15 min read ⌚
Quick Summary: “Blitzscaling” by LinkedIn and PayPal co-founder Reid Hoffman introduces readers to the revolutionary scaling process from the title, which turns business strategies on their head by prioritizing speed over efficiency even at the cost of uncertainty. The long-term goal is to blow competitors out of the water by creating a lasting competitive advantage via scaling itself.
Who Should Read “Blitzscaling”? And Why?
“This book is for anyone who wants to understand the techniques that allow a business to grow from zero to a multibillion-dollar market leader in a handful of years,” write the authors of Blitzscaling themselves in a chapter that all but shares the title above.
“Whether you are a founder, a manager, a potential employee, or an investor,” they add, “we believe that understanding blitzscaling will allow you to make better decisions in a world where speed is the critical competitive advantage.”
Blitzscaling PDF Summary
“When a start-up matures to the point where it has a killer product, a clear and sizable market, and a robust distribution channel,” writes Reid Hoffman in the “Introduction” to Blitzscaling, “it has the opportunity to become a ‘scale-up,’ which is a world-changing company that touches millions or even billions of lives.”
“Often,” he adds, “the fastest and most direct path from start-up to scale-up is the hypergrowth produced by blitzscaling.”
Never heard that word before?
Well, that’s where this book and our summary might come in handy.
As you have probably already guessed, the authors (Reid Hoffman and Chris Yeah) use this book to introduce the concept of blitzscaling, to go over its advantages and disadvantages, and to explain why “the key to rapidly building massive businesses in today’s environment is [this] aggressive growth strategy.”
To do this, they use quite a lot of lists and sublists; we’ll try to include them all in our summary, but, due to its limited space, we’ll delve into more details only in the case of the most important ones.
So, let’s go!
PART I What Is Blitzscaling?
As it should be fairly obvious, “blitzscaling” is a portmanteau of two words: the German “blitz” and the Latin-based English “scaling.” The meaning of the latter you know very well, but as far as the former is concerned, you may require some explanation. (That is unless you are a World War II buff, football fan, or, well, English.)
In German, “blitz” means “lightning” and is the word the British press adopted to describe, in short (from “blitzkrieg”), the brutal, rapid, all-out attacks organized by Nazi Germany’s General Heinz Guderian.
By analogy, in football, “all-out blitz” defense means sending every available defender to pursue the QB: a risky move which sometimes pays off.
It’s the same in business: blitzscaling “strives for a relentless and dizzying speed that overwhelms the market” and can be defined as a framework or a set of specific techniques which allows companies to achieve massive scale at incredible speed.
Blitzscaling, in other words, means growing at such a fast rate that it makes you dizzy, even uncomfortable.
It is one of the four types of scaling, which can be best illustrated via this table:
|Uncertainty||Classic Start-up Growth||Blitzscaling|
|Certainty||Classic Scale-up Growth||Fastscaling|
As you can probably deduct from the table, blitzscaling means prioritizing speed over efficiency and uncertainty over certainty.
To understand it better, it is a good idea to first understand the three basics of blitzscaling:
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.
3. Despite its incredible advantages and potential payoffs, blitzscaling also comes with massive risks.
In addition, these are 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
And, finally, these are the three key techniques of blitzscaling:
• Business Model Innovation
• Strategy innovation
• Management Innovation
To mimic the structure of the book, we’ll go over each of these in the following sections.
PART II Business Model Innovation
“Of the three core techniques of blitzscaling,” note Hoffman and Yeh, “the first and most foundational is to design an innovative business model capable of exponential growth.”
“What sets companies like Amazon, Google, and Facebook apart,” they go on, “even from other successful high-tech companies, is that they have consistently been able to design and execute business models with characteristics that allow them to quickly achieve massive scale and sustainable competitive advantage.”
Most of these business models share certain characteristics; and if you want to find your best business model, it is a good idea to design one which maximizes the four key growth factors and minimizes the two key growth limiters.
Designing to Maximize Growth: The Four Growth Factors
The four growth factors are the following:
#1. Market Size: this is, of course, the most basic growth factor; either find an already large or a fast-growing market; otherwise, blitzscaling is, by definition, impossible;
#2. Distribution: the cold and unromantic fact is that, even if you have an “insanely great” product and just poor distribution, a good product with great distribution will always beat you; the distribution techniques to consider fall into two general categories:
• leveraging existing (large) networks (PayPal used eBay, Airbnb – Craigslist);
• virality (which must be free or freemium: “We can’t recall a single instance of a company that grew to a massive scale by leveraging the virality of a paid product.”)
#3. High Gross Margins: as you know, gross margins = sales – the cost of goods sold; the higher they are, the better things are in the long run. (“Many high-tech businesses have high gross margins by default, which is why this factor is often overlooked. Software businesses have high gross margins because the cost of duplicating software is essentially zero.”)
