This article is an excerpt from the Shortform book guide to "Blitzscaling" by Reid Hoffman and Chris Yeh. Shortform has the world's best summaries and analyses of books you should be reading.
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What is the meaning of the term “Blitzscaling”? What are the best blitzscaling techniques? How have some start-ups become massively successful using this method?
Blitzscaling, meaning driving fast growth by prioritizing speed over efficiency, is the growth model used by companies like Airbnb and PayPal. This method is risky and uncertain but can result in massive successes and rewards.
Keep reading to understand the meaning of blitzscaling and how it compares to other forms of business growth.
What is Blitzscaling?
Traditional business strategy involves gathering information and making decisions with a certain degree of confidence. Take calculated risks that you can measure and afford. Prioritize correctness and efficiency over speed.
But in certain markets today, this is too slow. The risk isn’t inefficiency or wasting money – the risk is playing it too safe. If you win, efficiency isn’t important; if you lose, efficiency is irrelevant. As in Glengarry Glen Ross, “second prize is steak knives. Third prize is you’re fired.”
Blitzscaling, meaning channeling all the resources you’ve got into growth, without minding the efficiency, is a risky yet extremely effective scaling strategy. When you blitzscale, you make decisions before knowing exactly how things will play out. You accept the risk of making mistakes and operating inefficiently, in exchange for moving faster.
- The term “blitzscaling” was inspired from the WWII German military technique “blitzkrieg.” In contrast to traditional military strategies of moving at a slow pace to secure supply lines and retreat, blitzkrieg pushed speed and surprise at the risk of running out of provisions.
- Blitzscaling goes beyond the simplistic “get big fast” because it purposefully applies effort to hypotheses about how the business will develop.
How does blitzscaling compare to other forms of growth? Consider this table:
|Uncertainty||Classic start-up growth||Blitzscaling|
|Certainty||Classic scale-up growth||Fastscaling|
In typical chronological order for a company/product:
- Start-ups prioritize efficiency in uncertainty. Resource efficiency lets you learn more about your business before you run out of money. This establishes the beach head.
- Blitzscaling sacrifices efficiency for speed, without waiting for certainty on whether the sacrifice will pay off. This tries to achieve critical mass or market dominance.
- Fastscaling sacrifices efficiency for speed in times of certainty. This is used to gain market share or achieve revenue milestones, using proven strategies. The business is in a dominant position and maturing.
- Scale-up growth grows efficiently in certainty. This is classic corporate management, using ROI and DCF analysis to maximize returns in an established, stable market. The business is an established industry leader.
When do you blitzscale? When you have a killer product, a clear and sizable market, and a robust distribution channel.
A company may be made up of multiple products at different stages of the S-curve life cycle. And different companies in the same industry may be in different stages of the life cycle. For instance, Tencent had messaging app QQ in maturity in 2010 while WeChat was in start-up/blitzscaling mode.
Basics of Blitzscaling
Blitzscaling is both offensive and defensive.
- Offensively, it takes the market by surprise. It builds competitive advantages before other players can respond. It opens up access to capital, since investors prefer market leaders.
- Defensively, it sets a pace that keeps competitors gasping to keep up. They try to mimic your moves but have little time to develop differentiated strategies themselves.
Blitzscaling thrives on positive feedback loops. The company that grows to scale first reaps significant competitive advantages in:
- Labor: employees want to work for the market leader for excitement and money.
- VCs prefer to invest in leaders, and the cash influx further cements the leader’s position.
- Customers: Powered by network effects, buyers get more value as the company grows faster.
Blitzscaling comes with massive risks.
- Blitzscaling can proceed so rapidly that the company unravels. The company needs to reinvent its leadership style and strategy at every new phase of scale.
- Blitzscaling is like “harpooning a whale. The good news is you’ve harpooned a whale. The bad news is you’ve harpooned a whale!”
3 Key Techniques of Blitzscaling
The book will cover three aspects of blitzscaling critical to making it work and avoid merely burning a large pile of money:
- Business model innovation: how the company makes money
- It’s not just about technology. If it were, federal research labs would produce billion dollar companies on a regular basis.
- Technology can develop new ways of earning money.
- Strategy innovation: find novel ways to grow
- Combine new technology with effective distribution, a scalable and high-margin revenue model, and a financing strategy.
- Management innovation: scaling the organization
Anecdotes of Blitzscaling
In 2011 Airbnb faced pressure from the German Samwer brothers, who raised $90MM to take on Airbnb in Europe (when Airbnb had just raised $7MM). The Samwers demanded 25% of Airbnb’s company to merge. Airbnb dug their heels in and fought. “They forced us to scale faster than we never would have.”
In its early phases, PayPal was giving away $20 for every new user. They grew at 5% a day but were losing millions, before they figured out how to cut their losses.
Why are so many valuable tech companies located in Silicon Valley? The obvious answers are its concentration of tech talent and venture capital. But more subtly, it’s the appetite for risk, blitzscaling techniques, and intense competition promoting rapid growth relative to less competitive geographies.
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- How to build a company that grows to a large size very quickly
- Why you have to ignore efficiency and profit for speed
- How companies like Facebook, Uber, and Airbnb were able to blitzscale