Lean Startups? I Prefer Mine Phat
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get customer feedback very quickly, on precious little capital. This can lead to a “hot” financing at an attractive price. But great early customer feedback is necessary but not sufficient in achieving long term success. For the most part, social/digital media categories are winner take all. They support a limited number of successful companies (typically one dominant, one contender) and the rest fail due to lack of attention.
A young company can get great feedback, get out of the gate with great growth only to be beaten to the punch by any number of others pursuing a similar dream. Perhaps equally common, a fickle market moves to a shinier new toy (Friendster → MySpace → Facebook). That’s not to suggest that there won’t be very valuable Lean Startups who “win” their chosen space. There will be, and for the lucky entrepreneurs/investors involved, the rewards can be handsome.
Phat startups have a different risk profile. Venture backed competition is often sparse or non-existent. The key risks are a) whether the technology can be built, and b) whether customers will adopt.
The first of these risks is often overblown. Of the 140 companies we’ve backed at NBVP, I can think of exactly two that couldn’t get the technology to work. Delays are typical, some would say inevitable, but rarely fatal. The risk of market adoption, however can be significant and I’d suggest is the primary reason that phat startups fail. Market adoption is largely a function of the initial premise—that there are customers (lots of them) that have no other way to solve the problem at hand. The bigger the disruption, the less the risk. The phatter, the better.
All told, a truly disruptive phat startup can present the mythical low risk / high reward proposition. I have great respect for successful lean startup investors, it’s just not for me. I’d take the phat startup risk / reward every time.
Maybe someday, someone far more articulate than I (or is it me?) can write a book on the virtues of Phat Startups. In the meantime, I hope we can all recognize the virtue in building these companies and the impact they can have on our innovation economy.
P.S. For those with a sense of humor, this says it better than I ever could (including some offensive language).