A book about how to build and scaling rapidly growing companies, by Reid Hoffman (co-founder of LinkedIn) and Chris Yeh.

Summary

Blitzscaling is the rapid scale up of a business to dominate a market. The rate of the scale up is far faster than the typical growth rate of the average company, such that it is qualitatively a different beast. The term comes from Blitzkrieg, the lightning fast Germany offensive strategy used in WWII. In order to successfully Blitzscale, a company must satisfy 3 requirements:

1. Have a mature product
2. Have a working core business (i.e. product-market fit)
3. In a large enough market (i.e. big enough total addressable market)

Some examples of companies that have successfully Blitzscaled include Airbnb, WeChat, Amazon, and Dropbox. Although Silicon Valley is the center of successful Blitzscaling companies (when looking at numbers), the methodologies to do it are not unique to the geographies there.

Generally, Blitzscaling means sacrificing efficiency for speed in the face of uncertainty, to help you win and dominate. If you win, efficiency won’t matter (and can be improved later), and if you lose, efficiency won’t matter either (because you’ll be dead). Some characteristics of Blitzscaling:

• Typically involves burning lots of cash to grow without making profits
• Blitzscaling differs from classical scale up or fast scaling because there is no certainty on the payout or return from the money burned. Traditional fast scaling is trying to grow fast and efficiently in a well-understood environment where the costs and risks can be fairly well quantified. Blitzscaling operates in a much more uncertain environment where risks are not as well understood, and may never yield a positive return
• Blitzscaling is like trying to build a plane as you are falling
• Blitzscaling can be used both offensively (to take a market) and defensively (to keep your competitors gasping)

Positive feedback loops are key in Blitzscaling. Growth fuels more growth, and gives more access to capital, talent, etc… This is the reason many successful Blitzscaling companies did so in large part by successfully “growth hack”.

Organizations need to scale as Blitzscaling happens, with each stage of growth requiring different leadership and management processes. This can be roughly broken down to 5 stages: family (1-9 employees), tribe (tens), village (hundreds), city (thousands), nation (tens of thousands). There are other stages of scale, such as by userbase size, and these different stages aren’t always in sync (e.g. Instagram was tiny as a team but had hundreds of millions of users). But organization size is mostly a good metric to gauge scale. Many companies fail to Blitzscale because they fail to successfully and rapidly transition between these stages when needed.

Blitzscaling companies prefer to take risks to get exponential growth, rather than keep a more certain but lower growth rate. This is because they mostly operate in winner take all markets. So spending in this period may seem wasteful, such as Uber subsidizing rides to get more users. This wasteful feeling is further compounded as Blitascaling companies often need to make new business model innovations, which are hard to justify because there are no existing business models to point to when making the case.

The 4 factors or dynamics of growth in Blitzscaling:

1. Total market size. This may not look big in the beginning, especially if business model innovations are happening, since with new technology or product, market size can change dramatically (Airbnb is a prime example of this)
2. Distribution. Can use an existing channel, or virality
3. Gross margins
4. Network effects

Key growth limiters for Blitzscaling:

• Lack of product-market fit
• Lack of operational scalability. This includes both people ops (scaling the organization), as well as technical ops (scaling the technology)

Business model innovation can be enabled by technological innovations (such as Moore’s law and increased automation) or driven by other underlying principles (such as the contrarian principle). Some proven patterns of business model innovation include:

• Bits rather than atoms
• Platforms
• Free or freemium
• Marketplaces (can tap into two-sides network effects)
• Subscriptions (SaaS)
• Digital goods (e.g. MTX)
• Feeds (power to drive engagement)

Some actual examples of practical things companies have done to successfully Blitzscale:

• LinkedIn split up their product and engineering team to focus on two separate products, their consumer product and the enterprise careers product, in order to help with operational scalability
• Amazon created the affiliate program to drive marketplace growth. Fulfilled by Amazon helps third parties sell, and helps with Amazon’s gross margins, because it doesn’t up tie up inventory on Amazon’s end
• Amazon’s retail business didn’t have much direct network effects (only indirect ones such as user reviews), so relied on the flywheel effect (from Jim Collins) to grow. The bigger the scale, the lower the cost, which attracted more customers
• Microsoft funds their search project even though they know they won’t win against Google, as a response to Google entering the productivity app market with G Suite. This is a defensive strategy that keeps your competitors spread thinner than they’d like. Google now has to invest more to defend their search business, which reduces their focus on the productivity app market, where Microsoft actually wants to dominate
• PayPal was poorly managed in the earlier days. There were no processes for career development, 1:1s, etc… This created lots of issues, but also gave them some unique advantages. The usual chaos made the team more accustomed to rapid unexpected changes, which helped them with the frequent, large pivots that they had to do. Of course all this management debt had to paid back later

