
The Case for the Fat Start-Up - newsit
http://voices.allthingsd.com/20100317/the-case-for-the-fat-startup/
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ghshephard
Okay, as one who lived through pretty much all of Loudcloud/Opsware, I can
tell you that Ben pretty much nailed every single event of that 1999 - 2003
arc (when I left Opsware) pretty flawlessly.

What he glosses over a little (but not totally) was how fucking traumatic
those layoffs were back in 2002. I recall him stating (and our VP of HR not
believing he was saying it) at the completion of the cuts that there would be
"no more layoffs while he was CEO". He just never wanted to go through
anything like that again, so he cut as deep as he thought was need to avoid
future rounds - one big round up front.

I don't know if it's relevant, but he also doesn't mention that a ton of
employees were thinking of $20-$30 stock that then reverse split and went out
at $6 (or $3 pre-reverse). The IPO was totally anti-climatic. We didn't even
have a party.

When we had our "Opsware Founders Meeting" in Santa Cruz there was a very big
deal made of the fact that we could go a _long_ time without getting a single
new customer, and still not run out of cash (though, he always refused to
answer my question of what Opsware would do if EDS canceled their contract
with us, or just didn't pay us. :-).

Not running out of cash was a very, very big deal. Also, Opsware was a pretty
big byzantine pieces of enterprise software (at the time, mostly written is
Python, which was pretty forward looking for 1999-2000 - Ray Soursa had to
convince people that no, perl would not be our platform), with all sorts of
knobs and dials, and, they were still a public company, which meant there was
a pretty good sized staffing overhead that your typical "startup" wouldn't
see. It's not clear to me that there was much fat left on the bone by the time
he was done chopping.

All in all though - the story is definitely worth reading over a few times -
everything there happened pretty much exactly as he's calling it. Gem of an
article, and Ben is easily one of the best technical company CEOs out there so
that adds even more value to the read.

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staunch
Shooting for the stars simply isn't in the best interests of the founders.
That's why it's not popular. The most common exit now is a relatively small
acquisition. All founders want (their first time anyway) is to walk away with
FU money. Shooting for a $1.6 billion exit simply isn't worth the risk. Better
to sell for $50 million to the guy that's shooting for the stars.

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sachinag
Oh, goddammit: Lean Startups aren't Cheap Startups:
[http://steveblank.com/2009/11/02/lean-startups-
aren’t-cheap-...](http://steveblank.com/2009/11/02/lean-startups-aren’t-cheap-
startups/)

Horowitz _agrees_ with sgblank and ries!

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staunch
Are you sure he does? There's plenty of overlap, so it's easy to see the
similarities, but he's talking about spending tens of millions per month
investing in software development. Having 100 people when you could get by
with much less. Outspending the competition. That sounds different to me.

~~~
swombat
It's not. Ries and Blank argue for focusing your money expenditure on
validated learning about your customers. They don't argue for whether you
should spend more or less.

You could have a lean start-up that burns $10m a month.

~~~
staunch
Well they're making up a new definition of lean if having 100 people when you
could easily get by with 40 counts as lean.

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swombat
The point of a start-up isn't to "get by", it's to discover, prove, and then
scale up a new business model.

"Getting by" is pointless if you haven't found your product/market fit. You
need to invest in finding it until it's found. If that takes 100 people, then
that's how many people you should hire (if you can afford it).

~~~
staunch
That's just dodging the very real decision he had to make. He could continue
searching for product/market fit with 40 people or he could do it with 100.
There's no "right" answer, they're just different approaches. Many people
would (and did) advocate taking the leaner approach, but he took the fatter
one...

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samd
_"In fact, the market thought it was a terrible idea: Our stock promptly lost
80 percent of its value, putting our market cap at about $28 million. It’s
worth pointing out that this was about $40 million less than the cash that we
had in the bank."_

Efficient market my ass.

~~~
hristov
I agree that the efficient market theory is generally wrong, but this example
seems a bit extreme. I am surprised one of the sharks out there did not take
over the company to merely shut down everything and get the cash.

