What Is Blitzscaling? – Reid Hoffman’s Guide to Rapid Business Growth
Explore the secrets of Silicon Valley’s explosive business success. Find out if your startup has what it takes to Blitzscale to a new level.
What’s the secret to rapid business growth? You’ve probably studied many business strategies. But none deliver the success rate quite like Blitzscaling.
There are business strategies. And then there are epic scaling philosophies.
Bliztscaling is the secret behind many large-scale success stories. Businesses like Airbnb, Google, Tencent, and Facebook all use Blitzscaling strategies. But you don’t have to be a tech giant to take advantage of these principles.
What Is Blitzscaling?
So, what exactly is Blitzscaling?
It’s the topic of billionaire Reid Hoffman. You may better recognise him as the co-founder of LinkedIn in 2003.
A little over a decade later, Hoffman sold the popular social networking site to Microsoft for $26.2 billion dollars. He also joined Microsoft’s board.
Hoffman is part of a venture capital firm, Greylock Partners.
It’s important to note that Hoffman didn’t necessarily invent Blitzscaling. However, it was the main topic of his book of the same name.
In essence, Blitzscaling is a set of practices. These specific practices and patterns can help accelerate startup growth. And it prioritises speed over efficiency.
Additionally, you may use this framework in any industry. You don’t necessarily need to be in the tech business to copy these successful business models.
Do you need to Blitzscale your startup to achieve success? No. Absolutely not.
However, if you’re looking for large-scale success in the shortest amount of time, you may want to look into this strategy.
Startups have a small window of opportunity to get in front of the competition. When you do get in early, you can get the feedback that your competitors don’t. And that can translate to getting ahead of the curve for what customers want.
For example, companies like Google and Facebook gained success by using this model:
- Classic startup growth – establishing the market/product fit
- Shift into Blitzscaling – achieve market dominance in front of the competition
- Relax into fastscaling – allow the business to mature
- Shift down to classic scale-up growth – occurs when the company is an industry leader
So for Facebook, its growth was as follows year-over-year:
- 2,150% – Blitzscaling
- 433% – fastscaling
- 219% – classic scale-up growth
This is how the company grew to $153 billion market cap from near zero in 2007.
Now, you may not necessarily achieve this kind of success. But this model does favour the brave. And you may achieve measurable success in your own right for your startup.
How to Blitzscale
Are you ready to go from “startup” to “scaleup”? The furious pace of scaling may be daunting. Some may say counterintuitive. But many well-known billion-dollar businesses used this model for their own success.
Business Model Innovation
What tech innovation makes your business unique?
For Larry Page and Sergey Brin at Google, it was their search engine business model. Their search algorithms were great. But they changed the search engine.
The company changes display advertisements according to performance and relevance. This was a big change from the previous model that featured paid advertiser space for whoever could pay.
What happens when you don’t innovate technology to maintain business model innovations? Netscape is a good example of that.
You see, Netscape mainstreamed web browsing. Its IPO kicked off the tech boom, but the company didn’t last. Eventually, the shareholders agreed to sell to AOL, another example of not innovating.
Even though Netscape’s engineers invented cool tech that is still seen, Netscape itself went away. Their downfall started when they accepted the status quo.
They already had innovative technology on their side. But they didn’t utilise it to further their business model.
The growth factors that you want to keep your eye on are:
- market size
- high gross margins
What level of margins do you focus on? Initially, you may see a low-margin product appeal. Especially if you only focus on the cost to you.
However, did you know that it’s just as challenging to sell a low-margin as a high-margin product? This means that you may as well go with the high-margin model. It increases your chances of success as well as the rewards from that success.
Is there such a thing as overly high gross margins? Not necessarily. Many successful companies have 60-80% margins.
Next, increased usage by users also increases the value of the product or service. Each product or service you offer is subject to network effects.
Smartphones users = information + world marketplace + communication
And billions of people worldwide have smartphones that keep them connected to this global network.
You can benefit from positive network effects as you plug into one of these streams.
There are plenty of reasons why a business can’t grow the way they should. Some reasons include:
No Product/Market Fit
Do you have to validate a product/market fit before you build that company? No. But you should make every effort to do so.
