Kane

    Bless you Fred -Its hard not to hold Horowitz and Andreesen in respect and a little aweIts even more hard not to view Horowitz’s “run fat” notion – -which Andreesen also used to promote publicly on his blog — with huge suspicionBut everyone in the tech world genuflects or says nothing out of derefence or fer or desire to get in business with those guysFor one thing, Horowitz and Andreesen had a singular advantage when they “ran fat” – they had a track record where they had already made billions for investors. ergo, investors were willing to give them not only huge mounts of money, but at terms that didn’t make the founders and team and comon shareholders ownership all but worthless.that’s a situation almost zero entrepreneurs or companies find themselves in.unless, like geocities or zynga, they first run skinny and prove themselvessecond, i always try to take advice on funding offered by VC fund managers with a grain of salt. as warren buffet said recently, “you don’t ask the barber when its time to get a haircut”. i think the explosion of VCs telling fledgling entrepreneurs how and when to finance their companies is one of the worst developments of the social media era – and a big factor why VC funds have delivered awful returns for a decade

    1. kidmercury

      well said. as many know i consider marc to be a good friend of mine and i appreciate his contribution to the 9/11 truth movement, though i do find it a just a tad biased that he is running a large investment fund and is defending the idea of fat companies, without placing great enough emphasis on just how unique his situation is (for which he is to be commended — most of us cannot get those type of deals for good reason).i do actually like hte idea that VCs are talking about financing, though. i think the burden should be on entrepreneurs to take this information with a grain of salt. i also think it is worth noting that many VCs disagree with each other on these matters, and i think their beefs provide the rest of us with a great opportunity to learn and think critically about these matters.

      1. Steven Kane

        great pointbut i know sooo many fledgling entrepreneurs and 0.0000001% take VCswith a grain of salt. or even consider the possibility

  34. Phanio

    I think you hit it on the head with your last comment – spend it wisely! Cash is just an asset in business and like all assets – it must realize a return greater than its costs. Hard to do with a boatload or at least hard to be relatively assured that you can with a boatload.My thoughts are get what you need – no more or no less. If you can justify a boatload – then by all means – that is between you and your investors – if you can’t justify it – then say no. Some of the best business decisions are saying β€˜no.’

  35. Gregg Smith

    I worked in a startup that developed an innovative product, raised fat money and quit innovating. Instead, we sold “vision” and were told (by our board–VCs who “fattened us up”) to get a EMEA office opened ASAP or we wouldn’t be taken seriously. $50+ million later we sold for a little over $10 million. It was (and I think it still is) a great product.Innovation seems to slow down when startups hit their A round. Good startups will innovate until the B round. Evernote, Dropbox and to some extent Twitter really haven’t given us anything new, but my bar may be too high considering how blown away I was by those web apps in the beginning. It seems the money goes to scale the business to handle the crowds.

    1. fredwilson

      true, but facebook hasn’t stopped innovating

  36. William Pietri

    One of the things a lot of people miss is that “Lean Startup”, at least in Ries’s use of the term, doesn’t mean lean as in skinny. It’s lean as in “Lean Manufacturing”, which is a constellation of values, insights, and practices. But I see a lot of people taking Lean to mean underfed, verging on malnourished. Then other people react against that. Both miss the point.Being cheap doesn’t mean you’re Lean, and being Lean doesn’t mean you don’t spend when it’s necessary.

  37. Adrian Scott

    Nice post. There’s a case for deploying capital as you say upon developing traction etc. Perhaps the better way to fine-tune Ben’s post is that lean should mean capital-efficient rather than anemic and cash-starved. The unaddressed elephant sitting next to his post was that an investor would have been much better off waiting for his past company to go public and crash and buy in then, rather than invest when it was private.