#4. Network Effects: #1 to #3 are important factors in growing a company, but #4 is the one which sustains this growth long enough so that you can build a lasting and massively valuable franchise. According to Arun Sundararajan, there are 5 broad categories of network effects:
• Direct: Increases in usage leads to direct increases in value (Facebook, WhatsApp);
• Indirect: Increases in usage encourages consumption of complementary goods, which, in turn, increases the value of the original product (the adoption of an operating system encourages third-party app developers to build apps for that system)
• Two-sided: Increases in usage by one set of users increases the value to a different set of complementary users, and vice versa. (eBay, Uber, and Airbnb)
• Local: Increases in usage by a small subset of users increases the value for a connected user. (Remember that time when you could specify a limited number of favorite numbers whom you could call for free?)
• Compatibility and Standards: The use of one technology product encourages the use of compatible products. (Microsoft Office encouraged people to use the Office suite)
Designing to Maximize Growth: The Two Growth Limiters
“Building key growth factors into your innovative business model is only half the battle,” note Hoffman and Yeh. “It is fiendishly difficult to grow an amazing business, in part because it is fiendishly easy to run smack into obstacles that limit your growth. A key component of business model innovation is designing around these growth limiters.”
There are two growth limiters that you must build around if you want to blitzscale:
#1. Lack of Product/Market Fit: “Product/market fit,” wrote Marc Andreessen a while back, “means being in a good market with a product that can satisfy that market.” Obvious as it sounds, many people seem to forget that without a good product/market fit, it is impossible to grow a start-up into a successful business.
#2. Operational Scalability – the bigger the company, the more people you need (human limitations) and the bulkier the nonhuman part should be (infrastructure limitations); even with smart tactics, you can’t delay the problems forever.
Proven Business Model Patterns
A proven business model pattern means a sequence of steps which proves successful in more than one case. This is a list of seven such models:
#1. Bits Rather Than Atoms
Google and Facebook are a great example of this: bits-based businesses have fewer variable costs, high gross margins, and make it easier to design the business model around growth limiters. Bits, simply put, are iterative and easier to move around than atoms.
Software-based platforms can achieve global distribution almost immediately. Amazon’s merchant platform, Facebook’s social graph, and, of course, Apple’s iOS ecosystem are great examples of the power of platforms.
#3. Free or Freemium
As Dan Ariely demonstrates in Predictably Irrational, free products would almost always end up bringing users, and the interested ones would almost always upgrade to a paid version if happy with the product.
Local market places have been a valuable business model ever since time immemorial; the Internet allowed them to become Airbnb, eBay, Google.
Subscription allows great distribution with no effort: that’s why software-as-a-service (SaaS) is becoming the dominant model for streaming entertainment and enterprise software.
#6. Digital Goods
This sits at the intersection of #1 and #2 and works with intangible products with practically no intrinsic value: the messaging service LINE, for example, derives significant revenues by selling “stickers.”
One of the most underrated and underappreciated proven patterns is the news feed: Twitter, after all, is just one long news feed.
The Underlying Principles of Business Model Innovation
“Underlying the proven patterns of business model innovation are larger principles that can help refine those patterns or even create new ones,” write Hoffman and Yeh. “These principles aren’t themselves business models, but they often power the technological innovation that enables business model innovation.”
• Moore’s Law, i.e., predict the future of technology
• Automation, i.e., automate everything that can be automated
• Adaptation, not optimization, i.e., constantly improve
• The contrarian principle, aka be a contrarian when you think your truth is just an unpopular option
PART III Strategy Innovation
“To blitzscale or not to blitzscale is a strategic (and difficult) choice,” warn Hoffman and Yeh at the beginning of the third part of Blitzscaling.
So, when should you blitzscale?
The answer may give you these four blitzscaling factors:
• A big new opportunity: it often arises because a technological innovation creates a new market or scrambles an existing one (e.g., YouTube appeared when the networks were finally big enough to stream video).
• First-scaler advantage: “The most frequent offensive reason for blitzscaling is to achieve a critical mass that confers a lasting competitive advantage.” (e.g., Uber, Airbnb)
• Learning curve: if you can be the first to climb a steep learning curve, blitzscale (e.g., Netflix and self-driving cars)
• The threat of competition: if you want to leave your competitors in the dust (e.g., Netflix going into debt to create new content so as to drive his competitors out of the game)
• Good times, bad times: sometimes, blitzscaling works even in less than hot markets (Google during the dot-com bubble)
• Going faster
There are also a few indicators (early-warning signs) that you should stop (or not even start) blitzscaling:
• Declining rate of growth (relative to the market and competition)
• Worsening unit economics
• Decreasing per-employee productivity
• Increasing management overhead
Of course, even if you can blitzscale, it doesn’t mean that you must. But it seems that’s the best strategy for our modern times.
