My letter to Vivek Wadhwa

I recently tweeted the following:

"I disagree with almost every TC post i've ever read by Vivek Wadhwa. Financial incentives < Cultivating real interest http://tr.im/RPT3"

It looks like I was not the only one:

"@VCMike: RT @shervin: RT @rabois his posts are garbage. RT @georgezachary RT @jhong :disagree w/TC posts i've ever read by Vivek Wadhwa"

Today I got an email from Mr. Wadhwa:

"James, I cherish criticism because I always learn from this. Would love to lean what you disagree with about my posts. Here is my latest: http://techcrunch.com/2010/03/20/integrating-ethics-into-the-core-of-your-startups-why-and-how/ "

Here was my response, I thought i'd post it here on my blog too:

Hi Vivek,

Sure, I am happy to provide some feedback.

WRT to your latest post, there is not too much to disagree with the
concept that strong corporate values can help companies endure. I
think most people understand that ethical behavior leads to trust,
which is a cornerstone of sustainability. I whole heartedly agree with
the concept that companies and people should operate ethically. That
is, for example, why I was against the scamville offers
(http://techcrunch.com/2009/11/01/scamville-hotornot-plentyoffish-facebook-myspace/)

I'm not sure you successfully make that point in your article though.
The data you provide just shows that of companies that were Forbes 100
in 1917, most did not survive. Then you imply based on his statements
about which financial companies survived in 2008 that this was the
same reason for the older companies failing. But you offer no proof of
that, and you don't cite anyone's research that proves this specific
point.

The other issue I have with this article is that it's not clear the
behavior of subprime lending was unethical. Having a short term focus
and making bad loans was ultimately unsustainable and in retrospect a
bad business decision, but it is a bit of a cop out academically to
say that they are inherently unethical. Seems a bit like you are
pandering to a populist audience that presumes that the recession is
only the bank's fault and not their own as well (for borrowing in an
irresponsible manner or for having a short-term mentality themselves
when voting for politicians.)

Are people who took subprime loans unethical, or just unwise? People
adapt to the environment and the rules setup around them.. a lot of
the mess we are in I attribute more to bad public policy decisions..
but even then, I would not call Alan Greenspan unethical, I think he
just made very bad decisions.

If you had just said "these companies failed because they had short
term mentalities and didn't want to hear anything about it from their
employees" that would have been easier to digest. I think your recipe
for framing things has too many parts sensationalism and not enough
parts substantiation.

Incidentally, I do think there are things some banks have done that
have been fairly unethical. I just don't think you listed any of them.

WRT your last post, which was the debate with craig barrett, my
fundamental problem with it was that I believe that the passion and
obsessive thinking needed to make technical breakthroughs are
typically the behavior of people who are genuinely interested in their
subject matter. You can pay a person to become a scientist and do
their job, but you can't pay a person to care.. and my gut tells me
that the people who care are the good ones. If you look at history,
you will find that scientist have not traditionally been wealthy.

What motivated the team that put men on the moon was the challenge and
the glory, not the payoff. That's not to say that large prizes do not
serve as a fun incentive (ala x-prize) and focus/coordinate collective
efforts, but the root of the problem is not one of financial
incentives. Kids don't go around saying they don't like math because
there's no money in it.

If you get someone interested in a subject at an early age, they will
think about the subject whether there is money in it or not.. and in
some pretty cool cases, those people might not even care about the
money when it IS there for them, as is the case of Dr. Perelman of
Russia who recently solved one of the greatest math problems but has
shunned publicity and possibly a one million dollar prize (
http://www.nytimes.com/2010/03/21/science/21award.html)

If you believe otherwise, I'm afraid you are spending a bit too much
time with MBAs and not enough time with the people you are actually
writing about.

Best Regards,
James

Fat versus Lean Startup

Ben Horowitz wrote a good piece over at All Things D, in response to all the startups that try to go lean (keeping expenses as low as possible and raising as little money as possible too).

A lot of companies I have been involved with have faced the question of whether to go Fat or go Lean. My opinion is that, like most things, it really depends on what your goals are, and there is not one blanket answer that fits all situations. As usual, you will have to think about it.

HOTorNOT was probably one of the earliest lean companies in the post web 1.0 crash era. But that is not to say that we didn't consider whether it made sense to raise venture capital, or at the very least to start spending more of our earnings aggressively. For us, there were a lot of questions of what "going big" on HOTorNOT would have returned. We tried "getting fatter" by starting work on other non-HOTorNOT projects, but we then found that we couldn't mentally juggle so many products at the same time. In retrospect, what we should have done is invest in those projects but spin them off into separate companies (with separate offices) quickly. In those days, having capital was a distinct competitive advantage, we really missed the boat on taking advantage of that.

Going lean optimizes short term earnings, but it does so at the expense of long term growth.

All the points Ben makes are correct if there is some really big opportunity out there, provided you want to take the risks needed to capture it. If your financial goals are to only make a few million bucks but with less risk, then going lean can make a lot of sense. If this is the case, then DON'T RAISE VENTURE CAPITAL. If your goal is to create something big, to create and/or capture a huge emerging market, then you need to go big on spending (or in better terms, on investing), and probably will need venture capital to do it.

It is very possible that the markets will crash again sometime soon, and capital will become more scarce. (It's also possible that the govt will continue propping up the system and the markets won't crash, and venture will be fine.. but my personal beliefs don't lie in this camp). For this reason, I've told most of the companies that I'm involved in that if they want to go big, they should raise big now while they still can. If a crash happens, capital will again become a massive competitive advantage.

To summarize:

Want to make a nice little company that optimizes for earnings? go lean.

Want to change the world and go big? go fat.

BTW, going fat doesn't mean spending your money stupidly, you should still watch closely how your company spends its money. going fat is more about being willing to make those investments, and being willing to raise more money to do so.