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).

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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.