Blitzscaling” by LinkedIn and PayPal co-founder Reid Hoffman introduces readers to the revolutionary scaling process from the title, which turns business strategies on their head by prioritizing speed over efficiency even at the cost of uncertainty. The long-term goal is to blow competitors out of the water by creating a lasting competitive advantage via scaling itself.
Exponential growth: The design
Blitzscaling’s first core technique involved designing a business model that is capable of exponential growth. The growth factors that should be utilized are:
1. Market size – You must appeal to a large market and have a plan for scaling up to this market. For example, Jeff Bezos saw bookselling, with Amazon book, as merely the start of Amazon
2. Distribution – You want your business to turn viral, in that your users bring in more users for you. Importantly, virality normally starts with a service that is free and then requires you to pay to upgrade. An example of this would be Dropbox.
3. High gross margins – This equates to sales minus the cost of goods. You want to maximize this with the optimum for Blitzscaling seemingly being a gross margin of roughly 60%.
4. Network effects – This is the most important factor for your business’ long-term vision. Network effects are fundamental to developing the positive feedback loop spoken about earlier in which superlative growth and value creation are produced.
Accept uncertainty and take steps to manage it
- Hire people who fit the stage your company is at and fire people who no longer fit the company’s position in scaling up
- Reorganizing your team may be chaotic but it is vital
- Your product does not need to be perfect. Scaling up fast will give you greater opportunity to make the improvements that you need.
- If there are bigger problems to deal with, deal with them first and leave the other problems for later
- Just because your approach during one stage of Blitzscaling may not work later down the line, don’t worry. Use whatever works at that time to help you reach the next stage. You can always chang
Sizing the market for a disruptor based on an incumbent’s market is like sizing a car industry off how many horses there were in 1910
Things that can limit your company’s rapid growth
Two main factors can stunt your company’s growth:
- Your product not fitting a market
- Operational scalability
Ultimately, it might be that your unique advantage in the market isn’t so unique. Plus, although your company may be growing exponentially, if your infrastructure cannot keep up with this you could be taken over by another company.
4 underlying principles for business model innovations:
- Moore’s Law – Computing power generally doubles every 18 months
- Automation – You want to automate your businesses; this is why Google’s server farms are running 24/7
- Adaptation – You must continually improve your company rather than just optimizing it
- Be contrarian – You need to challenge the status quo, sometimes, to be the leader in your field
What is Blitzscaling?
Consisting of both a general framework and specific strategies, Blitzscaling is perfect for companies where scale is the most important thing. It is an aggressive approach and it ultimately prioritizes speed over efficiency in the face of uncertainty.
This is in contrast to the usual business approach which focuses on efficiency over speed. However, sometimes speed is more important as without scaling up fast you might lose your chance and, thus, lose your efficiency. Blitzscaling started out in Silicon Valley but it can work anywhere.
Feedback loops
An offensive strategy, Blitzscaling thrives off of feedback loops.
In its simplest form, Blitzscaling is based on three techniques:
- Design an innovative business model with growth potential
- Build growth factors into your business model through network effects and implement aggressive spending
- Innovate within your management team. Rapid growth requires top-quality HR
The real value creation comes when innovative technology enables innovative products and services with innovative business models.
When You Should Blitzscale
You should only Blitzscale when being speedy in the market is the critical thing to achieving massive growth. This is not the same as being the first to provide a product. Instead, you need to be the first to scale a product. If the latter is important to your success, then Blitzscaling should be used. You shouldn’t pursue Blitzscaling if you have a low-margin business model.
When your business should stop blitzscaling
Your business should stop when Blitzscaling stops having an impact. For example, if your market stops growing or it reaches an upper limit. There are a few telltale signs that you should stop:
- A declining rate of growth relative to the competition
- Worsening unit economics
- Decreasing per-employee productivity
- Increasing management overhead
Data is the lifeblood of decision making for any company, but it is particularly fundamental if it informs the design of your product, or if acquisition marketing is your key distribution strategy
7 Business Model Patterns and 4 Business Model Principles
- Bits not atoms – Bits are easier to move than atoms. This is why Google and Facebook were able to grow so rapidly
- Platforms – Software-based platforms can be distributed globally with great ease e.g. iOS
- Free – With a free basic account and a premium paid account service you can reach a huge number of users through virality
- Marketplaces – Marketplaces have always been important in the business world. Now marketplaces have moved online, like Airbnb, growth can be global and exponential
- Subscriptions – Software-as-a-service is the dominant model for enterprise software, including streaming companies like Netflix and Spotify
- Digital Goods – In-app purchases are the intersection between bits and atoms
- Feeds – Facebook and Instagram provide personal feeds for their users but they make their money through sponsored updates
The stages of growth
- Family–>Tribe = High levels of competence and/or a brilliant growth strategy
- Tribe–>Village = The founder now manages the people who are doing the first step but in a more differentiated way
- Village–>City = Goals and strategies are still made by the founder and high-level decisions
- City–>National = The strategy has to be pulled back from Blitzscaling and growth of new product lines and business units is required
The purpose of hiring a management team is to solve the organization’s problems in a more scalable way. The CEO should be the hub, and the executive team the spokes that connect the CEO to the frontline managers and employees operating where the rubber hits the road.
Examples of companies that have succeeded because of blitzscaling
There are multiple companies, especially within the tech realm, who have benefited hugely from Blitzscaling. The most obvious example is Amazon. They grew from 151 employees and $5.1 million in 1996 to 7,600 employees and $1.64 billion in 1999.
