A question I hear a lot at startup board meetings is this one: "is the current VP of Marketing or VP of Sales or CFO big enough to do this job in 18-24 months when we go international or need to build an indirect sales channel or do the roadshow for our IPO?"

While you always want the best executive team you can recruit, there are downsides to asking this question too early or in the wrong way. Ben enumerates the risks in his latest blog post The Scale Anticipation Fallacy, then offers his suggestions on the right way to evaluate and develop your executive team. 

(As you can tell, our blogging agenda for the next few months—and maybe longer if the fan mail keeps coming in—is a comprehensive set of posts on entrepreneurship, management, strategy, fund raising, and leadership. Coming soon: the return of my archive on these very topics. Stay tuned.)

When I introduced our venture firm on this blog in July, I wrote extensively about the types of entrepreneurs and companies we want to fund: technical founders, brilliant and motivated entrepreneurs, product-focused companies, and so on. I got widespread head nods on most of the criteria.

But many people were skeptical about the "founder-as-CEO" filter. To express their skepticism, people would ask me some variant of this central question: "shouldn't the founding CEO just get the company jump started, then recruit a professional CEO to drive once the company is up and running?" 

While we agree that startup CEOs and "grow the company" CEOs need dramatically different skill sets (a point Ben hinted at in his last blog post), we wanted lay out our thinking on why we prefer funding startups whose founding CEO plans to run the company for a good long time. Cue the hip hop.

My good friend Steve Blank does a great job of describing the metamorphosis a scalable startup needs to undergo to become a big company. During that metamorphosis, many startups hire executives from big companies to help scale the business. Some go on to do a good job. 

But I've seen more than a few of those big-time execs get organ-rejected within the first couple of months of the tranpslant. Ben published a post today about this exact phenomenon called Why is it Hard to Bring Big Company Execs into Little Companies

In the post, Ben dissects the reasons why big company execs can flounder in startups, how you can spot warning signs during the interview process, and (perhaps most importantly) what you need to do to integrate the freshly hired exec into your company. Read it to save yourself a lot of heartburn created by hiring the wrong exec or failing to do your part to integrate them into the company.  

My partner Ben and I have been active angel investors for years and now full-time venture capitalists for 9 months. But prior to that (and for most our lives), we've been entrepreneurs.

Now that we've sat on both sides of the table—and have spent more time with other venture capitalists—my partner Ben has a few observations to share about what he likes and dislikes about what some VCs do. Mostly what he dislikes. Though to be fair, he has recommendations for behavior he'd like to see instead, so it's not just a rant.

And yes, there's a quote from a rap artist (Dr. Dre, to be precise). 

For those of you who have been keeping up with this blog, you’ll know that my partner Ben Horowitz has been very actively blogging—and folks are paying attention. His post on All Things Digital called The Case for the Fat Startup struck a nerve in the startup community, prompting my good friend Fred Wilson to write a counter-post called Being Fat is Not Healthy, in turn prompting Ben to write a counter-counter-post defiantly titled Revenge of the Fat Guy.

Now for those of you who clicked on the last link, see what happened there? Yes, astute reader: Ben has his own blog now. Go, subscribe, and prepare for a slew of insightful and provocative posts from Ben on leadership, entrepreneurship, venture capital, and much, much more. Also lots of quotes from rappers.

Case in point: Ben’s first post on his own blog demystifies super-angel investor Ron Conway and features lyrics from The Game. Find out why the savviest entrepreneurs trip over themselves to raise money from Ron.

[This post is by Ben Horowitz.]

Fred Wilson wrote a counter post to my The Case for the Fat
that you can find here. Before countering his counter, I’d like to say
that Fred is one of my favorite VCs and has a marvelous track record of
success. Further, I’d like to thank Fred for posting his article, as it enables me to
clarify a couple of subtle but important points. 

I actually agree with Fred in the base case and never said
otherwise: entrepreneurs should build the product that everybody wants before
raising a boatload of cash to build the company. But Fred says one thing that
is confusing and another that’s just not accurate:

  • Only
    raise a boatload of cash once you’ve achieved product market fit.
    market fit isn’t a one-time, discrete point in time that announces itself with trumpet
    fanfares. Competitors arrive, markets segment and evolve, and stuff happens—all
    of which often make it hard to know you’re headed in the right direction before
    jamming down on the accelerator.
  • Only Marc
    and I could have pulled off the Loudcloud/Opsware miracle; other entrepreneurs
    shouldn’t even try.
    certainly didn’t script the movie the way it turned out. I’m not recommending
    that you as an entrepreneur pattern your own startup after mine. But as an entrepreneur,
    you have to deal with adversity, as we did with Loudcloud/Opsware.
    My experiences there are highly relevant to other entrepreneurs. In fact, they
    are more relevant than Fred’s pattern matching.

Let’s talk about each point in turn.

