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Pony Ma’s late-night bet paid off handsomely. Tencent reported 2016 revenues of $22 billion, up 48 percent from the previous year, and up nearly 700 percent since 2010, the year before WeChat’s launch.
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,”
network effects that occur when increased usage of a product or service boosts the value of that product or service for other users.
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.
Take on the additional risk and discomfort of blitzscaling your company, Or accept what might be the even greater risk of losing if your competition blitzscales before you do.
those who extoll the virtues of disruption tend to be—coincidentally enough—the ones in the winners’ circle. But disruption that spreads its benefits and new opportunities broadly is better for society.
“Schumpeterian Profits in the American Economy: Theory and Measurement,” Yale economist William Nordhaus examined the US economy from 1948 to 2001. Based on the data he collected, he concluded that 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 one thing they all had in common was an extreme, unwieldy, risky, inefficient, do-or-die approach to growth.
While blitzscaling may seem desirable, it is also fraught with challenges. Blitzscaling is just about as counterintuitive as it comes. The classic approach to business strategy involves gathering information and making decisions when you can be reasonably confident of the results. Take risks, conventional wisdom says, but take calculated ones that you can both measure and afford. Implicitly, this technique prioritizes correctness and efficiency over speed. Unfortunately, this cautious and measured approach falls apart when new technologies enable a new market or scramble an existing one.
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.
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. 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.
Amazon’s operating cash flow was over $16 billion in 2016, but it spent $10 billion in investments and $4 billion paying down debt. Its seemingly meager profits are a feature of its aggressive strategy, not a bug.
an environment that is willing to finance intelligent risks with both financial capital and human capital, which are the essential ingredients for blitzscaling.
software and software-enabled companies are starting to dominate industries outside of traditional high tech. My friend Marc Andreessen has argued that “software is eating the world.” What he means is that even industries that focus on physical products (atoms) are integrating with software (bits). Tesla makes cars (atoms), but a software update (bits) can upgrade the acceleration of those cars and add an autopilot overnight.
blitzscaling is prioritizing speed over efficiency in the face of uncertainty. We can better understand blitzscaling by comparing it to other forms of rapid growth.
Classic start-up growth prioritizes efficiency in the face of uncertainty.
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.
Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off.
you usually need more money to blitzscale than to fastscale, because you have to keep enough capital in reserve to recover from the many mistakes you’re likely to make along the way.
The canonical sequence that companies like Google and Facebook have gone through begins with classic start-up growth while establishing product/market fit, then shifts into blitzscaling to achieve critical mass and/or market dominance ahead of the competition, then relaxes down to fastscaling as the business matures, and finally downshifts to classic scale-up growth when the company is an established industry leader. Together, this sequence of scaling generates a classic “S-curve” of growth, with slower initial growth followed by rapid acceleration, eventually easing its way into a gentle
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It was part of Steve’s rare genius that time and time again he was able to pick the right product for Apple to blitzscale, even without slowing down for a period of classic start-up growth to gather feedback from the market.
The same multiple S-curve graph that describes Facebook or Apple also describes Tencent, which launched with QQ, then added a second curve for WeChat after QQ reached maturity in 2010. Just when you’ve finished blitzscaling one business line, you need to blitzscale the next to maintain your company’s upward trajectory.
BLITZSCALING IS BOTH AN OFFENSIVE STRATEGY AND A DEFENSIVE STRATEGY.
BLITZSCALING THRIVES ON POSITIVE FEEDBACK LOOPS, IN THAT THE COMPANY THAT GROWS TO SCALE FIRST REAPS SIGNIFICANT COMPETITIVE ADVANTAGES. In April 2014, McKinsey
“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.
“Move fast and break things” was Facebook’s famous motto. Yet rapid growth can cause nearly as many problems as it solves. 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.”
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 your organization will require hard choices and sacrifices; for example, the people who are adept at launching a company aren’t necessarily going to be the right people to scale it,
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).
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.
The first technique of blitzscaling is to design an innovative business model that can truly grow.
Google, Larry Page and Sergey Brin built great search algorithms, but it was their innovations to the search engine business model—specifically, considering relevance and performance when displaying advertisements rather than simply renting space to the highest bidder—that drove their massive success.
Business model innovation is how start-ups are able to outcompete established competitors who typically hold a host of advantages over any upstarts.
The key is to combine new technologies with effective distribution to potential customers, a scalable and high-margin revenue model, and an approach that allows you to serve those customers given your probable resource constraints.
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 discuss the power and importance of this kind of viral marketing later on.)
For successful blitzscaling, the competitive advantage comes from the growth factors built into the business model, such as network effects, whereby the first company to achieve critical scale triggers a feedback loop that allows it to dominate a winner-take-all or winner-take-most market and achieve a lasting first-scaler advantage. For example, Uber’s strategy of aggressive city-by-city expansion allows its customers to hail rides with fewer delays than its competitors.
“All Markets Are Not Created Equal.”
The experience gets better and better the longer they are in the market.
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.
companies that blitzscale have to rapidly navigate a set of key transitions as their organizations grow, and have to embrace counterintuitive rules like hiring “good enough” people, launching flawed and imperfect products, letting fires burn, and ignoring angry customers.
start-ups that relied purely on technology innovation without any real business model innovation largely went bust. Companies like eToys that tried to “Amazon” various markets, but without Amazon’s front- and back-office innovations, crashed and burned once the financial markets began to demand profits rather than just expensive revenue growth.
technological innovation alone is insufficient—even when its impact on the future is huge. Services like Craigslist, Wikipedia, and IMDb (the Internet Movie Database) were early, influential Internet innovators, but they still never became massively (financially) valuable on their own.
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.
Peter Drucker wrote that business models are essentially theories composed of assumptions about the business, which circumstances might require to change over time. Harvard Business School professor and author Clay Christensen believes that you need to focus on the concept of the “job-to-be-done”; that is, when a customer buys a product, she is “hiring” it to do a particular job. Then there’s 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.” As Andrea Ovans aptly put it in her January 2015
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If you want to find your best business model, you should try to design one that maximizes four key growth factors and minimizes two key growth limiters.
a market consisting of “everyone in the world” might seem large, but it isn’t reachable in any efficient way.
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,
