Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies By Reid Hoffman: Reading Notes

Why I picked this book?

My 6th book of the year was Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman.
I have been listening to Reid’s Masters of Scale podcast for quite some time now and found the mentions of the concept of “blitzscaling” rather interesting.
I still think that it’s simply a way to burn more money than your competitors and take risks that might end up leaving a scar, all for the sake of winner takes all opportunity.

This is not something that I personally like or prefer. There are many costs to the blitzscaling strategy, but obviously there are certain benefits. This book walks you through a road called blitzscaling, and tries to be your tour guide.

PART 1: What’s Blitzscaling?

“Blitzscaling is what we call both the general framework and the specific techniques that allow companies to achieve massive scale at incredible speed.”

Reid Hoffman

There is a strong focus on the fact that software is eating the world. High tech companies can achieve unparalleled growth and scale using state of the art technology to create new waves of innovation.

Blitzscaling is not just about growth. Every company is obsessed with growth. Blitzscaling is prioritising speed over efficiency in the face of uncertainty.

The Three Basics of Blitzscaling

  1. It’s both an offensive and defensive strategy.
  2. Blitzscaling thrives on positive feedback loops, in that the company that scales first reaps the benefits.
  3. Despite the benefits, it comes with a massive risk.

The Five Stages of Blitzscaling

As a company tries to blitzscale, it undergoes a series of phases. Each phase requires a different mindset and strategy to succeed. Just like a metal changes its forms and behaves completely differently under different pressures and temperatures, during each blitzscaling phase, the company is a whole different organism.

  1. Stage 1: Family (0-10 members).
  2. Stage 2: Tribe (10-100 members).
  3. Stage 3: Village (100s of members).
  4. Stage 4: City (1000s of members).
  5. Stage 5: Nation (10,000s of members).

PART 2: Business Model Innovation

“Of the three core techniques of blitzscaling, the first and most foundational is to design an innovative business model capable of exponential growth.”

Google, Amazon, eBay all these companies where designed around new business models powered by cutting edge technology.
Netscape used to sell the search button focusing on the browser as the main product and search as something secondary. Google innovated the business model by placing relevant ads with the search results.
AirBnB has more listings than any hotel chain, Uber outflanked the taxi companies.

If we want to find our best business model we should try to design it in a way that it maximizes the growth factors and minimizes the growth limiters.

Growth factor 1: Market Size
Total addressable market is without a doubt the most important growth factor. A product designed for a niche obviously won’t achieve massive scale.

Growth factor 2: Distribution
Effective distribution is also essential to reach the masses. With the rise of SaaS companies, the delivery of the software seems to be solved.
Other problem is tapping in the right channels. Virality, leveraging existing networks are some of the ways to galvanize the distribution of the product.

Growth factor 3: High gross margins
Keeping the operational cost low and operating at high profit margins is a trademark trait for high-tech companies. This allows them to invest heavily in innovation and further growth. All such companies operate at 60-40% profit margins. Only exception here seems to be Amazon, but it also has its AWS divison which operates at very high profit margins.

Growth factor 4: Network Effects
A product or a service is subjected to network effects if increased usage by existing users makes it more valuable for new and current users.

Growth limiter 1: Lack of Product/Market fit
If PMF is not there. Fundamentally, there is not way to scale the business.

Growth limiter 2: Operational scalability
Humans and infrastructure. Both impede operational costs that hinder in scaling a business.

There are some proven business patterns that help companies blitzscale.

Proven Business Model Patterns

1. Bits rather than atoms
This just suggests that digital products and services scale better than physical products.

2. Platforms
Tech platforms if achieve scale can become the standard in the industry and this can achieve massive scale.

3. Free or Fremium
Without a doubt, this can attract a mass of user and get them try the product.

4. Marketplaces
They can be successful because they tap into two-sided network effects.

5. Subscriptions
They are a great way to build recurring revenue.

6. Digital Goods
Digital products like stickers, in-app purchases, add-ons etc.

7. Feeds
Aggregated newsfeed also hold value to monetise and bring value at the same time.

After this, in the remaining to the section there were case-studies of companies like LinkedIn, Google, Amazon and Facebook related to how there business models allowed them to blitzscale.

PART 3: Strategy Innovation

It’s in fact the strategy innovation that supports its own ecosystem of rapi growth in the face of risk and uncertainty.
To blitzscale or not is a strategic choice.

When should I start to blitzscale?
In one work SPEED. When speed to market is the critical strategy.

Here are a few factors that can make you decide to blitzscale:

  1. A big new opportunity.
  2. First-scaler advantage
  3. Competition

When to stop blitzscaling?

  1. When growth starts to decline. Have the leading indicators.
  2. Worsening unit economics.
  3. Increased management overhead.
  4. Decreasing per-employee productivity.

How the role of founder changes in each stage?

  1. Stage 1 (family) personally pulls the levers of hyper-growth.
  2. Stage 2 (tribe) manages people who are pulling the levers.
  3. Stage 3 (village) founder designs an organisation that pulls the levers.
  4. Stage 4 (city) Founder makes high-level decisions about goals and strategies.
  5. Stage 5 (nation) Blitzscale new line of products

When the company is blitzscaling, the constant doubling and tripling of the org and market size, doesn’t allow the traditional management principles to be leveraged. As a result, management innovation must be implemented.

PART 4: Management Innovation

Blitzscaling beyond high tech

This is the topic that I personally find very appealing and challenging.
Applying the principles of blitzscaling and high-tech industries business models and strategies to not so high-tech industries like architecture, education, food etc.

It’s clear with the examples like Uber, Khan Academy etc that with the infusion of tech at the right places, businesses seen as not high-tech can also be massively scaled.

Factors to improve to blitzscale

Be it high-tech or not, any business can be made more scalable if try to improve the following factors using high-tech solutions or even not.
1. Market Size
2. Distribution
3. Profit Margins
4. Network Effects
5. Product Market Fit
6. Operational Scalability

China: The land of blitzscaling

Recently Abhiraj, the founder of UrbanClap also visited China to learn from the companies that have scaled there.
China is what India could’ve been.
996 rule: 9 am to 9 pm 6 days a week.
Chinese companies have a history of blitzscaling.
Did Chuxing, Alibaba, Tencent, WeChat all of them blitzscaled at reach enormouse scale that will put even the top silicon valley companies to shame.

Conclusion

Overall this was a light read. I won’t say everything hear was unheard of. Almost all the ideas, examples present in this book have been talked about before.
Some of them are just common sense now for people who are involved in the tech landscape.
Blitzscaling is all about being uncomfortable for a while to achieve scale. It means put your employees, users, customers, investors, yourself – everyone in transient pain in lure for a future caviar.
TBH, I did not connect that well with the concept of blitzscaling. I still prefer building smaller tribal size companies that customers and employees love.

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