Blitzscaling: The Lightning-Fast Path to
Building Massively Valuable Companies by Reid Hoffman, Chris Yeh
Summary
- Blitzscaling is when
you put speed over efficiency, even in the face of uncertainty. This constant
and fast feedback will help you adopt, evolve, and move forward faster than
your competitors. Getting this feedback early and moving quickly on it is the
name of the game – especially if you are a platform and have a two sided model.
Blitzscaling is a risky decision but, if your competitor has taken this path,
it is less risky than doing nothing. This book will walk you through how to do
it, when to do it, why to do it, and what it looks like. The cost and
inefficiencies are worth it because the downside of not doing it when new
technology enables is far greater – irrelevance.
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Key Takeaways
- Blitzscaling Overview
- Blitzscaling will help you make better decisions
where speed is the ultimate super power
- Blitzscaling works as both offense and defense –
you can catch people off guard and as if you don’t, you might not survive. You
can leverage your initial competitive advantage into a long-term one before the
market and competitors can respond. You can get easier access to capital as
investors prefer to back market leaders allowing you to further your advantage
of competitors. Blitzscaling allows you to set the playing field to your
advantage
- McKinsey found the companies that had 60% growth when
they reached $100 million in revenues are 8x more likely to reach $1
billion then those who are growing at 20% of the similar size. They have
first scaler advantage. At this point, the ecosystem around this massive
company recognize them as the market leader and shift their behavior to
better suit them which leads to positive feedback loops
- Startups, just like certain materials and chemicals,
go through phase changes. A dominant global leader is not simply a startup
times of thousand it is a fundamentally different machine. Just as ice
skates are useless on water, the same tactics used in the startup may be
useless once you have achieved product market fit.
- The five phases of Blitzscaling: Family, tribe,
village, city, nation
- The first step is creating a business model that can
grow. This sounds elementary but it’s amazing how many startup founders
miss this simple piece. You must have a business model that can scale or
else it’ll break before you can reach dominance. Business model
innovation is more important than most people think as technology today
is not the differentiator it used to be. Most great startups are like Tesla
which combine existing technologies in a unique and special way rather
than like Space-X where they had to invent their own technologies
- Blitzscaling is a strategic innovation and hurls much common
wisdom out the window. Founders should only blitzscale when they
determine that the most important factor in their company’s survival is
speed into the market. It is a big bet but can pay off handsomely.
- The revenue model don’t have to be perfect when you do
it. Your only goal is scale into a market that is winner take all or
winner take most. However, not every company should blitzscale if
product-market fit isn’t there or if the business model isn’t there
- You should blitzscale when there’s a big new
opportunity, when the size of the market and gross margins overlap to
create potential huge value. You should also blitzscale when there is no
dominant market leader or oligopoly that controls the market
- Another way to think about blitzscaling is by climbing
learning curves faster than others
- Blitzscaling is not meant to go on forever. You should
stop when growth slows, when average revenue per employee slows, when gross
margins begin to climb, and other similar leading indicator show that
your growth is slowing. You should also slow when you are reaching the
upper bounds of a market
- In blitzscaling mode, raise more cash (much more cash)
than you think you’ll need. Typically you should try to raise enough
money for 18 to 24 months of survival. When trying to raise money nothing
is more powerful than not needing it. Only spend money on things which
are life or death if not solved
- As startups blitzscale, they have to balance
responsibility with their power
- Try to partner with currently blitzscaling companies
or companies which have blitzscaled in the past
- Managing Growth
- The role and skills needed by the CEO and top
management are different for every level and size of the startup. It is
never static and is always changing
- Business model growth factors
- Market size – paying customers, great distribution,
fixed and expanding margins
- Distribution – leveraging existing networks, virality
- High gross margins – more revenues lead to more cash
on hand which can be put to use, more attractive to investors
- Network effects – direct, indirect, two sided, local,
compatibility and standards
- There are two growth limiters: product market fit and
operational scalability
- 8 key transitions
- From small teams to large teams. This can be a tough
psychological change for founders and early employees as it is now
impossible to be part of every decision and have clarity into every
department
- From generalists to specialists
- From managers to executives. Executives organize and
lead managers and managers execute day to day operations. Hire people
who are known to at least one current team member, start them small and
let them prove their value and gain other’s trust, then think about
promoting them
- From dialogue to broadcasting. Establishing formal
and consistent communication is extremely important as you grow. Chesky
sends out a weekly email on Sunday nights which highlight growth metrics
but also give the team updates and clarity on how the company is doing
and other important topics so that everyone continues to feel involved
and informed
- From improvisation and inspiration to data. At the
beginning you have no customers to listen to but over time you have to
track team metrics and analyze the data so that you can improve and adapt.
