Reid Hoffman - Blitzscaling

For example, anyone who knows Jeff Bezos knows that he didn’t simply mash his foot down on the gas pedal; Amazon has intentionally invested aggressively in the future, and, despite its accounting losses, generates a ton of cash. 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.

Blitzscaling requires more than just courage and skill on the part of the entrepreneur. It also requires an environment that is willing to finance intelligent risks with both financial capital and human capital, which are the essential ingredients for blitzscaling. Think of them as fuel and oxygen; you need both to propel the rocket skyward. Meanwhile, the infrastructure of your organization is the actual structure of your rocket, which you’re rebuilding on the fly as you rise. Your job as a leader and an entrepreneur is to make sure that you have sufficient fuel to propel your growth while making the necessary mechanical adjustments to the actual rocket ship to keep it from flying apart as it accelerates.

Fortunately, this is more possible today than it has ever been in the past.

SOFTWARE IS EATING (AND SAVING) THE WORLD

Historically, stories of breakneck growth involved either computer software, which offers nearly unlimited scalability in terms of distribution, or software-enabled hardware, such as the Fitbit fitness tracker or Tesla electric car, whose software component allows the company to innovate on software timescales (days or weeks) rather than hardware timescales (years). Moreover, the speed and flexibility of software development allow companies to iterate and recover from the inevitable missteps of haste.

What’s especially exciting these days is that 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.

The spread of software and computing into every industry, along with the dense networks that connect us all, means that the lessons of blitzscaling are becoming more relevant and easier to implement, even in mature or low-tech industries. To use a computing metaphor, technology is accelerating the world’s “clock speed” (the rate at which Central Processing Units [CPUs] operate), making change occur faster than previously thought possible. Not only is the world moving faster, but the speed at which major new technology platforms are being created is reducing the downtime between the arrivals of each wave of innovation. Before, individual waves would sweep through the economy one at a time—technologies like personal computers, disk drives, and CD-ROMs. Today, multiple major waves seem to be arriving simultaneously—technologies like the cloud, AI, AR/VR, not to mention more esoteric projects like supersonic planes and hyperloops. What’s more, rather than being concentrated narrowly in a personal computer industry that was essentially a niche market, today’s new technologies impact nearly every part of the economy, creating many new opportunities.

This trend holds tremendous promise. Precision medicine will use computing power to revolutionize health care. Smart grids use software to dramatically improve power efficiency and enable the spread of renewable energy sources like solar roofs. And computational biology might allow us to improve life itself. Blitzscaling can help these advances spread and magnify their sorely needed impact.

THE TYPES OF SCALING

Blitzscaling isn’t simply a matter of rapid growth. Every company is obsessed with growth. In any industry, you live and die by the numbers—user acquisition, margins, growth rate, and so on. Yet growth alone is not blitzscaling. Rather, 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 growthprioritizes efficiency in the face of uncertainty. Starting a company is like jumping off a cliff and assembling an airplane on the way down; being resource-efficient lets you “glide” to minimize the rate of descent, giving you the time to learn things about your market, technology, and team before you hit the ground. This kind of controlled, efficient growth reduces uncertainty and is a good strategy to follow while you’re trying to establish certainty around what the authors Eric Ries and Steve Blank call product/market fit: your product satisfies a strong market demand for the solution to a specific problem or need.

Classic scale-up growthfocuses 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.

Fastscalingmeans 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. Indeed, the financial services industry is often happy to finance fastscaling, whether by buying stocks and bonds or lending money. Analysts and bankers feel confident that they can create elaborate financial models that work out to the penny the likely ROI of a fastscaling investment.

Blitzscalingmeans that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off. If classic start-up growth is about slowing your rate of descent as you try to assemble your plane, blitzscaling is about assembling that plane faster, then strapping on and igniting a set of jet engines (and possibly their afterburners) while you’re still building the wings. It’s “do or die,” with either success or death occurring in a remarkably short time.

Given these definitions, you might wonder why anyone would ever pursue blitzscaling. After all, it combines the gut-wrenching uncertainty of start-up growth with the potential for a much bigger, more embarrassing, more consequential failure. Blitzscaling 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, and it’s much harder to raise money from investors for a calculated gamble (blitzscaling) than for a sure thing (fastscaling). To make matters worse, 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.

Yet despite all of these potential pitfalls, blitzscaling remains a powerful tool for entrepreneurs and other business leaders. If you’re willing to accept the risks of blitzscaling when others aren’t, you’ll be able to move faster than they will. If the prize to be won is big enough, and the competition to win it is intense enough, blitzscaling becomes a rational, even optimal strategy.