Reid Hoffman - Blitzscaling

Once you convince the market for capital and the market for talent—which include clients and partners, as well as employees—to invest in your scale-up, you have the fuel required to start blitzscaling. At that point, your objective switches from going from zero to one to going from one to one billion in an incredibly compressed time frame.

A company might employ different types of scaling at different points in its life cycle. The canonical sequence that companies like Google and Facebook have gone through begins with classic start-up growth while establishing product/market fit, then shifts into blitzscaling to achieve critical mass and/or market dominance ahead of the competition, then relaxes down to fastscaling as the business matures, and finally downshifts to classic scale-up growth when the company is an established industry leader. Together, this sequence of scaling generates a classic “S-curve” of growth, with slower initial growth followed by rapid acceleration, eventually easing its way into a gentle plateau.

Of course, this canonical sequence is greatly simplified. The scaling cycle applies not just to whole companies but to individual products and business lines; the aggregate curves of these scaling cycles generate the overall scaling curve for the company.

For example, Facebook began as a classic blitzscaling story. The year-over-year revenue growth during its first few years of existence were 2,150 percent, 433 percent, and 219 percent, going from zero to $153 million in revenue in 2007. Then the company went through a key transition, and growth dropped into the double-digit range as Facebook struggled with both monetization and the shift from desktop to mobile. Fortunately, Facebook founder Mark Zuckerberg made two important moves: he personally led a shift from desktop-first to mobile-first, and he hired Sheryl Sandberg as the company’s COO, who in turn built Facebook into an advertising sales juggernaut. Growth rose back into the triple-digit range, and, by 2010, these moves had pushed Facebook’s revenues to over $2 billion. We’ll examine both of these key moves in greater detail later in the book, with Facebook’s shift to mobile featured in our analysis of Facebook’s business model, and Facebook’s hiring of Sheryl Sandberg in the section on the key transition from contributors to managers to executives.

Apple illustrates how this overlap looks over multiple decades. In its storied history, Apple went through complete scaling cycles for the Apple II, the Macintosh, the iMac, and the iPod (with the cycle for the iPhone still under way). It’s worth noting that Apple failed to launch any blitzscalable products after the Apple II and the Mac until Steve Jobs returned and launched the iMac, iPod, and iPhone. It was part of Steve’s rare genius that time and time again he was able to pick the right product for Apple to blitzscale, even without slowing down for a period of classic start-up growth to gather feedback from the market.

The scaling curve applies to every blitzscaler, regardless of industry or geography. The same multiple S-curve graph that describes Facebook or Apple also describes Tencent, which launched with QQ, then added a second curve for WeChat after QQ reached maturity in 2010. Just when you’ve finished blitzscaling one business line, you need to blitzscale the next to maintain your company’s upward trajectory. And as blitzscaling continues to spread, established companies with mature business lines should consider turning to intrapreneurs to blitzscale new business units.

THE THREE BASICS OF BLITZSCALING

Blitzscaling requires you to move at a pace that is almost certainly uncomfortable for your team. You will definitely make many mistakes as you navigate an environment full of uncertainty; the art lies in developing the skill to learn quickly from those mistakes and return to a relentlessly rapid advance. But first, it’s critical to understand three basics.

1. BLITZSCALING IS BOTH AN OFFENSIVE STRATEGY AND A DEFENSIVE STRATEGY.

On offense, blitzscaling allows you to do several things. First, you can take the market by surprise, bypassing heavily defended niches to exploit breakout opportunities. For example, Slack’s rapid growth after its launch blindsided a host of entrenched competitors like Microsoft and Salesforce.com. Second, you can leverage your lead to build long-term competitive advantages before other players are able to respond. We’ll explore this concept in greater detail later on. Third, blitzscaling opens up access to capital, because investors generally prefer to back market leaders. You can win this mantle if you blitzscale, and with it raise more money more easily and more quickly than your lagging competitors.

On defense, blitzscaling lets you set a pace that keeps your competitors gasping simply to keep up, affording them little time and space to counterattack. Because they’re focused on responding to your moves, which can often take them by surprise and force them to play catch-up, they don’t have as much time available to develop and execute differentiated strategies that might threaten your position. Blitzscaling helps you determine the playing field to your great advantage.

2. BLITZSCALING THRIVES ON POSITIVE FEEDBACK LOOPS, IN THAT THE COMPANY THAT GROWS TO SCALE FIRST REAPS SIGNIFICANT COMPETITIVE ADVANTAGES.

In April 2014, McKinsey & Company published a report entitled “Grow fast or die slow,” which analyzed the life cycles of three thousand software and Internet companies, and found that positive feedback loops made rapid growth the key factor in financial success:

First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent.

We believe that the mechanism behind the power of blitzscaling is “first-scaler advantage.” Once a scale-up occupies the high ground in its ecosystem, the networks around it recognize its leadership, and both talent and capital flood in.

For one, top professionals understand that they can have a greater impact working for the market leader. Meanwhile, joining a scale-up that is clearly a “rocket ship” offers many of the financial rewards of working for an early-stage start-up, with far more certainty and far less risk. Scale-up employees are paid market salaries, receive equity upside, and have a very good chance of becoming rich, if not filthy rich. By attracting the best people, scale-ups increase their ability to build and bring to market great products, which in turn increases their ability to rapidly scale.

A parallel calculus applies to investors. Venture capitalists (VCs) make investment decisions based on the confidence interval they have in their investment thesis. Achieving scale shrinks those intervals and makes it easier to decide to invest. And because the network that connects investors—especially within a tight-knit ecosystem like Silicon Valley—can disseminate this information quickly and broadly, a blitzscaling company can raise capital on a massive scale. This capital infusion can fuel explosive growth, which shrinks the confidence intervals even further.