Over the past few years I’ve invested in a number of lean startups and a few heavy startups. As it sounds, a heavy startup is nearly the opposite of a lean startup: a high burn rate from the beginning and an assumption that the original idea will be successful. While the heavy startups are making progress, the lean startup model has been superior.
Here are a few lessons learned from investing in heavy startups:
- No matter how great the idea sounds, it always hard to build a product that customers love and where customers can be repeatedly acquired
- Every successful business requires multiple product iterations, and sometimes full pivots, before arriving at the product that takes off (thus, it’s important to plan accordingly with financial resources)
- Regardless of how much cash is in the bank, it will be burned within 12 months, so the more cash in the bank, the higher the monthly burn rate — entrepreneurs love to spend money to get things done (myself included)
- Many aspects of the customer discovery and product/market fit process take time no matter how many people are on staff (similar to the idea that adding software engineers towards the end of a project actually makes the project take longer — see The Mythical Man Month)
- Laying people off is much more painful to morale compared to running on limited staff and waiting to hire until the requisite revenue growth
Heavy startups, while more limited now, are still a part of the startup ecosystem. My recommendation is to go the lean startup route and delay raising a large amount of money and hiring a big team until product/market fit is in place and a repeatable customer acquisition process has been proven.
What else? What are some other lessons learned with heavy startups?
David Cummings on Startups 
Great post David. We are in the K-12 education analytics market and there is a huge increase in funding for startups in the education market ($500M per Quarter over past 2 years – https://www.cbinsights.com/blog/ed-tech-venture-capital-record/).
Some of these companies are getting $10-15M rounds with freeium type products and pre-revenue. It’s very difficult to focus on connecting with each customer and prospect to figure out how to deliver a unique, innovative and valuable product offering when you are trying to recruit, hire and train 25+ new positions to scale. Our experience has proven that an intense focus on customer satisfaction, retaining talent and finding predictable ways to increase qualified leads is a much more sure way to succeed. This focus takes a lot of hard work / time and you don’t need any distractions.
PS. We are excited to be new residents at ATV this month!
Now I feel a ‘little better’ that we bootstrapped the last year or so….but…still would love an investor to move us to the next level. Thanks again for your insights David. Very helpful.
I love your last point –
“Laying people off is much more painful to morale compared to running on limited staff and waiting to hire until the requisite revenue growth”
It’s great advice that start-up companies should start with a minimal workforce. Just enough to get the job done effectively. This way when you find success & are ready for growth, the small team you started with will make great management for new hires. Starting with a large force will not only make it difficult to downsize if things go sour, but also the finances to pay for extra employees is wasted when it could be used as perks for a small team. Great post once again David. I’m gonna check out your book “Startup Upstart” soon.