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by
Reid Hoffman
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January 12 - March 19, 2020
But prioritizing speed over efficiency—even in the face of uncertainty—is especially important when your business model depends on having lots of members and getting feedback from them. If you get in early and start getting that feedback and your competitors don’t, then you’re on the path to success. In any business where scale really matters, getting in early and doing it fast can make the difference.
When a start-up matures to the point where it has a killer product, a clear and sizable market, and a robust distribution channel, it has the opportunity to become a “scale-up,” which is a world-changing company that touches millions or even billions of lives. Often, the fastest and most direct path from start-up to scale-up is the hypergrowth produced by blitzscaling.
The speed of the Internet has generated a number of second-order effects that have changed how businesses and organizations can grow.
Network effects generate a positive feedback loop that can allow the first product or service that taps into those effects to build an unassailable competitive advantage.
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.
only 2.2 percent of “profits that arise when firms are able to appropriate the returns from innovative activity” went to the disrupters. “Most of the benefits of technological change are passed on to consumers rather than captured by producers,”
the global economy will need to create six hundred million new jobs by 2030 to meet the United Nations’ sustainable development goals.
Start-ups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.
The term “blitzscaling” derives from the twentieth-century usage of “blitz” as a way of describing a sudden, all-out effort.
Blitzscaling is what we call both the general framework and the specific techniques that allow companies to achieve massive scale at incredible speed.
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.
When you blitzscale, you deliberately make decisions and commit to them even though your confidence level is substantially lower than 100 percent. You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster. These risks and costs are acceptable because the risk and cost of being too slow is even greater.
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. You also have to be prepared to execute with more than 100 percent effort to compensate for the bets that don’t go your way.
blitzscaling is prioritizing speed over efficiency in the face of uncertainty.
Classic start-up growth prioritizes efficiency in the face of uncertainty. Starting a company is like jumping off a cliff and assembling an airplane on the way down; being resource-efficient lets you “glide” to minimize the rate of descent, giving you the time to learn things about your market, technology, and team before you hit the ground.
Classic scale-up growth focuses on growing efficiently once the company has achieved certainty about the environment.
Fastscaling means that you’re willing to sacrifice efficiency for the sake of increasing your growth rate.
Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off.
1. BLITZSCALING IS BOTH AN OFFENSIVE STRATEGY AND A DEFENSIVE STRATEGY.
2. BLITZSCALING THRIVES ON POSITIVE FEEDBACK LOOPS, IN THAT THE COMPANY THAT GROWS TO SCALE FIRST REAPS SIGNIFICANT COMPETITIVE ADVANTAGES.
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
TECHNIQUE #1: BUSINESS MODEL INNOVATION
The first technique of blitzscaling is to design an innovative business model that can truly grow.
the companies and founders we universally hail as geniuses aren’t just technology nerds—they’re almost always business nerds too.
TECHNIQUE #2: STRATEGY INNOVATION
TECHNIQUE #3: MANAGEMENT INNOVATION
The real value creation comes when innovative technology enables innovative products and services with innovative business models.
GROWTH FACTOR #1: MARKET SIZE
“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.”
GROWTH FACTOR #2: 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.
A) Leveraging Existing Networks
B) Virality
GROWTH FACTOR #3: HIGH GROSS MARGINS
One of the key growth factors that entrepreneurs often overlook is the power of high gross margins. Gross margins, which represent sales minus the cost of goods sold, are probably the best measure of long-term unit economics.
High gross margins are a powerful growth factor because, as noted below, not all revenue is created equal.
Second, high-gross-margin businesses are attractive to investors, who will often pay a premium for the cash-generating power of such a business.
Finally, most of a company’s operational challenges scale based on revenues or unit sales volume, not gross margin.
GROWTH FACTOR #4: NETWORK EFFECTS
Over two billion people now carry smartphones
A product or service is subject to positive network effects when increased usage by any user increases the value of the product or service for other users.
The magic of network effects is that they generate a positive feedback loop that results in superlinear growth and value creation.
Five Categories of Network Effects
Direct Network Effects: Increases in usage lead to direct increases in value.
Indirect Network Effects: Increases in usage encourage consumption of complementary goods, which increases the value of the original product.
Two-Sided Network Effects: Increases in usage by one set of users increases the value to a different set of complementary users, and vice versa.
Local Network Effects: Increases in usage by a small subset of users increases the value for a connected user.
Compatibility and Standards: The use of one technology product encourages the use of compatible products.
Network Effects Both Produce and Require Aggressive Growth
Moore argues that technology companies often run into problems when they try to transition from a market of early adopters to the mainstream—the proverbial “chasm.” He recommends that companies focus on niche beachhead markets, from which the company can expand outward using a “bowling pin” strategy in which these markets help to open up adjacent markets.
