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Start-Up Lessons From Ben Horowitz

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Ben Horowitz, previously of LoudCloud and OpsWare fame and now a GP at Andreessen Horowitz has a blistering and provocative post over at AllThingD. He presents a compelling argument for how the conventional wisdom about the optimal operational mode for start-ups during downturns (lean and mean) is not always sound advise. He is not merely hypothesizing but basing his arguments on how he ran LoudCloud and OpsWare through the downturn.

But rather than do what seemed obvious, I decided to keep on investing. Here’s why: In an economic boom, cash is great, but not necessarily a meaningful competitive advantage. If every company is well funded, being super-well funded doesn’t help you win. In fact, being super-well funded can actually screw you.

But in a bust (like the one we were in), having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors. And that’s what we did.

For a start-up the competitive advantage is its IP. If it retreats from building that moat it’s basically game over. His central and counter-intuitive argument is that sometimes start-ups need to burn cash in order to not run out of cash ultimately. Confused. Good. Now head over there and read the whole thing. Someone who can quote Kanye West and GB Shaw in the same post deserves your attention. Plus he has great lines like this

Thin is in, but sometimes you gotta eat.

In some ways this counter-intuitive approach that Ben is advocating resonates with Buffet’s wisdom: be fearful when others are greedy and greedy when others are fearful.

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Written by Varma Chanderraju

March 21, 2010 at 4:05 pm

Posted in Innovation

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