Lean vs Fat Startups: The Disrupt Debate

Back in March, Ben Horowitz of Andreessen Horowitz wrote a post called The Case For The Fat Startup, where he outlined some of the reasons why a fledging company might want to consider taking a large amount of funding — a strategy that contrasts with the ‘lean startup’ model that has become common in Silicon Valley. Fred Wilson, another well known VC, countered with a post of his own explaining why Being Fat Is Not Healthy. Today, both men took the stage at TechCrunch Disrupt for a semi-formal debate, where they critiqued each others stances in person. The full video of the debate is below.

Horowitz’s arguments centered on the idea that in some cases, a large amount of capital is necessary to really take advantage of an opportunity, or to take on well established competitors. As he put it, “if it’s better to be lean [in your case] that’s great, but if it’s better to take a lot of capital, by all means embrace your fatness”.

Horowitz used a few examples to defend his case. For example, when faced with increased competition, VMware used a large amount of capital to boost its headcount and fend off open-source options and Microsoft.

Wilson’s argument focused more on how to maximize the probability that entrepreneurs will get favorable exits. He boils down the formula to: (Founder’s Stake) x (Probability of an exit) x (Size of the exit). Wilson says to focus on the first two variables. Accepting more funding will dilute the founder’s stake, but it isn’t going to proportionally increase the probability of an exit (which is based on far more factors). In other words, it hurts the likelihood of a favorable outcome (at least from the entrepreneur’s perspective). Likewise, he says investors are looking to mitigate risk, which is why investing small amounts when a company is young is in their interest.

Image via lukebehnke