And it updates Paul Graham’s 3-step scaling process (from his 2013 essay “Do Things That Don’t Scale”):
• Step 1: Do things that don’t scale.
• Step 2: Achieve scale.
• Step 3: Do things that scale.
—into this 5-step blitzscaling process:
• 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.
Of course, the role of the founder changes in each of the stages of growth :
• Stage 1 (Family): the founder personally pulls the levers of hypergrowth
• Stage 2 (Tribe): the founder manages the people who are pulling the levers
• Stage 3 (Village): the founder designs an organization that pulls the levers
• Stage 4 (City): the founder makes high-level decisions about goals and strategies
• Stage 5 (Nation): the founder figures out how to pull the organization back from blitzscaling and start blitzscaling new product lines and business units
PART IV Management Innovation
“One of the key features that sets global giants apart from those companies that flame out or implode before they can reach market dominance,” write Hoffman and Yeh, “is an ability to evolve and optimize their management practices at each stage of growth.”
The proven techniques here fall into two main categories: eight key transitions (“which help guide the company through the stages of blitzscaling”), and nine counterintuitive rules (“which turn the conventional wisdom of traditional management on its head in order to cope with blitzscaling’s frenzied pace of growth.”)
Eight Key Transitions
These are the 8 key transitions you should consider when you blitzscale:
#1. Small Teams to Large Teams
This is the first and most obvious blitzscaling transition: when you go from tribe to village, it is almost impossible to keep a small team anymore.
#2. Generalists to Specialists
During the village stage, it is a necessity to hire specialists and turn some of the generalists you already have into specialists so that you sustain your growth.
#3. Contributors to Managers to Executives
Executives are the ones who lead the managers who are, in turn, all about the day-to-day tactics. When you’re blitzscaling, the ideal is to hire executives with past blitzscaling experience, which is, of course, also the reason why investors have more confidence in serial entrepreneurs.
If you can’t hire someone like that, then use this three-step process:
1. Hire someone who is already a known quantity to at least one member of the team.
2. Bring the new executive in at a lower level initially and let the executive prove himself or herself.
3. Once the executive has earned the team’s trust and credibility, consider promoting him or her.
#4. Dialogue to Broadcasting
At the Family stage, the whole company is working under one roof, possibly even one room, so communication is not the problem. However, as early as the Tribe stage, you need company meetings.
At the Village stage, the company exceeds the Dunbar’s number, so the founder needs to find creative ways to broadcast the messages to far-flung employees and keep their morale high as well.
#5. Inspiration to Data
At the early stages, it’s all about inspiration and passion. At the village stage, they need to make space for data-driven approaches: almost all village-size businesses who have blitzscaled have used dashboards to assess the progress of their companies.
#6. Single Focus to Multithreading
“Start-ups in the early stages of blitzscaling are generally single-product companies that focus on doing one thing extremely well. But to keep the company growing in the later stages, scale-ups need to manage multiple product lines or even business units.”
#7. Pirate to Navy
At the “Nation” stage, it is important to start acquiring other start-ups: this is when you transform your offense into a specific type of defense. You have a lasting competitive advantage? Restructure so that you don’t allow your competitors space to narrow the gap.
#8. Scaling Yourself: Founder to Leader
If you are the founder of a blitzscaling start-up, you need to blitzscale yourself. There are only three ways to scale yourself: delegation, amplification, and just plain making yourself better.
Nine Counterintuitive Rules of Blitzscaling
These are the 9 counterintuitive rules of blitzscaling:
#1: Embrace Chaos
To quote Hoffman and Yeh, “entrepreneurs should always have a Plan A, a Plan B, and a Plan Z.”
Plan A is your best current plan; Plan B is an alternate plan, and Plan Z is your fallback plan for surviving a worst-case scenario.
“ABZ planning gives you multiple opportunities to recover from mistakes or setbacks.”
#2. Hire Ms. Right Now, not Ms. Right
“Hiring someone who has been managing a thousand people to run a ten-person company is actually counterproductive,” write Hoffman and Yeh, “because the skills needed to succeed during those two phases are very different.” So, instead of Ms. Right, hire Ms. Right Now, “Now” referring to the stage of your development.
#3. Tolerate “Bad” Management
This should be obvious by definition: in blitzscaling, speed is more important than having a “well-run” organization.
#4. Launch a Product That Embarrasses You
If you need to choose between the perfect product tomorrow and the imperfect product today—always choose the latter.
