Friday, August 2, 2019

In markets where Internet technology is a dominant factor, there are powerful winner-take-all dynamics. The first company to achieve a critical mass can dominate its industry for a long time.
The enabler is the Internet - specifically, its power of zero-marginal-cost distribution. The ability to reach millions (or billions) of users and service their needs automatically, at nearly no marginal cost, creates situations where a powerful company becomes ever more powerful through positive feedback loops, like network effects and virality.
Traditional business strategy involves gathering information and making decisions with a certain degree of confidence. Take calculated risks that you can measure and afford. Prioritize correctness and efficiency over speed.
But in certain markets today, this is too slow. The risk isn’t inefficiency or wasting money - the risk is playing it too safe. If you win, efficiency isn’t important; if you lose, efficiency is irrelevant. As in Glengarry Glen Ross, “second prize is steak knives. Third prize is you’re fired.”
Blitzscaling drives fast growth by prioritizing speed over efficiency, even in an environment of uncertainty. When you blitzscale, you make decisions before knowing exactly how things will play out. You accept the risk of making mistakes and operating inefficiently, in exchange for moving faster.

Business Models that Scale

There isn’t a universal business model that works for every company, but most great business models overlap with these four growth factors.

1. Market Size

A big market has a large number of potential customers and efficient channels for reaching those customers. Ideally, the market is also growing quickly, meaning markets that seem small initially can grow to become massive.

2. Distribution

Many startups focus on product but overlook the importance of distribution. Roughly speaking, there are two general categories: existing networks (paid advertising and SEO) and word-of-mouth/virality.

3. High Gross Margins

Software companies have high fixed costs and low marginal costs, often above 60%. In contrast, “old economy” businesses like restaurants have low gross margins.
For a fixed amount of revenue, higher margins create more funds for companies to reinvest in R&D and growth to ward off competitors.

4. Network Effects

Network effects apply when a user using the product makes the product more valuable for other users. This is also called “demand-side economies of scale” by economists. Services that benefit from network effects include social networks, two-sided marketplaces, and technology platforms.

When Do You Start to Blitzscale?

The only time it makes sense to blitzscale is when speed into the market is the critical strategy to achieve massive outcomes.
You should not blitzscale if you’re not at product/market fit, your business model doesn’t work, or if the market conditions aren’t right. If taking on cost, risk, and speed don’t actually confer an advantage, it’s better to follow traditional business rules and wait for the time that blitzscaling becomes appropriate.
Blitzscaling also makes sense in a few other specific conditions:
  • Big new opportunity
    • Market size and gross margins create enormous potential value, and there isn’t a dominant market leader.
    • Often, this is when a technological innovation upends existing markets, creating large opportunities that incumbents are not well-suited to capture.
  • First-scaler advantage
    • These opportunities often involve positive feedback loops. The mechanisms that confer first-scaler advantage include network effects, returns to data, economies of scale.
    • Blitzscaling often doesn’t work if another company has first-scaler advantage.
  • Competition
    • Can somebody else realize this opportunity earlier than me? If yes, moving faster reduces risk of competition.
    • Startups who act quickly can evade incumbents who aren’t focusing on the space.

When Should You Stop Blitzscaling?

Blitzscaling are like fighter jet afterburners - you don’t switch them on and never turn them off. Blitzscaling is used for a specific purpose for a limited time, after which you turn to fastscaling or another type of company growth.
You stop blitzscaling when your business it outgrowing your current strategy. Warning signs of when this is:
  • Declining rate of growth (relative to market and competition)
  • Worsening unit economics
  • Decreasing per-employee productivity
  • Increasing management overhead

Managing Teams through Blitzscaling

As the company grows from a handful of people to 10s, then 100s, then 1000s of people, drastic changes in management need to happen. Here are a few critical ones:

Generalists to Specialists

At each stage of a company, different types of people are required to provide what the organization needs at that time. An analogy to the military: “the marines take the beach, the army takes the country, and the police govern the country.”
In the beginning up until 100 people, you should tend to hire generalists. They adapt quickly to the rapidly changing needs of the business in its volatile early days.
At Village stage (100s of people), specialists are critical to scale. They perform functions better than generalists can, and you need them sooner than generalists can learn the job. Thus specialists may need to be hired from outside the org.

Managers to Executives

The types of senior team members you need to hire will change.
Managers manage contributors and execute detailed day-to-day plans. Executive manage managers.
Managers can be trained from within, because individual contributors can learn how to manage from good managers. In contrast, executives are initially harder to train because managers in your organization don’t have model executives to learn from. Therefore, start by hiring executives from outside.

Founder to Leader

You need to step back from fighting fires and day-to-day decisions to the bigger picture. There are three ways to scale yourself:
  • Delegation: people do work you previously did
  • Amplification: people augment what you continue to do
  • Making yourself better
Read the full summary for the complete set of 9 management tips.

Rules of Blitzscaling

Blitzscaling also requires counterintuitive actions that contradict common business sense and will feel unnatural.

Be a “Bad” Manager

Be OK with breaking best practices of standard management. You might need to restructure the hierarchy of the company 3 times a year, churn through management teams, have unclear career progression for new hires, and retain confusing job titles. This feels like chaos to the team, but having this flexibility keeps the company nimble. You risk the organization in exchange for focusing wholly on growth.

Launch Products Before You Feel They’re Ready

Always launch before you feel the product is fully ready. Otherwise, you’ll waste time building things no one cares about.
Once you launch, listen to the data more than anecdotal user feedback. People are bad at articulating what they want. Look at how they’re using your product to know what they really feel.

Leave Small Problems Unsolved

You’ll have a host of problems to solve. You need to triage them.
  • Deal with urgent systemic risks.
    • When an Airbnb host went public about how her house was trashed by guests, it risked triggering systemic pullbacks by other hosts. The company quickly instituted an insurance policy to reassure hosts.
  • For important but not critical problems, put in a hack fix, and commit to solving it later.
  • Punt all other issues.
If someone wheels into the ER with a gunshot wound, you don’t cut out a suspicious cancer you find along the way.


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