  38. sigmaalgebra

    I find two things of concern, both at the level of Mother Goose wisdom: (1) Plan for a rainy day. (2) Think, think like the Little Red Hen, and don’t assume like the others did that nothing is significant until a hot loaf is out of the oven and customers are lining up to buy.For concern (1), as an entrepreneur, I want to be able to handle a rainy day: E.g., we could be hit by a nuisance law suit, maybe from a %^&* patent troll; a new competitor could come at us; the economy might tank; a key person might get hit by a truck. None of these unpredictable events would mean anything wrong with the technology, the business plan, or the market or much wrong with the company; any of these events can be handled mostly with just cash; yet without the cash for a rainy day, any such events could kill the company. Planning for a rainy day is just Mother Goose level wisdom.For concern (2), you and Ben seem to agree that should not run a large ‘burn rate’ before the project deserves a large round of funding. Good.But to continue, how did Loudcloud ‘deserve’ so much funding so early? It was clear that Web hosting would be a significant business (and now it is); the business was technically quite doable; A-H were especially well qualified; and the winners would have to get economies of scale quickly. That is, it was clear that the A-H hens could bake the bread, that it would sell, and that they deserved a large, efficient bakery.I’m surprised they didn’t just use their cash to stay in the Web hosting business while it grew. Since I’ve worked in server and network system management automation, I’m impressed that they wrote software that got $1.7 B from HP. But, again, it was clear that good server and network system management automation would sell; the main question was, could A-H write such software; apparently HP agreed $1.7 billion worth that they did. The A-H hen could do more than bake bread.Yes, need a good hen, and maybe could read your data as confirming that a large check won’t make up for a bad hen.Continuing with concern (2), you seem to want to wait until ‘traction’ has eliminated some uncertainties before much if any funding. Ben seems to be saying that A-H doesn’t want to put so much emphasis just on traction and wants to put more emphasis on other considerations. If the A-H evaluations are still accurate, then A-H has a chance of closing the more attractive deals before traction. Again, you want to wait until the bread is hot out of the oven and customers are lining up, and A-H wants to listen to the Hen early on: Maybe A-H is confident that such really good bread will sell and, then, wants to ask if the Hen can deliver such bread and no one else can. Mostly look at the Hen and the project and work don’t just wait for the loaf.Back to concern (1), some VCs are so big on saying that ‘fat’ is so bad and corrupting, hurts discipline, is so distracting, creates too much to manage, is “not healthy”, etc., and ‘lean’ is so good that together these look like the VCs are hoping the entrepreneur can be talked into forgetting Mother Goose wisdom on planning for rainy days, runs out of cash, and is forced into a ‘down round’. It’s about getting success; it’s not a zero sum game where a failure for the entrepreneur is a success for the VC.The goal should be the same on both sides of the table: Get the funding done, get the work done, be successful, and avoid any stop for emergency funding for a rainy day close to killing the company. That I don’t see even Mother Goose level wisdom about rainy days is disconcerting. It would be no fun having others in the board room hoping for a rainy day that would force a down round and maybe kill the company.Or, it’s obvious: If the check has an extra $x million, then just leave the extra $x million in the bank until it really is needed, hopefully never. The extra money is not for some $50,000 custom made board room table instead of three sawhorses and a 4 x 8 sheet of one side good birch plywood. Motivation? The poor CEO gets only a salary and no yacht, no BMW, no Chambertin, no financial security until there is a good exit; he’s plenty motivated. The board gets to approve major expenditures; so, if not a rainy day, then just leave the $x million in the bank. Why assume the extra cash has to be “not healthy” instead of good planning for a rainy day? What is it about Mother Goose on planning for rainy days that’s so difficult to understand?There’s also the RRE point: Now it is ‘binary’: If the project is good, then returns are so good don’t quibble over the check. If the project is bad, it still doesn’t help to quibble over the check. So, a check large enough to cover rainy days will help ensure success in case of a good project and should not be quibbled about.Or, the issue is a good project or not; once have a good project, go ahead and write a check that can also handle rainy days.Uh, we should have at least Mother Goose level thinking.

  39. everploeg

    I don’t want to sound like a cynic here, but it sounds to me like Andreessen Horowitz is lining up to raise a “big” fund.Given their stellar pedigree, I will trust that the “full fat” logic preceded any decision to raise “big” fund, rather than the all-too-common chronological sequence for a hot venture firm:(1) hey, the LPs want to give us a lot of money; (2) how do we justify taking it? (3) oh, here’s the strategy for how it’s logical for us to write big checks…

    1. fredwilson

      and conversely i’d like to raise a smaller fund than we are currently managing πŸ™‚

      1. everploeg

        …but keep the management fee stream of the larger fund. πŸ™‚

  40. LIAD

    its curious as to why Ben decided to publish his post now all of a sudden.The events to which he refers happened 18 months ago and the concept of lean -startup has been going strong for some time.Didn’t his partner Marc write the seminal post about keeping things lean until you hit product/market fit?Either way, regardless of whichever theory you subscribe to, fat, thin, obese, anorexic – there is always one thing you have to do and thats STAY HUNGRY

  41. Chrisarsenault

    I’ve learned that building up companies from scratch requires more momentum, support, leverage than cash! Leading a space and taking on the hard tasks is very different from following a wave and hoping that another companies success with pull your company forward as well. Cash will remain cash. And for a startup to be successful (not just lucky) it needs, traction, support, relationships… then comes in the cash.

