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

by Reid Hoffman

When the Airbnb founders first met, Paul Graham, the highly regarded founder of the start-up accelerator Y Combinator (YC), told them flat out that their idea was terrible.

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

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,”

the global economy will need to create six hundred million new jobs by 2030 to meet the United Nations’ sustainable development goals. That’s less than fifteen years away. The world needs more than just new companies and new jobs; it’s going to need entire new industries.

The term “blitzscaling” derives from the twentieth-century usage of “blitz” as a way of describing a sudden, all-out effort. The first usage of blitz in this way was to describe the “blitzkrieg” (“lightning war”) strategy that General Heinz Guderian devised for the initial military campaigns of Nazi Germany during World War II.

In 2017, Amazon had 541,900 employees and was forecast to generate revenues of $177 billion

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.

Classic scale-up growth focuses on growing efficiently once the company has achieved certainty about the environment. This approach reflects classic corporate management techniques, such as applying “hurdle rates” so that the return on investment (ROI) of corporate projects consistently exceeds the cost of capital. This kind of optimization is a good strategy to follow when you’re trying to maximize returns in an established, stable market.

Fastscaling means that you’re willing to sacrifice efficiency for the sake of increasing your growth rate. However, because fastscaling takes place in an environment of certainty, the costs are well understood and predictable. Fastscaling is a good strategy for gaining market share or trying to achieve revenue milestones. Indeed, the financial services industry is often happy to finance fastscaling, whether by buying stocks and bonds or lending money. Analysts and bankers feel confident that they can create elaborate financial models that work out to the penny the likely ROI of a fastscaling investment.

Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off. If classic start-up growth is about slowing your rate of descent as you try to assemble your plane, blitzscaling is about assembling that plane faster, then strapping on and igniting a set of jet engines (and possibly their afterburners) while you’re stil...

“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.

PayPal didn’t have a business model when it began operations (I was a key member of the PayPal executive team). We were growing exponentially, at 5 percent per day, and we were losing money on every single transaction we processed. 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.

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.

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

“Build a product people love. Hire amazing people. What else is there to do? Everything else is fake work.”

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.

If a company can’t achieve “venture scale” (generally, a market of at least $1 billion in annual sales), then most 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.

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.”

What we did is we went on Craigslist and offered $40 to anyone who’d come in for half an hour—a poor man’s usability test. We’re like, “All right, sit down. This is an invitation to Dropbox in your e-mail. Go from here to sharing a file with this e-mail address.” Zero of the five people we tested succeeded. Zero of the five even came close. This was just stunning. We’re like, “Oh my God, this is the worst product ever created.” So we made a list of like eighty things in this Excel spreadsheet, then just sanded down all these rough edges in the experience, and watched our activation rate climb.

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.

In 2016, AWS accounted for 150 percent of Amazon’s operating income, which means that the retail business actually lost money.

We’ll use the simple layman’s definition of network effects in this book: 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.

“Do everything by hand until it’s too painful, then automate it.”

The smart thermostat maker Nest, for example, had only 130 employees when it was acquired by Google for $3 billion, largely because it had outsourced all of its manufacturing to China.

Many venture capitalists like to brag that they are masters of “pattern matching”—but here we must caution not all pattern matching is helpful. The bad kind of pattern matching is what B- and C-grade investors love—the Hollywood high-concept pitch.

Our “Merlin” tool helped make our salespeople more productive (and thus scalable) by automating much of their manual work. Merlin would analyze usage patterns and tell each salesperson which companies to call, how they were already using LinkedIn, and even create a personalized sales deck for each individual prospect!

Amazon does benefit from scale effects, and explicitly uses the “flywheel” framework of author and strategy guru Jim Collins. Brad Stone summarized this approach in his book on Amazon, The Everything Store: Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.

Google started off trying to sell enterprise search appliances, a tool that sits inside a corporate data center, indexing content stored on a company’s servers, then offering a Google search box to find items within that content.

Even today, every new software engineer who joins Facebook is asked to make a revision to the Facebook codebase (potentially affecting millions or even billions of users) on his or her first day of work.

The cost of blitzscaling, even when successful, is usually quite high. It simply isn’t worth the risk and pain to use blitzscaling to pursue a small opportunity.

In 2013, Paul Graham, the cofounder of Y Combinator, wrote a famous essay titled “Do Things That Don’t Scale,” in which he argues that start-ups are like old-fashioned cars with engine cranks. To get them started, founders need to engage in a separate and laborious process that couldn’t possibly work at scale, such as personally recruiting a product’s first users.

