Fat vs. thin Start-ups

by Simi Hinden

Over on A VC, venture capitalist Fred Wilson discusses why fat startups are unhealthy.

“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 world of venture capital and software startups is quite different from that of Jewish nonprofits. But nonprofit startups have similar problems to worry about, although they’re coming from very different angles. They’re wondering, Will my grant application succeed? Will X organization help fund me, or absorb me into their organization? How can I fund my idea, and pay my bills too? Finding a Michael Steinhardt to back your venture to the tune of millions of dollars, or even a few hundred thousand, is quite rare.

Bootstrapping your venture is difficult, to say the least, and not everyone is able to max out their credit cards and live on a shoestring for years to ensure their idea succeeds – especially in the Jewish nonprofit world, where there are no wildly successful IPOs or huge buyouts. There are many great ideas that haven’t made it because of this. But those who are able to get past the difficult early stages are far more likely to succeed.

Working on a small budget sparks creativity, and it also helps build community. March’s issue of Harvard Business Review has an article which looks at how cash affects a person’s behavior.

“When you’re poor, you ask your friends to help you move, and it sucks, but you buy pizza and beer and get through it. Now I pay someone to move me. I pay a personal shopper to help me pick out clothes, instead of shopping with my sister. I’ve become more efficient, but I bond less with others.”

Particularly in the early stages, it’s the bonding, the community-building phase, which is crucial to a program’s success. You can’t go out and hire a web designer, so you ask a friend or two to build you a site in their spare time. You can’t afford a PR firm, so you get 20, or 50, or 100 of your friends to spread the word via social media and their private networks. You try our your pre-alpha phase venture on a test group and they share their feedback, which allows you to refine the program even more until it has the right market fit. Little by little, you build a core group of supporters and fans, ones that are loyal and will stick with you, because they’ve invested their time and energy in your success. That’s something that money can’t buy.

What’s your take – should there be more funding for new nonprofit startups, or keep it thin until there’s proven success?

Simi Hinden is Assistant Director Online Community at PresenTense.