Lean Startups? I Prefer Mine Phat


I read the book and found it quite enjoyable.

And with all due respect to Eric Ries and all of the VCs out there chasing lean startups, I recognized one simple truth. I still like my startups Phat.

A phat startup aims to solve a very big, very difficult problem that will transform an industry. They typically take many millions, or even tens of millions and 1-3 years to get the first product out the door. They are big ambitious bets on deep technology and market transitions that are difficult to predict. They require invention and problem solving and risk, yes risk. They are a venture in the true sense of the word.

But my goal is not to dismiss the good ideas in the Lean Startup bible. There are many, but some simply don’t apply.

For example, in Phat startups, the challenge is not whether customers will want it (or whether you need to pivot or iterate or some other euphemism). The challenge is whether it can be built in the first place—will it work at all? Will it perform to spec? Will it scale? Will it be reliable? Can it be manufactured? Will it hit the price point?

Very frequently, the last question is whether customers will buy it. I know this sounds “unconventional” and decidedly old-school, but in many of these cases, if you CAN build it, they WILL come.

Why? Because phat startups often address problems that simply can’t be solved any other way, and customers are in dire need of solutions—from cancer treatments to robots for bomb disposal to switches capable of handing exponential growth in mobile data.

And that’s why, once the product is proven, phat startups have been many of our region’s, and our country’s fastest growing and biggest winners. All of these were $1B market cap companies:

Company$ Raised to 1st Revenue* Goal
Starent$30M+Smartphones at 3G speeds
Athenahealth$13M+Electronic medical records
Endeca$30M+Enterprise search/analytics
A123$30M+Electric vehicles
Aveo Pharma$100M+Cancer treatment
EqualLogic$20M+Storage for virtual infrastructures
Netezza$35M+Big data analytics
iRobot$15M+Military robots
Acme Packet$20M+SIP/VoIP enablement

*These are my estimates based on VentureSource.

And there’s a new generation of New England companies following in their footsteps:

Demandware (on-demand e-commerce), QD Vision (display color enhancement), 24M (grid storage), 1366 (direct solar wafer), Plexxi (10 GB networks), Affirmed (4G Mobile), Actifio (secondary storage), Qualtre (smartphone components), Xtalic (electronic components), Akiban (scale out databases).

But a key question comes to mind: Are phat startups riskier than lean startups? It depends how you measure risk.

One of the great virtues of lean startups is that they … Next Page »

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Jamie Goldstein is a general partner at North Bridge Venture Partners. He is President of the Board of the New England Venture Capital Association. Follow @

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15 responses to “Lean Startups? I Prefer Mine Phat”

  1. Tim Rueth says:

    Thanks Jamie for the great article. I agree with many of your points. But, as the saying goes, what is good for the goose isn’t necessarily good for the gander. You presented the attraction of a phat start-up from a VC perspective, and clearly, there are more opportunities for VCs to gain in phat start-ups than in lean start-ups. But I would say that on average, there are many more *entrepreneurs* who win in lean start-up situations than in phat start-ups. So, if I’m an entrepreneur, I’ll go for the lean start-up approach, thanks. My probability of success: my_exit_money divided by [money_in * time_to_exit], is most likely much greater.

  2. Charles Norris says:

    Jamie thank you for the awesome post and love the youtube reference. Will keeping pushing our Phat company forward knowing our customers would like to see it working yesterday.

  3. Jamie, I may be coming off as rude but you misunderstood the concept of a lean startup a great deal. The “lean” part has nothing to do with the size of the company, market opportunity, or external capital raised. It comes from Toyota’s “lean manufacturing”, or minimizing activities that don’t build value for the customer. The main difference is that lean startups emphasize minimizing the waste in value creation for shareholders as much as in value creation for customers through the minimization of market risks and building minimal viable products respectively.

    However, what surprised me the most in your article is that one of your key risks in “phat” startups is “whether customers will adopt”. This problem is particularly addressed in the lean startup methodology using customer development. “Building what customer wants” isn’t about asking them what they want but rather understanding their problems and building remedies to those specific problems.

    Finally, you argue that startups with complex disruptive technologies take a long time to put a product into the market and they cannot pivot or iterate quickly. Agility is a relative term: a hippo is less agile than a dog but one hippo can be more agile than another one. Nobody is contesting that it takes longer to develop hardware than software but it’s possible to speed up hardware prototyping. The point of frequent iterations is to avoid staying in the wrong direction long enough to accumulate waste so if the development cycle in an industry is measured months or even years than “quick” iterations must reflect that.

  4. krassen says:

    quite impressed by your 138/140 success rate on investing in workable technologies. Shows good science/tech competence, often missing in VCs.

  5. This is what’s called a positioning piece :-) A good one at that.

    Friendster failed to scale, was a tech failure that let them down.
    MySpace stopped evolving product.
    LinkedIn and Facebook will prove incredibly resilient.