  42. Dave Pinsen

    I liked what Nabeel Hyatt said about this on Bijan’s blog the other day,”The founding premise of venture capital is to take capital in ahead of profits (and even revenues sometimes) in order to accelerate growth to capture a unique opportunity. By this definition every venture backed startup, whether taking $100k or $100m, is a fat startup…”

  43. ShanaC

    I still think the best results come from running healthily- you should have enough fat on you to both do some in house development and to survive a rough winter if you have to, and to be lean enough to bounce and think.I think ownership is largely psychological and a larger issue involving management and how to do management. I think it is a large area to discuss- what makes good management under all circumstances.

  44. Keenan

    There is something to be said for those who are lean. When tend to be more creative when we have fewer resources at our disposal.We try harder, think harder, push harder, why? Because we things are tight, we never take the next day for granted.

  45. enrolled agent study guide

    I think there’s something to be said for “fat” business practices. What’s the old motto– “it takes money to make money”? Or maybe I’m thinking of “big rewards take big risks”? Whatever the case, I have to respect people that take that chance and raise all the capitol beforehand. It takes a level of bravery that I, personally, have never had. On that note, I completely agree with the take of this article and believe that people can be very, very successful with the “skinny” philosophy. It definitely seems the more temperate way to go, which is more my speed. ;o)

  46. San Kim

    Great article. I’d like to point out a guest post by Steve Blank on Venture Hacks called “Lean Startups Aren’t Cheap Startups,” which demystifies an all-too-common confusion I’ve seen about Lean Startup methodology. Rather than butcher his words, I’ll quote:…your goal is not to avoid spending money but to preserve your cash as you search for a repeatable and scalable sales model and then spend like there is no tomorrow when you find one.By repeatable and scalable sales model, he basically means product/market fit. When you hit that product/market fit, and you’re ABSOLUTELY sure that additional spending on sales/marketing/dev will increase revenue proportionally, by all means raise boatloads of cash and scale as fast as you possibly can!The key to the Lean Startup methodology, in my view, is realizing that product/market fit is achievable with very little capital, and that it is in fact in your best interest to bootstrap until you get there, because (forgive me for being cheesy) the journey is its own reward: the process of rigorously pivoting towards product/market fit will teach you invaluable lessons about your customers/market, and you’ll come out the other side a master of your domain.Steve Blank’s post:

    1. Chris Voss

      Great points on giving your business time and capital to find its market

    2. fredwilson

      i agree with steve

    3. nabeel

      Not to point out the obvious San, but Ben’s post was precisely that they were doing what Steve says not to do. They were investing AHEAD of perfect alignment and finding a repeatable scalable model. They wanted to win the market, so they made the bet, got fat, and were able to weather the storm because of that cash.

      1. San Kim

        Looks like you misunderstood my comment. I quoted Steve to add support to Fred’s argument (hence my leading off with “Great article”).By “Great article” I meant Fred’s not Ben’s.

  47. Mihai Badoiu

    On the lean vs fat debate, I think cultural issues are very relevant:In a small start-up with few engineers, work has to be done by any means. While they may cut corners in programming elegance, smart and productive engineers do just that — get it done, while the bad engineers have to move on.In contrast in a big company/group, I find engineers can be easily smart enough to do “work” without actually making any progress: let’s rewrite that, let’s redesign that, let’s do a tool that makes life easier, let’s have a meeting on that issue, etc. You have these snippets that show progress when real progress is not to be found. Add to these engineers’ tendency to communicate poorly, and you only need 1 more ingredient for failure: bad management. In a big group, the manager can make or break the team. Now, most IT managers are really bad. It’s not easy to lead a group, there are just too many ingredients and a good manager should be good technically, good with people, good communicator, good with products/market (that also includes being up to date with the competition) and should be willing to invest a lot of time. Generally if one has all these attributes, the manager would also require a big upside, and this only happens when it’s a co-founder. But since one can only manage few people realistically well, the company must be small.Before finding a market fit, the fat company is really at a disadvantage compared to the lean company. With all these inefficiencies, it has only 1 shot at changing direction.