It could be that Mr. Horowitz was excluding certain privately held shares from
the market cap. Or maybe there were liabilities so that while they had 68
million in cash they did not have 68 million in net assets. Or maybe they had
a poison pill.

~~~
ghshephard
It was a thin market - almost no liquidity. There were days when it was in the
40-50 cent range that I would purchase 5000 shares and see my _actual trade_
move the price of the stock a few cents. Anybody who had actually tried to
purchase significant amounts of stock would have quickly brought the price of
the stock up north of a dollar. In fact, when the new CFO, Sharlene Abrams
came on board, the stock popped up in due course.

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swombat
All very good points, but Ben Horowitz actually completely missed the point of
the Lean Start-up approach that people like Eric Ries are proposing.

"Lean" does not mean cheap. "Lean" means focused on progress, which is
measured in validated learning about your customers.

Conflating "lean" with "cheap" serves no one. This article is arguing against
cheap start-ups, not against lean start-ups.

This video includes some discussion, from Eric Ries, of how people are
misunderstanding "lean" to mean "whatever they think will get the VCs to fund
them": <http://vimeo.com/9964506>

The whole "lean start-up" meme emerged with Eric Ries, as far as I know, so I
think his definition of it is worth paying attention to.

~~~
staunch
I don't think we need to leave it to Eric Ries to define what a lean startup
is. It's been all the rage in the valley since at least when Flickr sold in
2005.

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swombat
Have you got some links about this?

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staunch
Most obvious one: March 2005: <http://www.paulgraham.com/start.html> "Not
Spending it".

From Eric Ries: Sep 2008: [http://www.startuplessonslearned.com/2008/09/lean-
startup.ht...](http://www.startuplessonslearned.com/2008/09/lean-startup.html)
"1. Lean in the sense of low-burn..."

~~~
swombat
I don't see the word "lean" used once in that article by PG, so for now, I'm
going to continue to assume that Eric Ries largely coined "lean start-up" and
so has some ownership of the definition of it.

~~~
shadowsun7
Not the idea, though. I can't remember anyone before PG arguing that startups
today cost less to run, and so therefore should be funded lightly, and built
for low cash-burn. In the essay above PG argues against "getting big fast".
Which is a rough way of saying "stay lean".

That being said - Horowitz seems to be limiting his advice to 'high-tech'
startups. Note the penultimate paragraph.

Not sure if the advice applies to startups in general.

~~~
swombat
Ok, so...

Person A comes up with a term, let's call this term X.

Other people start mis-defining X as something else, let's call it Y.

Person B happened to talk about Y before person A talked about X.

Therefore, your argument goes, person A's definition of X is wrong?

Either I'm not following you, or your arguments are not following each other.

Eric Ries doesn't advise against getting big fast. He advises to get big as
fast as possible, where "possible" is defined by the product-market fit that's
been reached.

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hristov
This is a pretty good article. The ideas are things that both Paul Graham and
Joel Spolsky have mentioned many times in their articles but it is nice to see
these ideas backed up by some real experience.

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tigger2010
Scanning the comments, there's a fair bit of argument about lean vs. cheap and
about whether Horowitz is agreeing or disagreeing with the "lean" approach.

Afaik, all he's saying is "it depends". There may be situations e.g., if your
competition is cash poor and you are cash rich, where the "fat startup"
approach makes sense. It doesn't seem like he's fundamentally arguing for or
against "lean" - just that a lean or fat stance only makes sense in specific
contexts.

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ww520
He has a good point in focusing the real goals rather than the means.

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Jim72
He had me until he quoted Kanye West.

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Jim72
Wow, we have some Kayne West fans. Say what you want about him, but I wouldn't
want his name connected to my start-up... not if I wanted to be taken
seriously. Might as well quote Glenn Beck while you're at it.

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zackattack
Kanye is far more successful than you, and has contributed far more to
society.

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shadowsun7
I think the point to be made here is that your comment isn't particularly
constructive. Hence the down-votes.

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Jim72
On the contrary, if you stop and think about it, my comment is constructive;
especially if you care about brand management. The simple fact is, Kayne's
brand is tainted by his actions and diatribe. As a start-up, I would not want
to engage my brand in the kind of controversies he stirs up (unless I was
targeting only his fans as my demographic).

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zackattack
Dude, what are you smoking? The only person for whom Kanye's brand may be
tainted is George Bush, who probably secretly thinks Kanye is hilarious. You
seem to be severely out of touch with contemporary culture and reality.

