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Blitzscaling is a specific set of practices for igniting and managing dizzying growth. It prioritizes speed over efficiency in an environment of uncertainty and allows a company to go from “startup” to “scale up” at a furious pace that captures the market.
The framework for blitzscaling can be replicated in any region or industry. It helps you to learn how to design business models that support lightning-fast growth, navigate necessary shifts in strategy at each level of scale, and weather the management challenges that arise as the company grows.
However, blitzscaling isn’t as simple as it sounds. It combines gut-wrenching uncertainty with the potential for a much bigger, more embarrassing, more consequential failure. Not to mention, it is also hard to implement. Unless you’re like Microsoft or Google and can finance your growth from an exponentially growing revenue stream, you’ll need to convince investors to give you money. To make matters worse, you have to keep enough capital in reserve to recover from the many mistakes you’re likely to make along the way.
Yet despite all of these potential pitfalls, blitzscaling remains a powerful tool for entrepreneurs and other business leaders. If you are willing to accept the risks of blitzscaling, you’ll be able to move faster than your competitors. If the prize to be won is big enough, and the competition to win it is intense enough, blitzscaling becomes an optimal and rational strategy.
Let’s use the metaphor of a community to refer to the five key stages of blitzscaling. Since the most obvious, visible, and impactful change involves the number of people it employs, we’ll define the stages based on the number of employees in the company, or its organizational scale.
It’s important to remember that while these powers often provide a clear and concise set of categories, real life often gets messier. For example, a start-up with a tight-knit team might feel and act like a family even if it has nearly twenty employees. So these definitions are meant simply to offer a useful set of guidelines.
The three key techniques of Blitzscaling are Business Model Innovation, Strategy Innovation, and Management Innovation. First, you design a business model that can and should be blitzscaled, then you execute a blitzscaling strategy in which you prioritize speed over efficiency in the face of uncertainty, and finally, you apply innovative management techniques to manage the strains and challenges of rapid growth and massive scale.
Of the three core techniques of blitzscaling, the first and most foundational one is to design an innovative business model capable of exponential growth.
The real value of creation comes when innovative technology enables innovative products and services with innovative business models. Even though the business models of Google, Alibaba, and Facebook might seem obvious – even inevitable – given the fact that they weren’t widely appreciated at the time of their launch. How many people in 1999 would have realized that running tiny text ads next to the equivalent of an electronic card catalogue would lead to the world’s most valuable software company? Or that setting up an online shopping mall for China’s emerging middle class would lead to a $100 billion business? Which of you in 2004 would have predicted that letting people see what their friends are talking about by staring at a tiny screen on a handheld computer would become the dominant form of media? 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.
Of the three core techniques of blitzscaling, the first and most foundational is to design an innovative business model capable of exponential growth.
The real value creation comes when innovative technology enables innovative products and services with innovative business models. Even though the business models of Google, Alibaba, and Facebook might seem obvious-even inevitable-after the fact, they weren’t widely appreciated at the time they launched. How many people in 1999 would have realized that running tiny text ads next to the equivalent of an electronic card catalog would lead to the world’s most valuable software company? Or that setting up an online shopping mall for China’s emerging middle class would lead to a $100 billion business? Which of you in 2004 would have predicted that letting people see what their friends are talking about by staring at a tiny screen on a handheld computer would become the dominant form of media? 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.
Throughout this book, we will refer to the five key stages of blitzscaling using the metaphor of a community. Since the most obvious, visible, and impactful change number of people it employs, we’ll define the stages based on the number of employees in the company, or its organizational scale.
It’s not easy to judge the size of a market, or what pitch decks and venture capitalists often refer to as 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, as we see in the cases of Airbnb and Uber.
Many people in Silicon Valley like to focus on building products that are, in the famous words of the Late Steve Jobs, “insanely great”. Great products are certainly a positive-we’ll discuss the lack of product quality as a growth limiter later on-but the cold and unromantic fact is that a good product with great distribution will almost always beat a great product with poor distribution.