    Dismissing the power of network effects as shiny new toys is amusing.

  6. Going lean or “phat” really depends on what you are trying to accomplish.

    The best products and services out there solve a customer’s problem, a real and concrete problem. That can be only be done if you are attentive enough and putting the buyer and/or user in the center of product development.

    The big word nowadays is innovation. Companies and startups are trying to innovate. But innovation is not a magic pill. It’s not some mystical concept. You can create something that wasn’t, you can innovate and fail because it doesn’t solve anyone’s problem.
    Or you can create something, keeping in mind the problem you want to solve for your customers.

    So lean or phat isn’t the question. It might be easier to stay focused on customers when you are lean (it’s really all you have to focus on). When you start to get phat, there’s a lot of extra steps and extra processes you need to take in order to get things done.

    There isn’t such a thing as too phat to fail.

  7. Thanks to all for their comments on the post.

    The distinction between Lean and Phat is, of course, not black and white. There are techniques in the book that are useful for all companies. I’ve lived these in the past; my first job out of college was a software company (Symmetrix) that implemented lean manufacturing techniques. The book “The Goal” was our bible back in those days.

    As one commenter mentioned, the key word is innovation. I’m drawn to companies that require deep, sophisticated innovation that is very hard to copy. I think these will result in lasting companies that will be future anchor tenants in our innovation economy. This is just one part of our tech ecosystem and I have no objection to creating the next Facebook right here in Boston in parallel. :)

  8. Olin Hyde says:

    Wow! Jamie, are you really the first VC to ever articulate the different challenges facing inventors and innovators?

    Probably not.

    Your description of Phat implies invention – the formulation of fundamentally new products or services. Examples: light bulb, airplane, www, microprocessors. These are Phat because they spawn entire new industries.

    Your description of Lean implies innovation – the practical application of combining inventions into marketable products or services. Examples: Facebook… and every single company you listed as examples on page one.

    Yes, you nailed the two risk factors for an inventor: 1) will the tech work? and 2) will the market adopt?

    Your 138/140 track record, however, shows that you (like all VCs)have a remarkably poor eye for spotting fundamentally new technology. First, not even the best run, most intelligent inventor can crank out a 98% success rate. Second, the examples you cite might be disruptive but few are really doing things that are fundamentally different.

    We know a little about invention, innovation and failure. Personally, I’ve started 8 companies and our senior management team has collectively started 23. And we have all failed.

    Our current venture has invented a new form of artificial intelligence. Yes, it is radical enough that we decided to skip going after VC funding as we did not want to get pushed into becoming an application company seeking a quick exit. Rather, we have 164 private investors that believe in our vision of enabling computers to learn like humans. We have raised a lot of money — even by your standards. And now we are looking for those early-adopter customers that are so precious to creating new industries.

    Contrary to your position, we are huge fans of the lean startup approach. It is more about customer acquisition than it is about finding out if the technology works (or not).

    Platform technologies (like ours) solve many problems. Our risk is choosing the wrong market. This is why Eric Reis is right and you are wrong. Lean startup enables us to find the shortest path between our discovery and a customer invoice. This is the essence of Phat.

  9. Praveen Tipirneni says:

    Hi Jamie,

    I enjoyed your article. Although it doesn’t exactly fit what you are describing, my takeaway is that you like startups in Pasteur’s quadrant.


    Donald Stokes described it in his book in the late 1990s. He thought of innovation as a quadrant. One row was very deep science; and the other row was light science. He described the two columns as low application drive and high application drive. Pasteur’s quadrant was the one with deep science and high application. Highly applied problems that require some deep science/engineering to figure out.

    Regina Dugan, DARPA director, has been talking about it for DARPA recently.


  10. Jim Preston says:

    Most of the lean startups I see in Silicon Valley are trivial. Most of Eric’s examples and his biz success are trivial even if they are making big momey. However, the lean startup philosophy works well for those of us who take on big projects that could change multple industries or even countries (I tried). $30M seed could still be a lean startup.

    I appreciate Eric’s work and that of others who contributed to building out this framework. I’ve made important changes in response to the lean startup framework. I’ve done most elements of this many times before but it really helps to have a well articulated framework.

    Jamie isn’t wrong though. The investor focus now is on trivial but fast return projects. Seems that he is reaching farther.

  11. goldshammgold says:

    Wassup people?

    Let me tell you something, Holmes. Phat is an acronym – pretty hot and tempting. And there is nothing pretty nor hot nor tempting about electronic medical records. Misnomer.

    Furthermore, sucka, Friendster *was* trying to solve a “very big, very difficult problem.” The problem was how to waste a ton of time looking at pictures of your friends, to see who they know that’s phat.

    Denis, don’t mention Toyota. It just makes you look bad. Nobody has mentioned Toyota since 1997, except that guy Obama wanted to run Medicare who’s got no job.