This includes research. Of course, research is standard practice when launching a new product or service. But make sure that the research validates your product or you may run into growth problems.
Furthermore, you can also design a business model to maximise the chances of achieving fit as soon as possible. You may not be able to get the validation you need before you launch your company. If this is the case, you can try designing your business model to help achieve success.
Relationship Limitations on Scalability
If you launched a startup yourself, you may not run into this problem. However, odds are that’s likely not the case. You probably have co-founders and that means human relationships.
Coming up with a viable business model is only part of the challenge with new startups. You also have to contend with very real human interrelationships.
This means that you have to make sure that the founding team gets along with you and each other. The reality is that you are managing multiple relationship pairs.
For example, if you have a team of 4 founding members, each pair has a relationship. That’s 6 pairs of relationships that could affect the business.
Additionally, if you hire a couple more employees, that number goes up from 6 to 15 pairs. You may have only increased your team by 50%, but your relationship management jumped by 150%.
You have a few options to eliminate or reduce the amount of friction you may encounter from these relationships. The first is to do nothing. If everyone gets along great, you don’t need to.
But if you’re like most companies, eventually you’ll run into problems. And that may hurt your scalability. So another option is to design a business model that requires as few humans as possible.
That may sound like science fiction, but it is doable. Some software companies like WhatsApp did exactly this.
The business model that eliminated the need for certain positions like sales, marketing, and customer service. This was possible because the model reflected the utilisation of a minimal number of employees. And this model worked for WhatsApp.
Another option is to outsource work. You could use outsourcers for contractors and suppliers. Outsourcing may also eliminate the human interrelationship variable that can stunt growth.
Infrastructure Limitation on Scalability
Lastly, make sure you have the right infrastructure in place to grow. You’re going to have problems with scalability down the line if your business model can’t support growth.
Do any or all of the following to ensure your startup can scale:
- improve load time for web apps
- improve production rate for products
- outsource administrative departments
There are a few patterns that have proven successful when it comes to Blitzscaling including:
- Bits Over Atoms
Why are bits-based business frequently high-gross margin businesses? Because they don’t have as many costs to worry about. Software-based companies are also easier to design around growth limiters.
Furthermore, you can change, update, or introduce new software products quickly. Physical products take more time to launch.
Imagine a platform that reaches scale and becomes the winning standard for its industry. Continued network effects create a lasting competitive edge that is nearly unbeatable.
- Freemium or Free
Services like Dropbox and Spotify offer many free services. But they make their money on those who can’t help subscribing.
This works because of the two-sided network effects. Alibaba, Airbnb, and AdWords are all examples of the marketplace platform at work.
Of course, subscription services like Salesforce and Netflix are great ways to generate a loyal following.
- Digital Goods
Digital goods are a grey area. They’re not necessarily a tangible product. But they’re not exactly a service or software. Nevertheless, these goods are another platform that’s proven successful for Blitzscaling.
In just one year of business, LINE’s sticker business went from $75 million to $270 million in revenue.
Finally, where would you be without feeds? Twitter, Instagram, and Facebook are all good examples of successful patterns.
It is possible to apply Blitzscaling to any industry or region. However, it needs to make sense.
You can’t simply have a goal and a wish while hoping everything turns out okay.
Blitzscaling requires careful strategy. You need to determine whether or not speeding into the market is critical to success on a massive scale.
The truth is, it requires a significant amount of capital to implement this strategy. Yet aggressive spending is also a critical part of it.
Whenever Uber launches in a new city, they use heavy subsidies on both sides of the market. They lower fares to attract customers. And they give better pay to new drivers.
It may seem “wasteful” by conventional business wisdom. However, Uber understands that a part of their success is to hit the market quickly before their competitors.
Obviously, they wouldn’t be able to do this without a significant amount of capital. But there is the strategy.
So, before you take a leap of faith into Blitzscaling, there are a few things to consider first. Is it the right move for you and your company? Can your company handle this type of model?
While this approach is bold with a high success rate. It isn’t for every new business owner. And maybe that’s as it should be.
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