Step 1: Do things that don’t scale. Step 2: Reach the next stage of blitzscaling. Step 3: Figure out how to do one set of things that scale, while somehow also finding a way to do a completely different set of things that don’t scale. Step 4: Reach the next stage of blitzscaling. Step 5: Repeat over and over until you reach complete market dominance.

In 2007, Apple had over twenty thousand employees, was the dominant company in the online music business, and was a successful player in the personal computer business. Meanwhile, Google had over ten thousand employees and was the dominant company in search. Nokia, the dominant mobile phone handset maker, had over seventy thousand employees.

One metaphor I use to explain this shift is to take yet another analogy from military history: the marines take the beach, the army takes the country, and the police govern the country. Marines are start-up people who are used to dealing with chaos and improvising solutions on the spot. Army soldiers are scale-up people, who know how to rapidly seize and secure territory once your forces make it off the beach. And police officers are stability people,

Focus on responsibility instead of the specific title. An employee who runs the engineering “department” at the Family stage might consider it a demotion to be one of several directors of engineering at the City or Nation stage, but you can point out that at the Family stage she was managing a team of three engineers and now she oversees a team of one hundred.

Another important organizational arc is moving from generalists to specialists. During the early stages of blitzscaling, the need for speed and adaptability places a hefty premium on hiring smart generalists who can get many different things done in an uncertain and rapidly changing environment. But as the company grows, it needs to shift to hiring specialists who are less fungible but have expertise in an area that is crucial to scaling the organization.

When the company reaches the Village stage, it will need executives. It simply isn’t possible to coordinate a company with hundreds of employees without executives to manage and lead multiple managers. Let’s imagine a company with six departments: engineering, sales, marketing, product, support, and administration. If each department head managed ten direct reports, and each manager reported directly to the CEO, the maximum number of employees under this executive-less arrangement would be sixty-seven (eleven in each of six departments, plus a founder/CEO).

When launching their start-ups, many founders eschew hierarchy because of their egalitarian ideals. But as their firms scale, a growing number of people report to a handful of leaders. Founders may think this allows them to remain in command, because all decisions pass through them. But ironically, their organizations spin out of control as centralized authority becomes a bottleneck that hinders information flow, decision making, and execution. A couple of people at the top can’t effectively supervise everyone’s increasingly specialized day-to-day work; in such a system, accountability for organizational goals gets lost.

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. The goal shouldn’t be to make decisions in these meetings (unless the topic is one on which everyone can and should have input, like where to hold the holiday party); rather, it’s to maximize input from smart people and make sure that everyone feels heard.

Brian Chesky addresses this need at Airbnb by sending a long e-mail to every employee each Sunday night. Chesky’s e-mail isn’t simply a recitation of key performance indicators, which could be just as easily accessed on a dashboard somewhere; rather, Chesky shares his thinking on a topic he considers important to the company.

Mark Pincus of Zynga holds Monday morning coffee talks with all new employees joining that week.

In an interview with Reid, Jeff Bezos of Amazon discussed how he makes data a critical part of his management process. “If this is a decision based on opinions, then my opinion wins,” said Jeff. “However, data beats opinion. So bring data.”

At YouTube, Shishir Mehrotra decided that their single clarifying metric would be watch time. “Our goal was to get to one billion hours per day of watch time,” he said. “At the time, we were doing 100 million hours per day. Facebook had about double that. Television as a whole was 5.5 billion hours per day…. Picking a single clarifying metric is very hard, but it clarifies decision-making and what constitutes success.”

Another famous Steve story involves an Apple strategy off-site where Apple’s top one hundred people worked for a day to reduce Apple’s strategy to ten key priorities, at which point Steve crossed off the bottom seven items and said, “We can only do three.”

When Jobs gathered together the Macintosh team for an off-site shortly after the release of the Lisa, he famously kicked off the proceedings by laying out three “Sayings from Chairman Jobs” as guiding principles for the project. Real artists ship. It’s better to be a pirate than to join the navy. Mac in a book by 1986.

The reality is that many start-ups are like pirates: they lack formal processes and are willing to question and even break rules. This flexibility is critical in the early stages of building a great company. Pirates don’t convene a committee meeting to decide what to do when an enemy ship is approaching—they act quickly and decisively, and are willing to take risks because they know that the default outcome is death.

At the Nation stage, the transformation from pirate to navy is complete. (If it’s not, either you don’t have a Nation or you have failed to make the shift and your Nation is in chaos—witness Uber in 2017.)

For example, if you’re building a global business, there are three key elements you need to put in place. A set of managers who are responsible for, and have strong executive control over, their individual markets globally An understanding of how those markets differ, which leads to a variety of plans for how to grow in each of those markets A unified executive team to coordinate global operations, including the activity of the individual managers leading operations in each country