Distribution techniques fall into two general categories: leveraging existing networks and virality.
High gross margins are a powerful growth factor because, as noted above, not all revenue is created equal. High-gross-margin businesses are attractive to investors, who will often pay a premium for the cash-generating power of such a business. Most of a company’s operational challenges scale based on revenues or unit sales volume, not gross margin.
Market size. distribution and gross margins are important factors in growing a company, but the final growth factor plays a key role in sustaining that growth long enough to build a massively valuable and lasting franchise. While the past twenty years have driven improvements in the first three growth factor in Internet usage around the world has pushed network effects to levels never before seen in our economy. In this highly connected world, more companies than ever are able to tap into network effects to generate outsize growth and profits. We use the simple layman’s definition of network effects: “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”.
Economists refer to these effects as “demand-side economies of scale” or more generally positive externalities. The magic of network effects is that they generate a positive feedback loop that results in super linear 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.
A key element of leveraging network effects is the aggressive pursuit of network growth and adoption. Because the impact of network effects increases in a super-linear fashion, at lower levels of scale network effects actually exert downward pressure on user adoption. Once all your friends are on Facebook, you have to be on Facebook too. But conversely, why would you join Facebook if none of your friends had joined yet? The same is true for the first user of marketplaces like eBay and Airbnb.
With network effects businesses, you can’t start small and hope to grow slowly: until your product is widely adopted in a particular market, it offers little value to potential users. Economists would say that the business has to get past the “tipping point” where the demand curve intersects with the supply curve. Companies like Uber subsidize their customers in an attempt to manipulate the demand curve to reach that tipping point faster; the bet is that losing money in the short term may allow you to make money in the long term, once you’re past the tipping point
The only way to truly prove that your product is market fit is to get it into the hands of real users. Entrepreneurs can and should do their research, and try to design their business model to maximize their chances of achieving product/market fit as quickly as possible
Designing a scalable economic model isn’t enough if you can’t scale up your operations to meet the on growing demand.
Too often, entrepreneurs dismiss the challenges of operational scalability by saying, “Managing explosive growth is a high-class problem.” High-class problems are still problems, however, it may feel better for your ego to be wrestling with the issues of growth rather than simply trying to avoid missing payroll, but both can still kill your company. Rather than dismiss these challenges, the wisest innovators design operational scalability into their models.
Whether by design or net the business models of rapidly growing companies often follow proven patterns that tap into growth factors and bypass growth limiters.
Underlying the proven patterns of business model innovation are larger principles that can help refine those patterns or even create new ones. These principles aren’t themselves business models, but they often power the technological innovation that enables business model innovation.
To blitzscale or not to blitzscale is a strategic (and difficult) choice, and because of this, we went to take a look at when and how founders and CEOs approach that decision, and how it changes their companies and even their own roles in their businesses.
To blitzscale or not to blitzscale is a strategic (and difficult) choice, and because of this we went to take a look at when end how founders and CEOs approach that decision, and how it changes their companies and even their own roles in their businesses.
Here are a few factors to look for if you are wondering whether the time is right for your company to blitzscale:
While blitzscaling is a powerful strategy, it is not a permanent one. No business can grow forever simply because no market is infinite. You blitzscale when the market is big or growing fast — or preferably both. If your market stops growing or reaches its upper limit, you should stop blitzscaling.
Because blitzscaling is — by definition — an inefficient use of capital, it only makes sense when speed and momentum are important. Blitzscaling is like the afterburners on a fighter jet that allow you to fly at double or triple normal speed but consume fuel at a shockingly high rate. You don’t just switch on the afterburners and never turn them off.
Blitzscaling requires capital—whether from investors or from cash flow—to fund relatively inefficient growth. If investors are willing to act quickly and provide large amounts of capital, the risk that a competitor decides to blitzscale is higher. The same is true when a business model provides a lot of high-margin revenue to fund growth. So the safest time to choose not to blitzscale is when you’re pursuing a relatively low margin business model that investors are unwilling to fund.
