by Mahesh Kumar |
I recently read and had the opportunity to meet the guys behind the thought provoking concept of Blitzscaling. For the uninitiated, Blitzscaling is really this equation:
MASSIVE SCALE + HIGH SPEED = BLITZSCALING
Reid Hoffman, co-founder of LinkedIn, Partner at Greylock Ventures and Author of the book Blitzscaling
The book builds on the following logical arguments:
- The world needs 600M new jobs the coming 2 decades according to World Bank Estimates
- These new jobs require entrepreneurs and intrapreneurs to have a different mindset to scaling opportunities. In essence lifestyle local businesses are good for you & your family, and helps along but the biggest impact happens when you scale your concepts and create jobs
- Not all businesses can or should blitzscale, instead it requires some ingredients to be in place (see below) and if you do have large parts of the soup ready, you should not be afraid to let fires burn and scale into the world
- While this concept is not new for our times, but new technologies and connectivity enable this to happen at even higher speeds and scale than ever before. The book discusses how Oracle scaled almost going bankrupt in the process before being steadied by a group of intrapreneurs
- Neither is this concept new in Silicon Valley — that is how most companies think, but we need more of that bravado in other ecosystems and cities around the world
Scaling vs. Blitzscaling (Certainity vs. Uncertainty)
- Classic Startup Growth prioritises efficiency in the face of uncertainity. You are trying to establish product-market fit, figure out who your customer groups are, if your product or service solves the core user job or problem and if you are good at delivering it.
- Classic Scale Up Growth prioritises growing at a healthy rate in a stable mature market where you calculate short / medium term ROI for efforts you do to scale. E.g. 3 more in the sales team should give us 1,2x more in sales.
- Fast Scaling where you prioritise speed over efficiency but the costs are well understood and are predictable. While you are trying to gain market share, you have pretty certain about your market, economics etc.
- Blitzscaling is when you prioritise speed over efficiency but in an extremely uncertain conditions where it is a do or die within an extremely short window of time. Blitzscaling can be both offensive and defensive strategies at the same time, giving the company significant first movers benefits for scaling first.
The techniques of Blitzscaling
The 3 techniques that allow blitzscaling to work, despite its significant risks are:
- Business model innovation driven or amplified by the right technology innovation. Just tech innovation doesn’t help in Blitzscaling, but when the right technologies are remixed and ripe, it allows innovators and entrepreneurs to build new business models that change their market completely. While Uber is not the first company to try make taxi hailing better, the combination of a) good payment infrastructure b) GPS c) Smart phone penetration with ubiquitous internet made their business model blitzscale faster.
- Strategy innovation that creates network effects, positive enforcing feedback loops that make it hard for consumers or customers to change giving the company a dominant position in the markets they operate in.
- Management innovation that brings together new leadership philosophies, structure and measurement techniques to allow blitzscaling to happen.
- Market Size: A big market with a large number of customers and a variety of channels to reach them makes it exciting. However, it is not easy to judge the size of a market, and this is one of the main reasons Blitzscaling is hard. The uncertainty of how the market will evolve, predicting it correctly and moving fast when others are paralysed by fear is one of the reasons that makes Blitzscaling hard. It is important to understand how lower costs and product improvements can expand the market by appealing to more customers.
Market Size estimation exercises can be bizarre and complicated. Sizing the market for a disruptor based on the incumbent is similar to sizing the market for cars based on number of horses on the road
2. Distribution that leverages existing networks and virality. The chosen truth is that you build a good product and users would come. But the truth is that if you don’t have a good product, don’t have a way to build distribution to reach users consistently and don’t find a business model on it, the whole chain is broken.
3. High gross Margin that gives you the opportunity to invest back in your growth. The key is that “All Revenue is not created equally”. If you have a SaaS business model where the software gives you very high gross margins, investors believe that your revenue can scale significantly while your costs don’t skyrocket to the same degree.
4. Network Effects that have created lock-in, entrenchments, new standards and found ways to penetrate our lives as consumers, a phenomenon that has created new ways to build and scale at speeds never imaginable before. The authors speak about network effects through:
a) direct effects where increase in usage leads to increased value (WhatsApp)
b) indirect effects where increase in usage leads to more complimentary goods being produced (Amazon > Amazon Prime)
c)2 sided network effects through marketplaces for instance (Uber)
d)Local network effects where a small subset of users creates more value (e.g. telcos offering free calling within family)
e) Compatibility & Standards that forces others to adopt to you and work with you (Microsoft having their office suite and formats.doc)
When you have the above four factors in place, you are ready to scale at massive speed a.la. Blitzscale.
(You can watch a lot of videos from the Stanford Class on Blitzscaling here)
My take on what is missing for entrepreneurs to Blitzscale and create even more jobs:
- Not enough startups finding demand first and getting product-market fit. Too much time is wasted on building value propositions that don’t work where the teams are married to their ideas than the problems. If more startups cross the chasm of product-market fit, we naturally get more to blitzscale.
- Most entrepreneurs and good ecosystems lack the expertise, community and formal networks for scale up entrepreneurs to get help. Why do only athletes and depressed have sounding boards and coaches? How about leaders, growth teams and scale up entrepreneurs?
- Lack of advisory, bespoke consulting at a reasonable price that gives a launchpad of expertise, networks and on-demand direction for entrepreneurs when scaling. I think this is completely unstructured and underserved, and most founders we meet feel alone, and have loose networks through friends and MBA’s but not the pedigree of entrepreneurs who have been there and done that. Funnily most successful entrepreneurs want to give back, but sometimes engage mostly with the established early stage startup programs, since there is still a white spot on scale up programs.
- While VC’s say they offer expertise, sounding board and networks, the truth is most don’t.
- Most entrepreneurs are not the best scale up leaders. While the entrepreneur or the founder might be excellent in product, sales, marketing, he /she may be not the best in creating structures to scale at rapid speed.
- Most ecosystems don’t have the VC risk appetite to get the founders to swing for the fences. To blitzscale, it is really an all or nothing game, and if you don’t have the appetite for that level of risk taking to capture gold, then it is hard for the ecosystem to have that way of thinking in the first place.
- I think the thinking and methods are equally applicable for corporates with digital businesses that want to scale their portfolios or spin offs.
- Finally, the mindset you need to blitzscale or go for gold is something that needs role models.
I felt at home reading this book and meeting the team behind it. We speak the same language, want more entrepreneurs to scale their wonderful companies and we think this could come from most good ecosystems around the world, not just Silicon Valley. If you are a company that wants to scale faster, we have scale up programs that combine advisory and1–1 working from proven entrepreneurs, get in touch with us.