Sramana Mitra: How to navigate the world of 'fat startups'

ATN-300InsightaaS: We’ve been looking for a way to include posts from Sramana Mitra’s excellent One Million by One Million blog for several weeks. We had actually intended to start with her post “Starting Unicorn Companies: Tableau Software,” but ran into a scheduling issue. That loss is today’s gain, though, as we’re able to highlight this post on ‘fat startups’ instead. Unlike ‘lean startups’ like Tableau that burn little cash until they start to scale, fat startups require substantial upfront investments. In an era where ‘startup’ is often synonymous with business built around mobile apps and/or cloud platforms, ‘fat’ seems anomalous. However, there are situations (which we’ve encountered in our Smart Grid and related research) where companies need to invest so heavily in engineering that they require both substantial and ‘patient’ funding. In this post, Mitra outlines some of the factors that influence fat startup success, using examples drawn from here 1M/1M experience. Overall, as she notes in her conclusion, “While the industry is obsessed with lean startups these days…there is tremendous value in understanding how to continue to build fat startups as well.”

In the Unicorn series, I have so far written about Tableau Software, FireEye, and RightNow. Of these, while Tableau and RightNow have followed Lean Startup principles, FireEye is definitely what I call a ‘Fat Startup’ that required a lot of early funding to get to market.

While it is true that these days, we focus a lot more on lean startups than startups that require capital to get going, fat startups still play an important role in developing large-scale success stories with significant defensible competitive advantage. In the FireEye article, we saw how Ashar Aziz has used cross-domain innovation to build a business that has scaled to an over $3 billion market cap.

The bulk of the industry has moved away from the ‘fat startup’ category. Investors expect that you will have your product launched, customer acquisition model fleshed out fully, and a team in place before Series A.

However, infrastructure software, hardware, networking, chips — they need capital. Even in cloud software, to build complex technology like personalization and analytics requires some serious investment…

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