The Case for the Fat Start-Up | Hacker News Reader

The Case for the Fat Start-Up

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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.

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.

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

Horowitz agrees with sgblank and ries!

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.

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.

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.

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).

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...

Sure, but if you look at the startup environment today, most people (VCs, founders, bloggers, etc.) mean "cheap" when they say "lean". You read about it everywhere - how startups are getting cheaper, how you could build one on a shoestring budget, how the traditional VC model is dying, etc.

Of course when someone says startups are getting cheaper, one has to ask "cheaper than what?" Cheaper than during the dot com boom, sure, because people don't get fresh ice sculptures delivered to their office every morning anymore. But that's nothing new, we knew that for a while, so comparing today's startups to those of the dot com boom isn't very useful. A much more useful statement would be that startups today are cheaper than they were two years ago, but in my experience this just isn't true. The biggest expense of modern startups is paying the employees, and the salaries of great people (engineers and otherwise) are rising, so I'd argue that startups are getting more expensive relative to their cost a few years ago.

Most (but not all, of course) things that have huge value take a few years to build and a lot of careful work to market, which means that underfunding most startups is a terrible idea. This article does an excellent job pointing it out.

"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.

A rational market has to discount your bank balance by the probability they will ever see their piece of it. It's rare now for a company to wind down in an orderly way, rather than spend all their money trying to recover and then fold.

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.

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.

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.

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.

Have you got some links about this?

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... "1. Lean in the sense of low-burn..."

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.

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.

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.

Also, Eric Ries himself says his "Lean Startup" methodology is adapted from the widely-adopted "Lean Manufacturing" methodology, which in turn is based on Toyota's TPS:

http://en.wikipedia.org/wiki/Lean_manufacturing

http://www.startuplessonslearned.com/2009/12/what-is-lean-ab...

The fact that it is based on Toyota should be a clue that the "Lean" methodologies are not about size, but about efficiency. "Lean is centered around preserving value with less work"

There are people using "Lean" as a new buzzword for small.

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.

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.

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

He had me until he quoted Kanye West.

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.

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

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

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).

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.

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