The Case for the Fat Startup

Key ideas

Horowitz argues running lean or fat are only tactics: a startup's real priorities are winning the market and not running out of cash, and sometimes that means spending.

1. 1

   Lean is a tactic, not a goal

   Horowitz says much of the lean advice makes sense but is incomplete, and that treating it as the objective can cost you the market by underfunding product R&D or letting a competitor out-execute you. He also grants that capital invested correlates negatively with venture returns and that too much money is unhealthy for a small startup.

2. 2

   Purgatory can be worse than bankruptcy

   Horowitz ranks taking the market above preserving cash because of what he calls start-up purgatory: a company that survives without ever leading its category. He says the founder is then stuck working as hard, with no real prospect of high growth, while the best people leave.

3. 3

   Decide what you will not cut

   Horowitz writes that as Loudcloud's rivals cut deep and froze their software, he kept every software engineer to build a lasting technology advantage. To reduce costs he instead sold the hosting business, the only real business the company had, to EDS and became a software company.

4. 4

   In a bust, cash is a weapon

   Horowitz argues that cash gives little edge when every company is well funded but a large one when rivals are starved. He describes spending to match his best competitor feature for feature and using public stock to buy functionality rivals could not afford, and says he is convinced Bladelogic would otherwise have won.

5. 5

   Cut to survive, then keep investing

   Horowitz says the company had to cut costs or go bankrupt, so it sold the hosting business to EDS, shrank payroll sharply and only reached cash-flow break-even in 2003. The market punished the sale, and he says it was not clear then that it was a good idea. Many argued he should have cut deeper still, but he decided to keep investing.

In Ben’s words

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