Many small or “lifestyle” businesses fall into this category which makes their decision to avoid blitzscaling perfectly rational. However, markets can change quickly.
Successful blitzscaling is an exercise in serial problem solving. Each of the five stages requires different solutions to the same basic problems of people, product, finance and so on. Each time you manage to solve a problem, the problem is never solved forever, it’s only solved for now. As the company continues to grow, you have to solve the same problem again, under a new and potentially radically different set of circumstances.
As we saw in our discussion of Blitzscaling in different economic environments, speed is always relative. What represents hyper growth speed at one stage might be the only average during another.
At the Village (hundreds of employees) and City (thousands of employees) stages, the speeds of competing organizations become much more varied. Some will be content with focusing on optimizing for efficiency, while others will focus on speed. At this stage, blitzscaling is less about aggression and more about pursuing a differentiated (but still aggressive) strategy.
The role a founder plays in the blitzscaling process will change with each stage (and an employee’s role relative to the founder will likely also change). As the organization grows, the specific skills required to lead it evolve as well.
One Of the key features that sets global giants apart from those companies that flame out or implode before they can reach market dominance is an ability to evolve and optimize their management practices at each stage of growth.
The proven techniques we’ll describe in this part fall into two main 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.
Blitzscalng a company isn’t easy: if it were everyone would do it. Like most things of value in this world, blitzscaling is contrarian and unique. To succeed you’ll have to violate many of the management “rules” that are designed for efficiency and risk minimization.
In fact, to achieve your aggressive growth goals in the face at uncertainty and change, you need to follow a new set of rules that fly in the face of what is taught in business schools and are
completely counter-intuitive to accepted “best practices” of either early stage start-ups or classic corporate management.
While blitzscaling is probably most applicable to high tech, its techniques can benefit any industry in which opportunities can demonstrate strong growth factors (market size, distribution. gross margins, and network effects) and overcome the growth limiters (lack of product/market fit and operational scalability).
If you find yourself in a position where competitors are trying to blitzscale your existing business out of existence, you have three basic options to defend yourself: beat them, join them, or avoid them!
The first option to defend against blitzscaling is to beat them by continuing to play your traditional game. As we’ve discussed many attempts to blitzscale are doomed to failure. You should assess the growth factors and growth limiters Of the business model, and if they seem ill-suited to blitzscaling not overreacting is probably your best strategy.
Fans of the late Muhammad Ali may recall his “rope-a-dope” strategy from his Rumble in the Jungle match against George Foreman. The rope-a-dope calls allowing for an opponent to punch himself out: when that opponent is exhausted, you can beat him with a counter-attack.
If your market does seem ripe for blitzscaling, one obvious response is to launch your own blitzscaling effort. The problem with doing so, especially if you’re an established company, is that you might not have the technology or expertise to win a head-to-head competition. You might not be able to buy the technology or expertise but this brings its own set of risks.
The final and perhaps most often “successful” option is to cede the current market to blitzscalers and use your current assets to migrate to a new, less vulnerable market.
Finding yourself in the crosshairs of a blitzscaling competitor can and should be frightening, but it is not a death sentence if you choose the right response. But decide
quickly; the speed of blitzscaling means that taking your time is the same as doing nothing.
Haha ☺♫In an ideal world, blitzscaling organizations would embody all the virtues that society might desire from its businesses—a diverse and inclusive workforce, a strong sense of responsibility to shareholders and stakeholder, an ample supply of well-paying middle-class jobs, and executives who serve as moral role models and leaders of society. The unfortunate truth is that for all the good that blitzscaling produces, blitzscaling organizations can be guilty of the sins that afflict other at companies, and actually face some inherent challenges even when trying to behave responsibly. Blitzscaling companies almost always operate in fiercely competitive markets where in order to survive and thrive. they need to Outgrow their rivals. In the best case. they focus relentlessly on the business making it difficult to achieve broader social goals. In the worst case, they try to get big fast by any means necessary.