Product Market Fit Myths

First, I agree that the best way to build a big company
would be to find product market fit and then raise a bunch of money to build a
big business. But sometimes, things aren’t so clear. Let me try to describe
some of the ways things can get messy as a series of myths about product market

Myth #1: Product market fit is always a discrete, big bang event

Some companies achieve primary product market fit in one big bang.
Most don’t, instead getting there through partial fits, a few false alarms, and
a big dollop of perseverance. By the time it got acquired, Opware had achieved
product market fit for a category of software called data center automation.
But it wasn’t at all obvious that was going to be our destination while we were getting there. We actually achieved product market fit in a number of smaller
sub-markets such Unix server automation for service providers, then Unix server
automation for enterprise data centers, then Windows server automation, and
eventually network automation and process automation. Along the way, we also built a few products that
never found product market fit. 

Similarly, Joel Spolsky of Joel on Software and
Fog Creek Software fame has an exciting new company called Stack Overflow. He has
achieved product market fit in the collaboratively edited Q&A market for audiences such as software engineers and mathematicians.
Is this the primary product market fit? Neither of those markets seem that big.
Will he need significant new features to find the big product market fit?
Probably. Should he invest or stay lean? Good question, and there’s no formulaic

Myth #2: It’s
patently obvious when you have product market fit

I am sure that Twitter knew when it
achieved product market fit, but it’s far murkier for most startups. How many customers (or site visits or
monthly active uniques or booked revenue dollars, etc.) must you have to prove
the point? As I explain above, there may be multiple sub-markets, each of which
need their own product. I show below that Fred himself didn’t realize that
Loudcloud had achieved product market fit even though we had. It’s usually not
black and white.

Or let's try a consumer products example. Apple's first iPod shipped in
November 2001. It took nearly two years (91 weeks, to be precise) to sell its first million units. In
contrast, Apple's iPhone 3GS shipped June 2009 and shipped 1M units in 3 days. At what point is it obvious to the original iPod team that they've achieved product market fit?

Myth #3: Once you achieve product market fit, you can’t lose it.

Fred implies that we raised a boatload of money for Loudcloud prior to achieving product market fit. This is not true. Four months after founding Loudcloud, we had already booked $12M in customer contracts, so we had product market fit by most measures. I’d defy any VC including Fred to point to a company with a $36M run rate 4 months after founding where the VC advised, “stay lean until you achieve product market

But after that bolt out of the starting gate, the market for cloud
services changed dramatically. After Exodus went bankrupt in September 2001, the market for cloud
services from semi-viable companies went to zero and we lost product market
fit as a cloud services provider. We had to rebuild completely and would ultimately find product market fit in a different set of markets altogether.

Myth #4: Once
you have product-market fit, you don’t have to sweat the competition.

fine to stay lean if you are not quite sure that you have product market fit
and there are no competitors in your face every day. But usually there are. In fact, the best markets are usually the ones in which competition is fierce because the opportunity is big. How
long should you stay lean before attacking? Again, there is no formula that works in all (or even most) cases.

Exceptions that prove the rule

Now, there are some companies such as Twitter (one of Fred’s brilliant investments) for which the above myths are actual truths. However, I propose that
Twitter is more exceptional than Loudcloud or Opsware in that most
entrepreneurs are dealing with a situation that looks much more like Opsware
than Twitter.

The Marc and Ben Special

Second, let's talk about the Marc and Ben Special. Fred writes: “Ben explains that Loudcloud raised $350mm in four rounds of financing (including an IPO) in the first 15 months of
its life. Marc Andreessen and Ben Horowitz can do that. Most of you can not.”

It's true that we raised a lot of money, and not all first-time entrepreneurs can raise that much money. But that's not my point. The most important fund raising that we did as it relates to The Case for the Fat
was the very last round (as is very clear in the original post). We
raised that money as Opsware, long after we had lost all of our
magic fairy dust. Marc had moved on to found Ning and I was the CEO who nearly
ran Loudcloud into the wall. I am quite sure that I did not have exceptional
fund raising capabilities at that point.

In summary, let me repeat that I agree with Fred in the base case: first build
the product that everybody wants, then raise enough money to build the company. If you can build a big company that way, by all means do it.

Having said that, your story will almost certainly not be that
clean. You might achieve partial product market fit at the same time as a scary
competitor, you might not be sure that you have product market fit, you might
lose product market fit. When one or more things happen, no pattern matching will save you. You will have to figure out for your own unique situation a)
whether there is a clear and present market and b) if there is, how you can
take it.

Fred implies that what we did at Loudcloud/Opsware was
extremely difficult and while Marc and I could pull it off, other entrepreneurs
shouldn’t try it. My point is that trying it isn’t really a choice. As an entrepreneur, you will sometimes (maybe more often than you like) find yourself in a difficult situation. I hope to have provided some
insight on how you might come out alive when that happens.

These days, nearly all the entrepreneurs who come pitch at our venture firm Andreessen Horowitz highlight how little money they are raising and how "lean" they are planning to run the company. While we don't want to invest a single dollar more than a company needs, there is a case to be made for raising enough money to win the market. 

My partner Ben makes this case convincingly in his guest post on AllThingsD titled "The Case for the Fat Startup." Read it, and along the way you'll also hear the story of how Ben navigated our company Opsware through the turbulent dot-com implosion to a $1.6 billion acquisition by HP Software in July 2007. 

Hint: he didn't do it running lean.