Track the number of user’s raw engagement and churn to begin with and
then customize and go deeper as is necessary for your product or
service. No company should have more than 3 to 5 metrics as more tends
to lead to confusion. It doesn’t necessarily matter what data you
collect but what data gets presented to decision-makers.
- From single threading to multithreading. The author
doesn’t know of one start up that didn’t start out as singularly
focused. They can branch out from there but it is important to have a
deep focus when you’re first getting started
- From pirate to navy. From continuous offense to a
blend of offense and defense. You must strike a balance between the power
of being small and nimble and the benefits of being large and having
scale. Much like JBS Haldane stipulates, you are fundamentally different
when you scale. You can’t run a city the same way you run a tribe and
you can’t run a nation the same way you run a city
- From founder to leader. Your role as the founder will
change as the company scales and grows and you must adapt to it or you
won’t be serving the company as it needs you to. You have to keep your
personal learning curve ahead of the businesses’ growth curve. There are
three ways to scale yourself: delegation, amplification, and simply
getting better.
- Doing things which don’t scale when you’re growing quickly.
It might be best to find a hack that you’ll have to throw away later than
taking your time and running an elegant piece of software
- Ignore your customers at least at this stage in your
growth. You have to provide whatever customer service you can that
doesn’t slow you down – most likely this will be no customer service. However,
you cannot ignore culture a strong culture is really important and is
defined by consistent values and actions across the company. The
executive in charge of the functional area which drives the culture of
the company tends to be the natural successor to the CEO
- Awesome analysis on Zara the clothing retailer who uses
split scaling techniques. Although it is a retailer, they use speed to
their advantage and focus less on efficiency
- Incumbents have some natural advantages such as scale,
the power and resources to continuously innovate, longevity, and mergers and
acquisitions but the disadvantages include poorly aligned incentives, managerial
overhang, lack of risk appetite, public pressure since they’re publicly
traded, etc.
- A good way to gauge risk is by thinking through the knowns
and the unknowns and systemic risk and non-systemic risk. Therefore, you
must act immediately if there’s some big systemic risk, do something short
term to solve your problem, note the problem now so that you can solve it
later and let it burn (if unknown and non-systemic)
- Instability and change are the new norm and the only
way to thrive is to know that you have to adapt faster than the change
around you. Be an infinite learner, be a first responder who is
willing and able to act, veer towards industries, people, and companies
that are biased towards blitzscaling as this is where the fastest and
biggest growth lies
- Other
- Real value is created when innovative technologies
allow for innovative products / services, with an innovative business,
model to emerge
- It’s important to differentiate between first mover
advantage and first scaler advantage. First movers often die but
successful first scalers tend to achieve a very powerful position
- Do everything by hand until it’s too painful. Then
automate it
- Common patterns of dominant businesses:
- Bits versus atoms (software/digital rather than physical)
- Platforms
- Free or freemium
- Marketplaces
- Subscriptions
- Digital goods
- Newsfeeds which drive user engagement and retention
- You must focus on adaptation rather than optimization
- You should always have a plan a Plan B and plan Z that
you can fall back on in case your first option doesn’t work out and then
your option in case worst case scenarios come up
- In the early days prioritize hiring those who can add
value immediately and not the absolute perfect candidate
- Tolerate bad management. At the beginning it is more
important to move quickly than to have perfect organization and processes
in place
- Launch a product that embarrasses you. You don’t want
to wait so long until it’s perfect want to get out and see what the
market thinks of it
- You have to listen to your customers. Not only what
they say, but you also have to know when to ignore them – must learn to
blend data/intuition
- You have to know which fires to fight which ones to
say no to and which ones you actually have some control over. Only then
can you know which problems to tackle and in which order. Distribution,
product, customer service, operations are some of the most important
What I got out of it
- Blitzscaling is the
pursuit of growth and speed, even in the face of uncertainty. It is a big
gamble but is necessary sometimes if coming to market first, fastest, and
biggest gives you a shot at owning a big market. A great playbook for anybody
thinking about pursuing this strategy