Tag Archives: Union Ventures

On Fred Wilson’s 10 Ways to Start a Business

Hooray for Fred Wilson, a VC (Union Ventures) with a blog named A VC, for this brilliant 20-minute talk called 10 Ways to Be Your Own Boss, posted on his blog as online video. Fred calmly and carefully blows apart the way-too-common assumption that starting a business is about finding investors. He does this with a simple list of examples, each of which is a happy healthy business, most of which started and grew without outside investment.

He begins this talk with a couple of absolutely great quotes. The first, from a comment on Fred’s blog:

“Entrepreneurship exists in the tiny space between madness and genius; and its journey requires a few cross border violations across both madness and genius to get to the final destination.”

The second, from a tweet, shown here on the right, highlighting addiction to a monthly salary.

What I really love is the point he makes with the list. All 10 of these start-your-business instances seems perfectly understandable.

  1. The one-man show. He uses Matt Druge of the Drudge Report as an example.
  2. The two-man show with a partner.
  3. The husband and wife team. You already have a partnership. Assuming your marriage works, you already have a partnership that works. Designer and programmer, marketer and programmer. I know this one very well. Palo Alto Software started like that.
  4. The small office boutique. Fred says Union Ventures is one of those; six people. Small and happy.
  5. A federation of small businesses. He mentions Allen & Co., a New York investment bank. A lot of independents sharing a name and overhead. This works for professional services, like architects, attorneys, consultants.
  6. Projects: films, books, recordings … be an entrepreneur going from project to project to project. A good model for people with unique skills, if they can get work whenever they want.
  7. A cool website, as a small business, He mentions The Hype Machine at hypem.com, which started as a one-person website, remains small, but also profitable. It works as a one-person business, with some freelance resources, managed via laptop from places around the world.
  8. The small team bootstrapped startup. He shows redstamp.com, virtual cards that can be physical cards. This is a small-group quintessential startup, moving fast, flexible, having fun.
  9. The eventually-got-funded startup that started out as a few people working for free. Get it going, get it funded, then make it right.
  10. The startup that was spun out from another company. Twitter is an example. It was a piece of a business that got split apart.

That’s just 10, he says, and he limited his list to 10 only because he had only 20 minutes. He implied he could have gone a lot longer.

The point, made very powerfully in a delightfully cumulative way, is that only two of these 10 raised outside investment money. And one of those two got well on its way first, with people working for free, believing that the future would repay them.

One small detail that bugs me here is the “be your own boss” description of starting a business. I decided to put that into the 140-character tweet format as I was writing this. Here it is:

Is Your Startup Fat or Lean?

When two clear big winners in the high-end startup world disagree on something as basic as lean vs. fat startups, I’m fascinated. First, because both of them have a lot to say to the rest of us. Second, because it illustrates, once again, how much of startups and entrepreneurship defies rules of thumb and generalizations.

measure the appleIn The Case for the Fat Startup, Ben Horowitz tells how he burned hundreds of millions of investor dollars while building up Loudcloud/Opsware  for a stunning $1.6 billion exit in 2007 when it was acquired by Hewlett-Packard. Clearly, this was a huge win. It’s a hall of fame story. And he makes raising a ton a money one of the keys to success (I’m quoting):

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

  • If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
  • You cannot save your way to winning the market.
  • The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Fred Wilson, founder of Union Ventures, a big winner as professional investor, and an eloquent blogger, answered that post with Being Fat is Not Healthy. He says:

The very best investments that I have been involved in established product market fit before raising a lot of money. That’s how Geocities did it. That’s how Twitter did it. That’s how Zynga did it. That’s how every single one of my top twenty web investments in my career did it.

I have to admit, I like the lean option better, but then most of the companies I’ve built or helped to build were bootstrapped. And times have changed, too, so what Horowitz is calling “fat” isn’t really an option very often. But the dialog doesn’t stop there. Horowitz came back and responded with The Revenge of the Fat Guy. He makes two points back:

  • Product market fit isn’t a one-time, discrete point in time that announces itself with trumpet fanfares.
  • My experiences [with Loudcloud/Opsware] are highly relevant to other entrepreneurs. In fact, they are more relevant than Fred’s pattern matching.

Ouch? Pattern matching? Really. Read the Fred Wilson post, see if that’s fair. Also ask yourself whether he’s really guilty of underestimating the time it takes to get the product-market fit. I can’t resist adding this quote from the Fred Wilson post favoring lean. It rings true to me:

In short, since I started investing in the web in ’93/’94, I have invested in about 100 software-based web companies. And the success rate of fat companies versus lean companies is stark. I have never, not once, been successful with an investment in a company that raised a boatload of money before it found traction and product market fit with its primary product.

The rest of us, meanwhile? I think we have to admit, the debate is pretty much moot for the rest of us. There might be a few dozen people around who can still raise hundreds of millions of dollars based mainly on their name and track records. Ben Horowitz and his partner Marc Andreessen are two of them. But I’m not; and, no offense, but the odds are you aren’t either.