Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies. Reid Hoffman
of equal or better quality looks like a disaster to an incumbent player, but, for society as a whole, it means greater productivity. The buyer gets the desired product, and now also has $9 available to invest in other things. Netflix has been bad news for broadcast and cable networks, but it has been great news for fans and creators of movies and television. Yes, disruption produces losers as well as winners, but, as a whole, it is a vital source of growth and opportunity that you can’t afford to ignore.
It’s good to keep in mind that those who extoll the virtues of disruption tend to be—coincidentally enough—the ones in the winners’ circle. But disruption that spreads its benefits and new opportunities broadly is better for society. Fortunately, most disruption falls into this category. In a 2004 working paper, “Schumpeterian Profits in the American Economy: Theory and Measurement,” Yale economist William Nordhaus examined the US economy from 1948 to 2001. Based on the data he collected, he concluded that only 2.2 percent of “profits that arise when firms are able to appropriate the returns from innovative activity” went to the disrupters. “Most of the benefits of technological change are passed on to consumers rather than captured by producers,” he concluded. Like it or not, change is inevitable—but it doesn’t have to be wholly unexpected.
In their book Future Shock, the futurists Alvin and Heidi Toffler wrote that “change is the only constant,” and “to survive, to avert what we have termed future shock, the individual must become infinitely more adaptable and capable than ever before.” Those words were originally published in 1970. The pace of change has only accelerated since then.
Everyone should have the opportunity to learn how blitzscaling works, because it is already impacting their lives. And once they know how it works, they can use it to reshape the world. People should be part of building the future rather than feeling like the future is being forced upon them.
Blitzscaling is what separates the start-ups that get disrupted and disappear as the world changes from the ones that scale up to become market leaders and shape the future.
This book was born out of a class we taught at Stanford in which we dissected the process that went into growing the world’s largest technology companies and then codified a series of tactics and choices that made it work. The result was a specific set of principles that describes how to grow multibillion-dollar companies in a handful of years.
While writing this book, we talked to hundreds of entrepreneurs and CEOs, including those of the world’s most valuable companies, such as Facebook, Alphabet (Google), Netflix, Dropbox, Twitter, and Airbnb. (You can hear a number of these conversations on my podcast, Masters of Scale.) Even though the stories of their companies’ rise were very different in many ways, the one thing they all had in common was an extreme, unwieldy, risky, inefficient, do-or-die approach to growth.
In this book, we draw lessons from these world-leading companies to explain the nuts and bolts of how to blitzscale, when to blitzscale, why to blitzscale, and the global impact of the companies that are blitzscaling all around you right this second.
This quest will take us all over the globe, but one place in particular stands out.
SILICON VALLEY: THE PERFECT PLACE TO DECODE BLITZSCALING
Although companies have successfully blitzscaled on every continent except for Antarctica, the most prominent and most concentrated set of examples comes from California’s Silicon Valley. And while we can’t simply copy and paste the techniques that work in Silicon Valley and expect them to work the same way in Shanghai, neither can we cut and paste from Shanghai to Stockholm, nor from Stockholm to São Paulo. Instead, we try to extract some universal lessons and then explore how they apply across the world.
As of this writing at the end of 2017, there are only fourteen publicly traded technology companies in the world that have a market capitalization of over $100 billion. Want to guess how many of those are in Silicon Valley? Seven—that’s half of the world’s most valuable tech companies.
Taken together, Silicon Valley’s 150 most valuable publicly traded technology companies are worth $3.5 trillion. That number is so big it doesn’t mean anything to most of us. So consider this: those 150 companies alone make up 50 percent of the value of the NASDAQ, and they account for over 5 percent of the entire world’s market capitalization. That’s a lot of value created by a region with an estimated 3.5 to 4 million residents, or roughly 0.05 percent of the world’s population.
While we fully accept that this may change in the future, the historical and current success of Silicon Valley makes it the perfect place to examine this question: What is the most effective way to rapidly build massively valuable companies?
When outsiders look at Silicon Valley, they often think that the key to this question is innovative technology. But as you’ll read, technological innovation alone doesn’t make for a thriving company.
Silicon Valley insiders and well-read outsiders believe that the key is the combination of talent, capital, and entrepreneurial culture that makes it easy to start new companies. This too is wrong.
Sure, Silicon Valley is the leading hub for high-tech talent and venture capital, but it didn’t start out that way. Sure, it is blessed with great universities, such as Stanford and Berkeley, but so are plenty of other regions. The answer can’t be simply the combination of venture capital, research universities, and smart people. This combination of ingredients is far from unique. In fact, the same basic ingredients can easily be found in numerous start-up clusters in the United States and around the world: Austin, Boston, New York, Seattle, Shanghai, Bangalore, Istanbul, Stockholm, Tel Aviv, and Dubai.
To discover the secret to Silicon Valley’s success, you need to look beyond the standard origin story. When people think of Silicon Valley, the first things that spring to mind—after the HBO television show, of course—are the names of famous start-ups and their equally glamorized founders: Apple, Google, Facebook; Jobs/Wozniak, Page/Brin, Zuckerberg.
The success narrative of these hallowed names has become so universally familiar that people from countries around the world can tell it just as well as Sand Hill Road venture capitalists. It goes something like this: A brilliant entrepreneur discovers an incredible opportunity. After dropping out of college, he or she gathers a small team who are happy to work for equity, sets up shop in a humble garage, plays foosball, raises money from sage venture capitalists, and proceeds to change the world—after which, of course, the founders and early employees live happily ever after, using the wealth they’ve amassed to fund both a new generation of entrepreneurs and a set of eponymous buildings for Stanford University’s Computer Science Department.
It’s an exciting and inspiring story. We get the appeal. There’s only one problem. It’s incomplete and deceptive in several important ways.
First, while “Silicon Valley” and “start-ups” are used almost synonymously these days, only a tiny fraction of the world’s start-ups actually originate in Silicon Valley, and this fraction has been getting smaller as start-up knowledge spreads around the globe. Thanks to the Internet, entrepreneurs everywhere have access to the same information. Moreover, as other markets have matured, smart founders from around the globe are electing to build companies in start-up hubs in their home countries rather than immigrating to Silicon Valley.
Second, simply starting a company is obviously insufficient. The start-ups that achieve massive value are those that have found a way to grow into scale-ups at an exponentially faster pace than their competitors.
So what secret alchemy is at work in Silicon Valley to fuel such rapid-fire growth of so many of the world’s most valuable tech companies? And if there is a secret, can it be identified, analyzed, understood, and, most important, applied elsewhere?
Blitzscaling is that secret. And the reason blitzscaling matters so much is that nothing about it is inherent to Silicon Valley.
There’s a common misconception that Silicon Valley is the accelerator of the world. The real story is that the world keeps getting faster—Silicon Valley is just the first place to figure out how to keep pace. While Silicon Valley certainly has many key networks and resources that make it easier