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In defense of the fat startup

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One of the biggest innovations to happen in the startup world in the last decade is the Lean Startup movement, coined by Eric Ries.  Ries and the thousands of lean startup fans that follow him advocate staying lean too, as Wikipedia puts it:

…eliminate wasteful practices and increase value producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.

Staying lean is great for startups that haven’t achieved product-market fit or for startups that are targeting markets that they believe to be small.  In addition, many startups (especially outside of the Bay Area) have to stay “lean” out of necessity, since fundraising isn’t nearly as easy as it is here.  Finally, some entrepreneurs want to stay small to retain control of the vision, which is awesome.

salad lean startup

However, I meet a number of growing companies these days that feel like they’re too lean.  These are companies with awesome products, large markets and access to capital.  It feels like some of them opt out of bulking up for the wrong reasons.

So here are five reasons to consider eating some extra helpings this Thanksgiving for your startup:

  1. Feeding your marketing.  Many non-marketers are cynical about marketing.  How does this cheesy viral video help us?  Why should you spend $50,000 on a trade show?  What the heck does our PR firm do anyways?  These are all legitimate questions – don’t spend all of your cash at your launch party, unless you have tigers on a gold leash.  But the truth is, marketing money, when spent well, can produce a huge return on your investment.  PR can make you more attractive to investors and employees.  Well-executed branding and events can help differentiate you from your competition, as much as your product can.  And if you understand your company’s customer acquisition cost and customer lifetime value, spending money on marketing can be a very financially sound decision.
  2. Feeding your sales.  Similarly, there are a number of startups out there that under-invest in sales.  Customers across the world may want what they have, but they don’t know that they have it.  Not every business needs sales reps, business development folks, channel partners and the like.  But in some industries, sales is still vital to success.  And if you underspend on sales – either by having the lower quality team members you attract with your “commission only” sales plan, or by spreading your team too thin, with one rep covering the greater US-Canada-Europe region – you leave money on the table.
  3. Starving your competition.  On that note, if you leave money on the table, someone else will take it.  In fact, if no one else does, I will.  Conversely, in early markets, you often have a chance to step on the gas and distance yourself from the field.  This then creates a virtuous cycle – making it harder for your competitors to win customers, hire people, raise money and innovate in their product.  You can either be at the dinner table slicing the main course, or you can sit under the table with the dogs fighting for scraps.
  4. Feeding your recruiting.  Your team members and prospective team members are smarter than you realize.  They know which startups are investing and which ones aren’t.  And frankly for most non-executive, non-founder employees, the small size of their equity grants means that they need their company to “go for it” to make the potential financial outcome meaningful for them.  By investing, you can recruit from a broader pool of team members and pick the best ones for your situation.
  5. Feeding your team and yourself.  Most importantly, having money allows you to invest in yourself and your team.  If you plan to run a marathon, not a sprint, and build a lasting company, you need to make sure you and your team are paid an amount that allows you to live your lives and meet your family commitments.  Many startups that are too lean can burn out their teams or, even worse, cause the company to settle for an outcome that doesn’t represent the full potential of the vision.

Again, the Lean Startup movement is one of the most important tools added to entrepreneurial arsenal in a long time.  But like any tool, it should be applied in the right situations.  If you have the market, product, team and funding capability to build a big company, you might want to stop watching your calories and start embracing your new larger self.  If a Lean Startup doesn’t fit you anymore, maybe it just means you’re big boned.

Nick Mehta is CEO of Gainsight, the leading customer success management company.

6 Responses to “In defense of the fat startup”

  1. Kévin Breault

    Using a background of Consumer Goods Manufacturing I’d like to build on the comment above: If your value stream is well ‘mastered’ any $50k expense truly bringing value in is “Lean”. The ‘Value Stream’ must be understood to take data-driven decisions and avoid feeling-based ones.

  2. Davender Gupta

    This article demonstrates the basic misunderstanding about “Lean” – it does not mean “doing it on the cheap”. If a $50K investment in a trade show presence can lead to tangible metrics that moves the project forward because you did the prep work including honing the message, then it fits with the “Lean” philosophy. But if you throw $50K at a trade show “hoping” it will make a splash and attract customers, and only collect vanity metrics such as “number of people stopping at the booth”, then it’s waste.

  3. There are many areas where the lean startup approach doesn’t fit … bio-medical, pharma, electronics, etc. In the latter case, as hardware startups evolve beyond applications of 3D printing and board-level electronics design with off-the-shelf components, it will be harder and harder to go lean …

  4. Anonymous

    Mehta writes: “And frankly for most non-executive, non-founder employees, the small size of their equity grants means that they need their company to “go for it” to make the potential financial outcome meaningful for them.”

    I disagree. In the above, I would replace “small size of their equity grants” with “large size of the company’s equity investment”.

    And, I would point out that with little-to-no outside equity investment, the equity grants can be meaningful at acquisition levels that normally would not be appealing to outside investors.

    Together, these lead to a conclusion which is opposite Mehta’s …

  5. I totally agree. Lean startup model cannot work for ever. We have to decide some threshold level, just like we have breakeven concept, we must adhere to a threshold value for being lean as well, other wise, most of the start ups go lean with out a long term vision as lean cuts cost on R&D, Experimenting and marketing.

  6. This is a gutsy article.
    I agree..Lean Startup principle is not one size fits all solution…wish there were a startup doctors who could just see the data and prescribe a right diet….:)