  48. Chris Voss

    Awesome points Fred. I’ve had the same experience in business. When we started out we shoe stringed our budgets and it was a survival fight. Instead of looking for money, we found it in doing more with less and maximizing our resources. Our perspective was, we have less so how do we do more with what we have. Sometimes we had to challenge paradigms of how to accomplish something with limited resources. One success story was we changed our billing to get us our revenue in twice as fast as competitors and it was a game changer and helped fund us faster.Our most successful companies were tightly funded. As we grew and invested more, the businesses that struggled were ones that we could now afford to throw tons of money at in startup. Honestly, much of it was we were more careless (we knew we had backup funds) and our bellies were a little full. Bleeding losses and expense issues took more time to get shored up and cleaned up. We would over pay for stupid stuff and let idiot leaders run the show for too long. If I had to step in, I’d find incredible waste on expenses.In the end we went back to the John Wooden paradigm of getting back to the basics. Keep budgets, lean, mean and hungry. If a manager knows they dont have enough money and has a limited timeline to “re-dip” for more investment, then tend to spend it a little wiser. Its kinda like when you were a kid and all you had was your allowance, you tended to try to make it stretch a little longer because you knew how much of a pain it was to drag out more money out of your parents.Now if we could just get that crystal ball as to how much is enough for a given startup. lol. Always great info Fred!Chris

  49. aanwar

    Hmmm, this particular post brings Facebook to mind. I think last year you wrote a post on business models/revenues/costs and you mentioned that Facebook could reduce its head count and become profitable or more profitable.

  50. SharnCedar

    Well, I thought the startup pose was about getting money without the usual hard work and sunservience of a regular job. I thought it was about getting rich quick based on some “idea” which you imagine is like a chunk of gold shining in the strewam at Sutter’s Mill. In which case, it’s all about getting lots of investment money and spending it on perks and small time corruption. What else is a starup? It’s a dress-up game for people who don;’t have the humility to work for a living. Og course they want to be a fat startup, and blow through a lot of capital doing nothing, rather than a lean startup and blow through a lot of enthusiasm and the best years of their life doing nothing and still failing anyway.You say you rarely see a successful fat startup. Statistics show you rarely see a successful “startup” of any kind. How many startups, of the 100,000 or more that have been done in Silicon Phony, are still viable 10 years out? 3? 4? 7? The success rate for startups is lower than the chances of winning the lotto. But if you get a fat investment to start, at least the years of overwork followed by certain failure will be years in which you can steal and pocket lots of capital. Success in any case is measured in this funny business as an even bigger fool buying your worthless company from you – so the measure of success itself is about poorly conceived investment with no chance of a return. Might as well begin with a poorly conceived investment with no chance of a return. It makes the fraud a more comfortable fraud. You can wear mice shoes while telling big lies.

  51. terrencemurray

    As you write, cleantech is a totally different game, where the concept of lean startups doesn’t exists. I think Bloom Energy raised $400 million… so far. That’s really a boatload of money.

  52. Ben Horowitz

    OK, I have posted a reply here: Thanks again to Fred for starting this debate.

    1. Tereza

      Hey Ben — you need to use Disqus on your blog!

  53. Dan

    “Marc Andreessen and Ben Horowitz can do that. Most of you can not.” I just took this to mean that you guys had reps while most of us do not. Actually running the company is out of context.It would seem that it quite simply depends on the circumstances. You don’t want a spendthrift who will spend money on mailing polo shirts to Mark Cuban, nor a pennypincher who will hire bad programmers to save a buck. It is all about adapting while executing. You don’t need to spend a ton of money, but if the money you are spending isn’t making it happen you need to spend more, but in a different place. Indeed, dominating the market is what matters, and staying in that dominant market matters even more.I look forward to hearing more of the real life discussion. It’s invaluable to hear the perspectives of those who have had so many experiences.

  54. Matt A. Myers

    Ben said “Sometimes running fat is the right thing to do.” and I think only when your certain is what Fred says in his conclusion. Though, I personally would assume investors would only dish out tens of millions once it is more or less a proven product (for software anywho), and where the money would primarily be used for expansion / marketing?

  55. vruz

    Fat vs. Lean are both right, sez Lee Hower…I tend to agree with the lean side, with exceptions.Facebook and Youtube couldn’t be what they are today hadn’t they behaved the fat way.Youtube ultimately became a success, but they happened to strike a lucky deal with Google, they were just about to starve themselves to death when they exited.

  56. paramendra

    Fat Can Work, But Lean More Often Does…

  57. hflansburg

    Good stuff here. VC blogger Jonathan Tower (at Citron Capital) had a nice post on this, leaning more toward Fred’s side. I thought it was a worthwhile take:http://jonathantower.wordpr

  58. marfi

    Remarkable post, the lottery approach is a total hit plus the line “Marc Andreessen and Ben Horowitz can do that. Most of you can not” lean is the future, that’s it!

  59. fredwilson

    not enough. everybody wants more ownership. me included. but over time you realize that there’s a correlation between success and the team’s ownership of the business.