Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies

by Reid Hoffman

Blitzscaling is a strategy and set of techniques for driving and managing extremely rapid growth that prioritize speed over efficiency in an environment of uncertainty. Put another way, it’s an accelerant that allows your company to grow at a furious pace that knocks the competition out of the water.

When a market is up for grabs, the risk isn’t inefficiency—the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant. Over the years, many have criticized Amazon for its risky strategy of consuming capital without delivering consistent profits, but Amazon is probably glad that its “inefficiency” helped it win several key markets—online retail, ebooks, and cloud computing, to name just a few.

But blitzscaling is more than just plunging ahead blindly in an effort to “get big fast” to win the market. To mitigate the downside of the risks you take, you should try to focus them—line them up with a small number of hypotheses about how your business will develop so that you can more easily understand and monitor what drives your success or failure.

Yet growth alone is not blitzscaling. Rather, blitzscaling is prioritizing speed over efficiency in the face of uncertainty.

BLITZSCALING THRIVES ON POSITIVE FEEDBACK LOOPS, IN THAT THE COMPANY THAT GROWS TO SCALE FIRST REAPS SIGNIFICANT COMPETITIVE ADVANTAGES.

Once a scale-up occupies the high ground in its ecosystem, the networks around it recognize its leadership, and both talent and capital flood in. For

As Mark Zuckerberg told me in an interview for my Masters of Scale podcast, “We got to a point where it was taking us more time to go back and fix the bugs and issues that we’re creating than the speed that we were gaining by going faster.” In one famous incident, a summer intern introduced a bug that brought down the entire Facebook site for thirty minutes.

Successful blitzscaling means that you’re maintaining at least some level of control by rapidly fixing the things that will inevitably get broken so that the company can maintain its furious pace without flaming out or collapsing in on itself.

Blitzscaling is risky from a management perspective as well. Reinventing your leadership style, your product, and your organization at every new phase of scale won’t be easy, but it is necessary. In the words of leadership guru Marshall Goldsmith, “What got you here won’t get you there.”

THE FIVE STAGES OF BLITZSCALING

Stage 1 (Family) 1–9 employees Stage 2 (Tribe) 10s of employees Stage 3 (Village) 100s of employees Stage 4 (City) 1000s of employees Stage 5 (Nation) 10000s of employees

We also recognize that the number of employees is only one of several measures of an organization’s scale. Some of the other measures of scale include the number of users (user scale), the number of customers (customer scale), and total annual revenues (business scale).

While it’s nearly impossible to achieve customer scale or business scale without organizational scale—customers require customer service representatives, and revenues typically require salespeople—it is possible to achieve user scale without organizational scale.

In contrast, when the number of employees grows faster than users, customers, and revenues, it’s a major red flag that could indicate issues with the fundamental business model.

A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business. And by “business” we simply mean how the company makes money by acquiring and serving its customers.

So many technologies are available as services, which are on demand and built to be integrated, that technology is no longer as strong a differentiator, while figuring out the right combinations of services to bring together into a breakthrough product has become a major differentiator.

“If your playbook is the same as your competitor’s, you are in trouble, because chances are they are just going to run your playbook with a lot more resources!”

If technological innovation alone were enough, federal research labs would produce $100 billion companies on a regular basis. Spoiler alert: they don’t.

Technology innovation is a key factor in retaining the gains produced by business model innovation. After all, if one technology innovation can create a new market, another technology innovation can render it obsolete, seemingly overnight. While Uber has achieved massive scale, the greatest threat to its future doesn’t come in the form of direct competitors like Didi Chuxing, though these are formidable threats. The greatest threat to Uber’s business is the technology innovation of autonomous vehicles, which could make obsolete one of Uber’s biggest competitive advantages—its carefully cultivated network of drivers—essentially overnight.

The funny thing is that some of our critics called us insane for paying customers bonuses to refer their friends. Those referral bonuses were actually brilliant, because their cost was so much lower than the standard cost of acquiring new financial services customers via advertising. (We’ll

To achieve your goals, you have to know what you plan to do and, just as important, what you plan not to do. Also, growth doesn’t create value in and of itself;

For successful blitzscaling, the competitive advantage comes from the growth factors built into the business model, such as network effects,

blitzscaling also goes beyond just risk taking. It may be risky to bet the company, as Walt Disney did when he borrowed against his own life insurance to build Disneyland, but it’s not blitzscaling. Blitzscaling would have involved inefficiencies like paying construction crews to work twenty-four hours a day in order to get Disneyland open a few months earlier, or reducing ticket prices 90 percent to get to one million visitors faster—knowing that those one million visitors were networked to ten million more.

Silicon Valley venture capitalists want entrepreneurs to pursue exponential growth even if doing so costs more money and increases the chances that the business could fail, resulting in a bigger loss. Dropping below even 40 percent annual growth is a warning sign for investors.

Because blitzscaling often requires spending significant amounts of capital in ways that traditional business wisdom would consider “wasteful,” implementing a financial strategy that supports this aggressive spending is a critical part of blitzscaling.