In an ideal world, blitzscaling organizations would embody all the virtues that society might desire from its businesses—a diverse and inclusive workforce, a strong sense of
responsibility to shareholders and stakeholder, an ample supply of well-paying middle class iobs, and executives who serve as moral role models and leaders of society. The unfortunate truth is that for all the good that blitzscaling produces, blitzscaling organizations can be guilty of the sins that afflict other at companies, and actually
face some inherent challenges even when trying to behave responsibly.
Blitzscaling companies almost always operate in fiercely competitive markets where in order to survive and thrive. they need to Outgrow their rivals. In the best case. they focus relentlessly an the business making it difficult to achieve broader social goals. In the worst
case, they try to get big fast by any means necessary.
We believe that the responsibilities of a blitzscaler go beyond simply maximizing shareholder value while obeying the law. The society provides the framework in which you live, and in which your businesses operate, which means that it can rightly claim some responsibility for your success. But even beyond the moral imperatives, responsible blitzscaling is a good business strategy. Regulation typically arises when the government believes that an industry isn’t behaving responsibly. Smart blitzscalers realize that behaving responsibly and self-regulating can delay or pre-empt government regulation.
The key to responsible blitzscaling is the ability to distinguish between various forms of risk. Blitzscaling always involves risks, but all risks aren’t equal. Our suggested framework for risk evaluation is to consider two separate axes; Known vs. Unknown and Systemic vs. Non-systemic. Uncertainty by itself isn’t risk; it simply produces unknowns, and unknowns aren’t inherently negative. However, when you combine uncertainty with the possibility of a negative outcome, produce risk, The magnitude of the risk is a function of
the probability and magnitude of that potential negative outcome. This is why you need to distinguish between systemic and non-systemic risk. When you face a Known/Systemic risk, you should invest heavily to reduce or ameliorate the risk. Even an unknown/Systemic risk calls for a Strong response—you should vigorously investigate the risk to try moue it from Unknown to Known, while simultaneously taking any obvious steps that seem likely to reduce it. In contrast, when you are facing a Known/Non-Systemic risk, you can apply a simple cost-benefit or prioritization analysis to decide on a course of action, and when you are facing an unknown/Non-systemic risk, it may not even be worth expanding the effort to analyze it—it’s probably a small fire that you should let burn.
Once you have decided that risk warrants a response, you need to decide on the nature of that response. We believe that potential responses blitzscalers can employ fall into three broad categories.
Early on, during the Family and Tribe stages, responsible blitzscaling means clearly defining the company’s mission and laying the foundation for a culture that values being a responsible part of a larger society. You should imagine a future in which the company has succeeded in becoming a global giant and then evaluate the likely impact of that success.
As company achieves success and grows into the Village stage, it’s time to ask yourself, “What thing, if I don’t fix them now, will be functionally impossible to fix at scale?” It’s especially difficult to find the balance between morality and velocity during this stage, because the company is probably pursuing all-out growth, and if you pause to fix things, you might end slowing down enough to let someone else grab the first-scaler advantage. That’s why the question asks what is “impossible,” not just what is “difficult”.
Even if it’s difficult to take action immediately you can still make specific commitments to fix issues in the future and be explicit about what triggers those actions.
If a company is successful and grows into the City or Nation Stage, it now needs to take on the societal responsibilities of an incumbent. which are very different from the societal responsibilities of a challenger. Remember when you asked yourself which problems could fix later? Well, later just arrived.
If you previously Ignored issues such as social, criminal, and economic justice you need to understand that you are now a role model and will be expected to iterate and improve on those issues. If you don’t tackle these responsibilities proactively, you’ll have to tackle them, reactivity—after new laws end
regulations are passed to change your behaviour. Like it or not, when your company is a City or a Nation, you need to start thinking like a mayor or a president.