Blitzscaling is often very costly, and so the potential reward must be big enough to justify the investment (hence the requirement on a large enough market size). As a result it’s tough to get funding to Blitzscale in markets that are not huge. First scaler advantage is what matters here, not first mover advantage. Being the first to do something usually means very little, what’s important is being the first to scale up

It’s important to know when to start and stop Blitzscaling. When your business growth has outpaced your strategy, or when the market saturation has been reached, you will have to stop. No market is infinite, and so Blitzscaling is always a temporary phase

As a company Blitzscales and goes through the different stages of organization size, the founders will need to figure out, very rapidly, how to operate at the new scale. This usually means initially doing things that don’t scale in order to figure out what works. However because there are multiple stages of sizes in the Blitzscaling process, this is a cycle that needs to be repeated at each new stage of scale-up. The founders’ roles change with each different stage. Many founders don’t pay much attention to the mundane management aspects of the business, and instead just want to stay focused on the mission. But they will always find that it’s not enough.

Similar to founders, as teams grow, early employees can feel that they are becoming outsiders (from being insiders), and feel left out of decisions. You need new processes to make sure that they feel that they are still connected. Some early employees or founders who used to run the whole team when the company was smaller may benefit from taking a demotion and run just one small team when the company gets bigger, as they may not be suited to run entire larger teams, but can still contribute greatly as the leaders of smaller teams

Bringing in external specialists to manage early generalists (often founders and early employees) can cause morale problems which in turn result in important people leaving. It’s important realize that even though as the company scales larger, the need for specialists in executive positions will grow, but you will always need some generalists. Finding good positions for the key, top early generalists so that they can still contribute effectively can benefit the team greatly as it scales.

Some examples of things that change as companies scale:

• Opinion or leader inspiration based decisions will shift to more data-based decisions. The metrics to look at will also gradually become more long-term based as a company scales
• The tools used to track and access data will need to be more sophisticated as the team grows larger
• Companies will need to shift from being single-threaded (i.e. with a singular focus) to being more multi-threaded. Being single-threaded is often an advantage for early companies against larger incumbents
• Move from being pirates (captains of a single ship, operating loosely) to being the navy (admiral operating multiple ships with much more discipline)

Some tips for Blitzscaling successfully:

• Hire for what you need right now. Even the ability to scale as the organization grows is secondary
• Know which fires to fight and which to let burn. The most critical fires to deal with, in order or importance, are: distribution, product, revenue model, operations, competition, what’s next
• During Blitzscaling, provide whatever customer service you can, as long as it doesn’t slow you down (which may mean no service sometimes). But this is just a temporary solution, and has to be dealt with eventually
• Always raise more than you need
• In larger organizations, if only a subset of the organization is engaged in Blitzscaling, then that specific part of the team needs to be isolated from other non-Blitzscaling parts
• Need to deal with risks intelligently. Separate out systemic risks (which will affect your scaling and growth) from non-systemic risks (which can be ignored). Fraud issues for PayPal was a identified as a systemic risk, and dealt with rapidly

Blitzscaling is actually a general concept, and can be applied to places outside of the typical technology sector. Zara (the fashion company), Obama’s 2008 presidential campaign, and many non-profit organizations have also successfully Blitzscaled in their own domain with similar methodologies. Change is the only constant in Blitzscaling, as there is an ever ending need for change as you scale

Coming from the other side, if you are an incumbent, there are just 3 ways to deal with emerging Blitzscaling competitors:

1. Beat them: Blitzscale yourself and do a better job
2. Join them: through M&As, however culture clash is an issue, as Blitzscaling companies will have a very different culture than a non-Blitzscaling incumbent
3. Ignore them: expand into another vertical or market where the competitor is not focusing on

Commentary

I found parts of the book to be re-statements of obvious facts. However, this is still useful as it confirms some of my own prior learnings through my own experience. The sections about the problems often encountered as organizations scale are very relevant, even in slower-growing companies.