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

by Reid Hoffman

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.

Airbnb could have Wimdu in exchange for a 25-percent stake in Airbnb. Now Brian faced a difficult decision, with painful consequences regardless of what option he chose.

Blitzscaling drives “lightning” growth by prioritizing speed over efficiency, even in an environment of uncertainty.

“The Samwers gave us a gift,” Brian admitted many years later in our Blitzscaling class. “They forced us to scale faster than we ever would have.”

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.

Today, every individual can connect to any other individual immediately; that increased velocity is what makes blitzscaling possible and so powerful.

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.

First prize in the first wave of consumer social networking went to Facebook; second prize to MySpace; third prize to Friendster. Remember Friendster? You need to win first prize in order to survive in the Internet era.

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.

Disruption on its own is neither good nor bad, but it always involves change. Replacing a $10 product with a $1 product of equal or better quality looks like a disaster to an incumbent player, but, for society as a whole, it means greater productivity.

When outsiders look at Silicon Valley, they often think that the key to this question is innovative technology. But as you’ll read, technological innovation alone doesn’t make for a thriving company.

The late, great Andy Grove, Intel’s legendary CEO, understood and explained this when he wrote in a 2010 op-ed for Bloomberg: 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.

Dropbox founder Drew Houston described the feeling produced by this kind of growth when he told me, “It’s like harpooning a whale. The good news is, you’ve harpooned a whale. And the bad news is, you’ve harpooned a whale!”

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.

Your job as a leader and an entrepreneur is to make sure that you have sufficient fuel to propel your growth while making the necessary mechanical adjustments to the actual rocket ship to keep it from flying apart as it accelerates.

Blitzscaling requires you to move at a pace that is almost certainly uncomfortable for your team.

We believe that the mechanism behind the power of blitzscaling is “first-scaler advantage.”

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.

According to Greylock’s John Lilly, for every executive role that Tumblr needed to fill, there were less than a handful of candidates in all of New York City.

Blitzscaling a start-up isn’t a linear process; a global giant isn’t simply a start-up that’s been multiplied by one thousand, working out of a gleaming high-rise headquarters instead of a grimy garage. Each major increment of growth represents a qualitative as well as quantitative change. Drew Houston of Dropbox expressed this well when he told me, “The chessboard keeps adding new pieces and new dimensions over time.”

In the physical sciences, materials often undergo phase changes as their circumstances (e.g., temperature and pressure) change. Ice melts into water; water boils into steam. As a start-up scales up from one phase to the next, it undergoes fundamental changes as well.

When a business can grow users, customers, and revenues faster than the number of employees without collapsing under the weight of its own growth, the business can achieve greater profitability and keep growing without being as tightly constrained by the need for financial or human capital. 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.

And by “business” we simply mean how the company makes money by acquiring and serving its customers.

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

I remember once telling my old college friend and PayPal cofounder/CEO Peter Thiel, “Peter, if you and I were standing on the roof of our office and throwing stacks of hundred-dollar bills off the edge as fast as our arms could go, we still wouldn’t be losing money as quickly as we are right now.”

Early Uber investor Bill Gurley laid out Uber’s strategy in his 2012 blog post “All Markets Are Not Created Equal.” As the company grows, they are able to facilitate more cars on the road, and along with their investment in route and load optimization, this allows for shorter and shorter pickup times. The experience gets better and better the longer they are in the market.

I am fond of pointing out to entrepreneurs and executives that “in theory, you don’t need practice.”

Of the three core techniques of blitzscaling, the first and most foundational is to design an innovative business model capable of exponential growth.

Great companies and great businesses often seem to be bad ideas when they first appear because business model innovations—by their very definition—can’t point to a proven business model to demonstrate why they’ll work.

Brian Chesky of Airbnb, who said simply, “Build a product people love. Hire amazing people. What else is there to do? Everything else is fake work.”

A big market has both a large number of potential customers and a variety of efficient channels for reaching those customers. That last point is important; a market consisting of “everyone in the world” might seem large, but it isn’t reachable in any efficient way.

Benchmark Capital invested $6.7 million in eBay in 1997. Less than two years later, eBay went public, and Benchmark’s stake was worth $5 billion, which is a 745 times return.

The specific fund that made that investment, Benchmark Capital Partners I, took $85 million from investors and returned $7.8 billion, for a 92 times return.

Altman saw Chesky’s pitch deck and told him it was perfect, except that he needed to change the market-size slide from a modest $30 million to $30 billion.

As Aaron Levie, the founder of the online file storage company Box noted in a tweet in 2014, “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.”

Most of the orthodoxy in Silicon Valley is about building a good product. I think that’s because most companies in the Valley don’t survive beyond the building-the-product phase. 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.

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.

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.

The resulting phenomenon of “increasing returns to scale” often results in an ultimate equilibrium in which a single product or company dominates the market and collects the majority of its industry’s profits. So it’s no surprise that smart entrepreneurs strive to create (and smart investors want to invest in) these network effects start-ups.

Direct Network Effects: Increases in usage lead to direct increases in value. (Examples: Facebook, messaging apps like WeChat and WhatsApp)

Indirect Network Effects: Increases in usage encourage consumption of complementary goods, which increases the value of the original product. (Example: Adoption of an operating system such as Microsoft Windows, iOS, or Android encourages third-party software developers to build applications, increasing the value of the platform.)

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. (Example: Marketplaces such as eBay, Uber, and Airbnb)

Local Network Effects: Increases in usage by a small subset of users increases the value for a connected user. (Example: Back in the days of metered calls, certain wireless carriers allowed subscribers to specify a limited number of “favorites” whose...

Compatibility and Standards: The use of one technology product encourages the use of compatible products. (Example: within the Microsoft Office suite, Word’s dominance meant that its document file format became the standard; this has allowed it to destroy competitors ...

“Product/market fit means being in a good market with a product that can satisfy that market.”

Most nonobvious opportunities arise from a change in the market that the incumbents aren’t willing or able to adapt to.

Founder Brian Chesky describes this strategy succinctly: “Do everything by hand until it’s too painful, then automate it.”

While it is difficult to create a successful marketplace from a cold start, the first marketplace that does manage to achieve liquidity—the ability for buyers and sellers to quickly and efficiently find a counterparty to conduct a transaction—becomes very attractive to both sides of the market.

This pattern is so powerful that Twitter, whose product is essentially one long news feed, is still an important Internet company despite barely changing its product in nearly a decade (going from 140 characters to 280 characters doesn’t count). Twitter is a business that scaled massively because of the power of business model innovation, not product or technology innovation.