Blitzscaling. Reid Hoffman
and even Slack into a single megaservice. You can use WeChat to do run-of-the-mill things like texting and calling people, participating in social media, and reading articles, but you can also book a taxi, buy movie tickets, make doctors’ appointments, send money to friends, play games, pay your rent, order dinner for the night, plus so much more. All from a single app on your smartphone.
Ma himself recognized the importance of the decision he had made, saying in an interview, “Looking back, those two months were a matter of life and death.”
These stories of extreme growth, whether in California or halfway around the world in China, are perfect examples of why it’s valuable to study what blitzscaling is and how it works.
Throughout this book, we will be telling the stories of various blitzscalers. Appendix B: The Blitzscalers includes brief profiles of these companies that provide more context. For even more background, visit Blitzscaling.com.
BLITZSCALING: THE SECRET WEAPON FOR BUILDING SCALE-UPS
When a start-up matures to the point where it has a killer product, a clear and sizable market, and a robust distribution channel, it has the opportunity to become a “scale-up,” which is a world-changing company that touches millions or even billions of lives. Often, the fastest and most direct path from start-up to scale-up is the hypergrowth produced by blitzscaling.
The enterprise software company Slack reached this critical stage once it was able to demonstrate the rapid and accelerating adoption of its team messaging apps by its initial market of software development teams. Nearly five years passed between the time when Slack was founded and the initial launch of its product. But once it launched, Slack users themselves drove user growth by adding many colleagues at a time, aided by a frictionless process that allowed new users to jump in with a simple Web application or by downloading a mobile app from iTunes or Google Play. After the company reached this point, it began to scale rapidly, adding employees, capital, and customers at a blistering pace. Slack had raised $17 million during the first five years of its life; within eight months of launch, it had raised another $163 million and a total of $800 million by late 2017.
Any company, whether a global giant or a start-up in a cofounder’s garage, would love to launch and grow killer businesses like Airbnb, WeChat, and Slack. Yet those who actually manage to do so, especially to the degree that Brian Chesky and Pony Ma did, are still exceedingly rare. Why is that? What sets these companies apart from the rest?
In this book, we will argue that the key to rapidly building massive businesses in today’s environment is the aggressive growth strategy of blitzscaling: a set of techniques that allows both start-ups and established companies to build dominant, world-leading businesses in record time.
ENTERING THE BLITZSCALING ERA
Over the past two decades, the Internet has completely reshaped both our daily lives and the world of business. Netscape’s blockbuster IPO on August 9, 1995, marked the beginning of both the dot-com boom and what I call the Networked Age. At the time, the rising stock prices of the dot-com boom attracted the most attention, but, in retrospect, the biggest change was that the Internet was beginning to connect all of us to people, information, resources, and other networks. There have been other revolutions in the past—steam, electricity, and radio spring to mind—but what makes the impact of the Internet so unique and so far-reaching is the fact it has made everything so much faster. Today, every individual can connect to any other individual immediately; that increased velocity is what makes blitzscaling possible and so powerful.
The speed of the Internet has generated a number of second-order effects that have changed how businesses and organizations can grow. For example, the Internet has made it possible to access global markets and tap into massively scalable distribution channels in a way that wasn’t feasible during earlier eras. But perhaps the most important impact for businesses has been the rising significance and prevalence of so-called network effects that occur when increased usage of a product or service boosts the value of that product or service for other users. For example, each additional Airbnb host makes the service a tiny bit more valuable for every other Airbnb guest and vice versa. Each additional WeChat user makes the service a tiny bit more valuable for every other WeChat user, and so on.
Network effects generate a positive feedback loop that can allow the first product or service that taps into those effects to build an unassailable competitive advantage. For example, eBay was founded in 1995, yet network effects keep it a dominant player in peer-to-peer commerce two decades later. Airbnb offers over three million listings in sixty-five thousand cities around the world; think of how difficult it would be for a new entrant to offer anywhere close to the same selection and value.
We’re reminded of the famous scene from the movie Glengarry Glen Ross, in which Alec Baldwin’s character, Blake, is speaking to a group of salesmen:
As you all know, first prize is a Cadillac Eldorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you’re fired. Get the picture?
First prize in the first wave of consumer social networking went to Facebook; second prize to MySpace; third prize to Friendster. Remember Friendster? You need to win first prize in order to survive in the Internet era.
The level of competition can seem overwhelming at times, but the Networked Age also allows companies to reap incredible rewards much more rapidly than at any other point in history. We call the strategy and mindset they can use to get there “blitzscaling.”
Blitzscaling is a strategy and set of techniques for driving and managing extremely rapid growth that prioritize speed over efficiency in an environment of uncertainty. Put another way, it’s an accelerant that allows your company to grow at a furious pace that knocks the competition out of the water.
Blitzscaling requires hypergrowth but goes beyond the blunt strategy of “get big fast” because it involves purposefully and intentionally doing things that don’t make sense according to traditional business thinking. In the Blitzscaling Era, you have to make a tough call:
Take on the additional risk and discomfort of blitzscaling your company,
Or accept what might be the even greater risk of losing if your competition blitzscales before you do.
Was Airbnb’s decision to expand into European markets—a move that could have stretched the company so thin as to destroy its core business—either efficient or certain? Hardly. Airbnb could easily have failed, burning through all its capital while essentially ceding the European market to its copycat competitor Wimdu. Yet the risky decision proved the right one.
Blitzscaling disrupts entire industries, such as music, video games, and telephony, with both new technologies and new business models … and those are examples from just a single company. (You know, the one that produced the iPod, iTunes, the iPhone, and the iPad, to name just a few.) These waves of disruption affect every aspect of our daily lives, from the jobs we work, to the products we use, to the way we connect with one another.
Disruption on its own is neither good nor bad, but it always involves change. Replacing a $10 product with a $1 product 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