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James Hong

Thursday, March 18, 2010

Fat versus Lean Startup

Ben Horowitz wrote a good piece over at All Things D, in response to all the startups that try to go lean (keeping expenses as low as possible and raising as little money as possible too).

A lot of companies I have been involved with have faced the question of whether to go Fat or go Lean. My opinion is that, like most things, it really depends on what your goals are, and there is not one blanket answer that fits all situations. As usual, you will have to think about it.

HOTorNOT was probably one of the earliest lean companies in the post web 1.0 crash era. But that is not to say that we didn't consider whether it made sense to raise venture capital, or at the very least to start spending more of our earnings aggressively. For us, there were a lot of questions of what "going big" on HOTorNOT would have returned. We tried "getting fatter" by starting work on other non-HOTorNOT projects, but we then found that we couldn't mentally juggle so many products at the same time. In retrospect, what we should have done is invest in those projects but spin them off into separate companies (with separate offices) quickly. In those days, having capital was a distinct competitive advantage, we really missed the boat on taking advantage of that.

Going lean optimizes short term earnings, but it does so at the expense of long term growth.

All the points Ben makes are correct if there is some really big opportunity out there, provided you want to take the risks needed to capture it. If your financial goals are to only make a few million bucks but with less risk, then going lean can make a lot of sense. If this is the case, then DON'T RAISE VENTURE CAPITAL. If your goal is to create something big, to create and/or capture a huge emerging market, then you need to go big on spending (or in better terms, on investing), and probably will need venture capital to do it.

It is very possible that the markets will crash again sometime soon, and capital will become more scarce. (It's also possible that the govt will continue propping up the system and the markets won't crash, and venture will be fine.. but my personal beliefs don't lie in this camp). For this reason, I've told most of the companies that I'm involved in that if they want to go big, they should raise big now while they still can. If a crash happens, capital will again become a massive competitive advantage.

To summarize:

Want to make a nice little company that optimizes for earnings? go lean.

Want to change the world and go big? go fat.

BTW, going fat doesn't mean spending your money stupidly, you should still watch closely how your company spends its money. going fat is more about being willing to make those investments, and being willing to raise more money to do so.


Blogger Glenn Gutierrez said...

Haha. Interesting. Isn't there a healthy middle?

7:30 PM  
Anonymous chris said...

I think, basically, generally, every case is different. But I am also convinced that what Steve Blank and Eric Ries say, is a good advice: go lean until you have product/market fit. Then, when the product sells, it might be advisable to work "fat" to scale fast, or to be able to really reach consumers.

9:52 AM  
Anonymous Jonha said...

I'd say at first, go lean but if you're fond of gambling, go fat. If you really believe in what you do and as more and more people seem to agree, don't be afraid to go fat (as the situation requires)

9:26 PM  

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