Book Notes: Blitzscaling
Blitzscaling is the process of optimizing for growth and speed at the expense of efficiency in the presence of uncertainty. It also happens to be a book by Reid Hoffman and Chris Yeh.
Reid Hoffman is a cofounder at LinkedIn and a partner at the venture capital firm Greylock Partners.
The book uses many stories from Airbnb, Tencent/WeChat, Groupon, Zynga, Facebook, Google and other technology companies to make its points.
Startup to Scaleup
When a start-up matures to the point where it has a killer product, a clear and sizable market, and a robust distrubtion channel, it has the opportunity to become a “scale-up”, which is a world-changing company company that touches millions or even billions of lives.
The authors start by justifying blitzscaling by invoking Schumpterian Profits:
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 authors also provide context for when blitzscaling is appropriate over the usual measured approach:
Unfortunately, this cautious and measeured 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.
Blitzscaling is for when a new enabling technology creates a new market that is winner-take-all or winner-take-most. This market may benefit from network effects or aggregation.
Blitzscaling is not without risk. And the authors have advice on how to mitigate it:
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.
The Three Basics of Blitzscaling
- Blitzscaling is both an offensive strategy and a defensive strategy
- Blitzscaling thrives on positive feedback loops
- Blitzscaling also comes with massive risks
The Five Stages of Blitzscaling
- Family (1-9 employees)
- Tribe (10s of employees)
- Village (100s of employees)
- City (1000s of employees)
- Nation (10000s of employees)
Three Key Techniques of Blitzscaling
- Business Model Innovation
- Strategy Innovation
- Management Innovation
Business Model Innovation
Innovative technology must be paired with an innovative business model.
Google would not be Google without AdWords. Dropbox would not be Dropbox without freemium.
Designing to Maximize Growth: Four Growth Factors
- Market size
- High Gross Margins
- Network Effects
Five Categories of Network Effects
- Direct Network Effects (eg. social networks, messaging)
- Indirect Network Effects (eg. operating systems)
- Two-Sided Network Effects (eg. marketplaces)
- Compatiblity and Standards (eg. file formats, protocols)
Designing to Maximize Growth: Two Growth Limiters
- Lack of product/market fit
- Operational scalability
Proven Business Model Patterns
- Bits rather than atoms
- Free or freemium
- Digital Goods
Underlying Principles of Business Model Innovation
- Moore’s Law
- Adaptation, not optimization (You can’t a/b test your way there)
- Contrarian Principle (Obligitary evocation: Peter Thiel)
You should stop blitzscaling when:
- Declining rate of growth
- Worsening unit economics
- Decreasing per-employee productivity
- Increasing management overhead
- Small teams to large teams
- Generalists to specialists
- Contributors to managers to executives
- Dialogue to broadcasting
- Inspiration to data
- Single focus to multithreading
- Pirate to navy
- Scaling yourself: founder to leader
Nine Counterintuitive Rules of Blitzscaling
- Embrace chaos
- Hire Ms Right Now, not Ms Right
- Tolerate “bad” management
- Launch a product that embarrasses you
- Let fires burn
- Do things that don’t scale
- Ignore your customers (for now)
- Raise too much money
- Evolve your culture
Most Important Fires to Fight:
- Revenue Model
- What’s Next?