Blog · 50 Bits for Founders · Strategy
Blitzscaling
The Lightning-Fast Path to Building Massively Valuable Companies — Reid Hoffman and Chris Yeh, 2018
The Bitwhen the winner takes the whole market, speed is worth more than efficiency, but only if your business has the conditions to grow that way.
"An entrepreneur is someone who jumps off a cliff and builds a plane on the way down."
— Reid Hoffman
Reid Hoffman was part of PayPal's founding team, founded LinkedIn and is a partner at Greylock, one of Silicon Valley's most respected venture capital funds. With Chris Yeh he turned into a book the class they taught at Stanford on how some companies go from startup to giant in very few years.
Blitzscaling is deliberately prioritizing speed over efficiency, under conditions of uncertainty, in order to reach critical mass first. It is the decision facing the founder who has already found product-market fit: accelerate all the way, with the chaos and waste that implies, or grow in an orderly fashion and risk someone else getting there first. In markets with network effects, that decision defines who will win the race and still exist in ten years.
The method starts by diagnosing whether your business can grow this way. Hoffman proposes four growth factors:
- Big market. Large enough to justify the bet.
- Distribution that scales. Channels that reach millions of customers without cost growing at the same pace.
- High gross margins. Each sale leaves money to reinvest in growth.
- Network effects. The product is worth more to each user as others join.
And two limiters that hold it back: not yet having product-market fit and an operation that can't grow at the pace of demand. If the factors are there and the limiters can be managed, speed pays; if not, growing at that pace only burns capital without creating value.
Then comes navigating the five stages the book describes according to team size: family, tribe, village, city and nation. What works in one stage breaks in the next, and the founder's role changes with them: from doing, to directing those who do, to designing the organization that does.
Along the way, the book proposes rules that contradict classic management:
- Embrace chaos. Perfect order will take time to arrive.
- Hire for the current stage. The right person for today, not the ideal one for five years from now.
- Launch an imperfect product. The market teaches faster than planning.
- Let the fires that aren't lethal burn. Attend only to those that can kill the company.
- Do things that don't scale while you refine the product and the processes worth automating.
How to apply it? Write on one page your diagnosis of the four factors and the two limiters, with evidence. If the diagnosis doesn't support blitzscaling, that conclusion is valuable too: grow efficiently.
As a founder it will help you decide the pace of growth with awareness of what you gain and what you risk, to detect when a competitor has started to accelerate and the clock is running against you, and to talk to venture capital funds, which evaluate your company with exactly this logic.
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How it helped me
2021: with our new expansion plan we knocked on the doors of the world's big investment funds. One of them, connected to one of the authors of these 50 Bits, told us clearly: they loved what we had built and could offer us a valuation as exuberant as the ones seen in that era, with one condition: that our expansion plan end with us being the largest bank in Mexico. A blitzscaling plan.
As attractive and lucrative as it sounded, when we analyzed it we concluded we had much of the checklist, starting with the hard part: at SuperTasas.com we had product-market fit in a product with exponential distribution, and a lead of at least a couple of years thanks to regulatory work that had started before anyone else's. The only problem was that scaling a high-cost liability demanded scaling profitable lending products at the same pace in order to be sustainable, and doing that at that speed could generate heavy losses. Our shareholders were always clear that they could risk their capital, but never put our customers' savings at risk, so a plan that aggressive was inadmissible.
Facing that scenario, we thanked that fund and focused on seeking capital from institutions with a risk and return profile similar to that of our shareholders. Fortunately we found that match in the world's most important consumer-oriented private equity fund, with whom we are building value in an important and sustainable way.
This story, more than one of applying blitzscaling, is one of when the analysis concluded not to take that path. Some of the new entrants are indeed walking it, and some have pockets deep enough for their story to end as a success case, although that will hardly be the conclusion for all of them. This framework also helps you understand that game and learn from those experiences.
Killer quote: "He who strikes first, strikes twice."