#5. Let Fires Burn
Prioritize your problems using Hoffman and Yeh’s Maslovian hierarchy of fires: #1 Distribution; #2 Product; #3. Revenue model; #4. Operations; #5 Competition; #6What’s next?
#6. Do Things That Don’t Scale (Throwaway Work)
“To prioritize speed, you might invest less in security, write code that isn’t scalable, and wait for things to start breaking before you build QA tools and processes,” note Hoffman and Yeh.
Of course, all of this will bring you problems later on, but by then you’ll have billions of dollars to solve them.
To sum up, “a hack that takes a tenth of the time may be more useful than an elegantly engineered solution, even if it has to be thrown away later.”
#7. Ignore Your Customers
Really: it seems that most of the blitzscaling start-ups that have grown into multi-billion corporation offer no support or only email support at the beginning, hoping that users would find and help each other on wiki-based encyclopedias and/or discussion forums.
#8. Raise Too Much Money
Raise enough cash for 2 years of operations: see the example of Netflix.
#9. Evolve Your Culture
Ignoring your customers is good, but Ignoring your own culture is never an option. Invest both time and resources to crack the culture code and become a brand!
PART V The Broader Landscape of Blitzscaling
The last two parts of Blitzscaling are comparatively not as important as the first four parts so we’ll just breeze through them.
In Part V, Hoffman and Ye go over the 4 advantages (scale, iteration, longevity, mergers & acquisitions) and the 3 disadvantages (incentives, unstaged commitment, public market pressure) of companies who are not sure whether to blitzscale or not.
Then they offer these established companies three blitzscaling hacks:
• Find ways to leverage people and businesses with prior Blitzscaling experience;
• Leverage the knowledge of venture capitalists;
• Treat the new initiative as a company within a company.
Finally, after introducing the readers to China as “The Land of Blitzscaling,” they go over the three options the companies who compete against blitzscalers have at their disposal to defend: beat them, join them, or avoid them until they collapse.
PART VI Responsible Blitzscaling
In the final part, Hoffman and Yeh talk about the other side of the coin of blitzscaling: as with all other growth processes, you are responsible for much more than your company and the profits, but also for how your business impacts society and humanity in general.
Key Lessons from “Blitzscaling”
1. Blitzscaling Is the New Scaling
2. If Blitzscaling, There Are Four Growth Factors and Two Growth Limiters to Consider
3. There Are Seven Proven Business Model Blitzscaling Patterns
Blitzscaling Is the New Scaling
You can scale up in several different ways. If you’re going for speed and uncertainty rather than efficiency and certainty, then you’re blitzscaling.
Blitzscaling means trying to create a lasting competitive advantage through several specific techniques, which are risky but which, in the long run, may lead to you trampling over your competition.
If Blitzscaling, There Are Four Growth Factors and Two Growth Limiters to Consider
If you are blitzscaling, you should consider these four growth factors:
• Market size
• High gross margins
• Network effects
However, you should also build around the two growth limitations:
• Lack of product/market fit
• Operational scalability
There Are Seven Proven Business Model Blitzscaling Patterns
There are seven proven business model blitzscaling patterns:
• Bits rather than atoms (Google, Facebook)
• Platforms (Amazon, Apple’s iOS ecosystem)
• Free or Freemium (Dropbox)
• Marketplaces (Airbnb, eBay)
• Subscriptions (Netflix)
• Digital goods (LINE and stickers)
• Feeds (Twitter)
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Blitzscaling QuotesYou can take the market by surprise, bypassing heavily defended niches to exploit breakout opportunities. Click To Tweet You can leverage your lead to build long-term competitive advantages before other players are able to respond. Click To Tweet Data is the lifeblood of decision making for any company, but it is particularly fundamental if it informs the design of your product, or if acquisition marketing is your key distribution strategy. Click To Tweet Sadly, premature blitzscaling can sometimes kill a nascent market by ‘poisoning the well’ so dramatically that investors and entrepreneurs avoid the space. Click To Tweet There’s a common misconception that Silicon Valley is the accelerator of the world. The real story is that the world keeps getting faster—Silicon Valley is just the first place to figure out how to keep pace. Click To Tweet
Blitzscaling may not be a book about everybody—for not every company is a Google or a Facebook—but it is definitely a book about established companies with a great product/market fit.
In fact, it may be the best one: after all, Reid Hoffman is the guy who co-founded PayPal and LinkedIn, in addition to being an angel investor in Facebook.
So, you do the math if you want to hear his advice when it comes to scaling up.
“The case studies you’re about to explore, and the tools you’re about to gain have never been more relevant,” writes Bill Gates in the “Foreword.” “This is an ideal moment to be reading this book,” he adds.
Learn more and more, in the speed that the world demands.