TECHNIQUE #3: MANAGEMENT INNOVATION The final technique required for blitzscaling is management innovation. This is necessary because of the extreme strains placed on the organization and its employees by hypergrowth.

Tripling the number of employees each year isn’t uncommon for a blitzscaling company.

Amazon emerged and practically wrote the bible for e-commerce, including consumer reviews, shopping carts, and free shipping.

It’s not easy to judge the size of a market, or what pitch decks and venture capitalists often refer to as TAM (total available market). Predicting TAM and how it will grow in the future is one of the main sources of uncertainty in blitzscaling. But predicting it correctly and investing accordingly when others are still paralyzed by fear is also one of the main opportunities for unexpectedly high returns,

venture capital funds need to at least triple their investors’ money. A $100 million venture capital fund would need to return $300 million over the typical seven- to ten-year life of a fund to achieve an above-market internal rate of return of 15 to 22 percent. A $1 billion fund would need to return $3 billion.

VCs won’t invest, even if it is a good business. It simply isn’t large enough to help them achieve their goal of returning more than three times their investors’ money.

fact is that a good product with great distribution will almost always beat a great product with poor distribution.

You have to be good at building a product, then you have to be just as good at getting users, then you have to be just as good at building a business model. If you’re missing any of the links in the chain, the whole chain is broken.

Despite these dangers, leveraging existing networks can be a critical part of a business model, especially if these networks can provide a “booster rocket” that

Bringing new users in through the front door doesn’t help you grow if they immediately turn around and leave. According to Houston, Dropbox discovered this truth the hard way, when activation rates revealed that only 40 percent of the people signing up were actually putting files in their Dropbox and linking them to their computers.

Virality almost always requires a product that is either free or freemium (i.e., free up to a certain point, after which the user has to pay to upgrade—Dropbox, for example, offers 2 GB of free storage). We can’t recall a single instance of a company that grew to a massive scale by leveraging the virality of a paid product.

The higher the gross margin, the more valuable each dollar of sales is to the company because it means that for each dollar of sales, the company has more cash available to fund growth and expansion.

“old economy” businesses often have low gross margins. Growing wheat is a low-margin business, as is selling goods in a store or serving food in a restaurant. One of the most amazing things about Amazon’s success is that it has been able to build a massive business based on retailing, which is generally a low-margin industry. And even Amazon now relies heavily on its high-margin SaaS business, Amazon Web Services (AWS). In 2016, AWS accounted for 150 percent of Amazon’s operating income, which means that the retail business actually lost money.

If your company is pursuing an opportunity that nearly everyone agrees is very attractive, you’re likely to have a difficult time distancing yourself from your army of competitors. But if your company is pursuing an opportunity that conventional wisdom ignores or disdains, you will probably have the time you need to refine your business model innovation into a well-oiled machine. Amazon pursued e-commerce when most people didn’t think consumers would feel comfortable using credit cards online.

As we’ve already seen, most great ideas look dumb at first. Being contrarian doesn’t mean that dumb people disagree with you; it means that smart people disagree with you!

The engineering department alone would require multiple teams and team leaders who would report to a VP of engineering charged with coordinating the teams and architecting the overall organization of the department.

Every employee has likely reported to managers with varying styles and qualities; when promoted to a first-time manager, they can draw on these experiences to help develop their own management style. But when an organization needs executives for the first time, internally promoted managers can’t draw on the experience working with executives at that company—because there weren’t any. There are no role models to provide guidance.

The key to navigating this transition is open-mindedness: insiders need to be open to the outside ideas of the new executives, while the outsiders need to be open to learning from what happened before they arrived.

But once your organization has successful executives who can serve as role models and mentors,

One area that undergoes the most change during blitzscaling is the internal communications process. As the company grows, you have to shift from informal, in-person, individual conversations to formal, electronic, “push” broadcasting and online “pull” resources. You also have to shift from sharing all information by default to deciding on what is secret and what is shareable. If you don’t manage to develop an effective internal communications strategy, your organization will become disjointed and start to fall apart.

However, as early as the Tribe stage, you will need to begin implementing processes to supplement the one-to-one dialogue. For example, nearly every Tribe-size start-up holds a weekly company meeting, though with wildly varying degrees of effectiveness. The weekly meeting is most effective when it serves as a mechanism to bring together the entire company, and for company leaders to convey key messages to employees with whom they don’t work directly.

A Tribal meeting should be well organized, with an agenda and other materials provided in advance so that participants can engage in an interactive discussion rather than simply listen to senior leaders talking or, worse, suffer through text-dense PowerPoint presentations.

it’s to maximize input from smart people and make sure that everyone feels heard. As a leader, you should seek out opinions from across the organization on important issues, but you can’t abdicate your responsibility and rely only on group consensus to make tough decisions.

every employee in this fashion. When a company grows to the Village stage, simple logistics can make it difficult to hold a company meeting (often called an “all-hands” meeting).

The right thing is generally to shift the cadence of such meetings to a lower frequency, such as monthly or quarterly, and to leverage technology like videoconferencing to bring the various offices together.