This book asks the question, when is it beneficial to prioritize speed of growth over efficiency?
What Is Blitzscaling?
– Additional airbnb hosts, make the service more valuable for travellers
– Additional travellers make the network more valuable for the hosts
Strategy + set of techniques to prioritize speed > efficiency.
Purposefully + intentionally doing things that are non-traditional and take on additional risk.
Based on Stanford class. How to grow multi-billion dollar companies in a matter of years.
Dropbox, Facebook, Airbnb, Google stories. Extreme unwieldy, inefficient do or die approach to growth.
How, when and why to Blitzscale.
Silicon Valley is the most prominent / concentrated set of examples of blitzscaling.
14 companies of over 100B market cap worldwide. Seven of fourteen in Silicon Valley.
Talent + capital + entrepreneurial culture is not the key. It’s not just venture capital, research universities and smart people. What sets Silicon Valley apart from Austin, Boston, Seattle, Shanghai, etc.
0 to multibillion dollar market leader in a matter of years.
Small number of hypotheses to decide where you want to win the market and how that will help your business.
Capital fuels and helps tweak the rocket.
Software is eating the world. Even hardware companies integrate with software.
– Computational biology
– Precision surgery
Prioritize speed over efficiency vs. usual startup approach which is efficiency over speed in an atmosphere of uncertainty, to maximize resources.
Blitzscaling is success or death. Blitzscaling is different from fast scaling because there’s uncertainty.
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Technique 1 – Business Model Innovation
– It’s not just about technological innovation
– Though it is the most common trigger – e.g. Smartphones + GPS helped Uber for both drivers and riders
– Often companies that growth through Blitzscaling buy technological innovators (e.g. Google bought Deepmind)
– Combine new tech with good distribution to customers
– Scalable and high margin revenue model is ideal
PayPal Examples
1. Paid Customers Referral Bonuses
PayPal’s referral program / financial bonus was a good move because it was a lower cost of acquisition for financial service than other acquisition channels
2. Allowed customers to accept credit card payments and ate the 3% fee themselves
Technique 2 – Strategy Innovation
How do you create a strategy to achieve extreme growth? What should you not do and what should you not do?
Network effects – 1st company to achieve critical scale leads to winner take all / first scalar advantage.
Uber Example Of City Expansion
Uber allows you to get a ride faster than anyone else. This attracts more customers, more drivers, and increases the liquidity of the market.
2012 blog post – all markets are not created equal. Route and load optimization leads to shorter pickup times and a better experience.
Disney was risky, since Walt Disney bet against life insurance to fund the company but it’s not Blitzscaling.
Examples of Blitzscaling strategies:
– Reduce ticket prices 90% to get to 1 million visitors, since those 1 million visitors would help go to 9MM more through network effects
– Paying construction crews to work 24 hours / day in order to get Disneyland open a few months earlier
Silicon Valley Investors
– Upward trajectory but no hockey stick
– Take on more risk to get exponential growth or sell
– 20% annual growth isn’t enough to hit multi billion valuation fast enough
– Anything below 40% annual growth is a warning sign, though it would delight wall street analysts covering another industry
– Greater risk is to move to slowly according to this philosophy
Nokia is an example of the peril of not taking risks. Apple and Samsung came into the market.
When Uber launches in a new city, they offer subsidies. For example:
– Boost payments to attract drivers
– Lowering fares to attract riders
Reach critical scale faster than competitors. Raised $9B+ but eventually it needs to significantly improve its unit economics – for example investing in autonomous vehicles to eliminate driver costs.
Technique 3 – Management Innovation
Tripling the number of employees each year isn’t uncommon, meaning you need unconventional management strategies.
Launch flawed and imperfect products. Let fires burn. You may have to ignore angry customers. You may have to hire “good enough” people.
Technique 1 Business Model Innovation Deep Dive
– Amazon dominated e-commerce not Walmart. Online reviews, shopping carts and shipping.
– Microsoft pre-installed the browser on all it’s computers with Windows OS.
Business model innovations seem obvious in retrospect, but they aren’t usually at the time.
Innovative Tech ⟶ Innovative Products and Services ⟶ Innovative Business Models
What Is a Business Model? Let’s define it.
Peter Drucker
– Theories composed of assumptions about the business
Clayton Christensen
– Focus on the concept of the job to be done. When a customer buys a product they are hiring it to get a job done.
Airbnb, Brain Chesky
– Build a product people love
– Hire amazing people.
“What else is there to do? Everything else is fake work”
– This book’s definition: How a company generates financial returns by producing and selling its products.
Ideally you want to maximize:
1. Market size
Pitch deck 101 for startups. Large number of potential customers and number of efficient channels for reaching those customers (TAM – Total Addressable Market). Ideally the market is growing quickly as well.
VC’s need a small number of huge wins. Benchmark invested in eBay 6MM to Public 5B (745x return).
1B in annual sales needs to be the potential.
2. Distribution
Creative distribution if you don’t have money to pour into paid ads.
A. Leverage existing networks
PayPal built a pay with PayPal button for Ebay listings.
Airbnb allowed hosts to repost listings to Craigslist and they could just click a single button. Craiglist had no API so Airbnb built distribution innovation rather than product innovation in this case, by building a slick integration.
However, there’s risk if you lose the integration. For example, Facebook took away Zynga’s ability to get Facebook users to share game updates with friends. Demand media and “junk websites” got killed.
B. Virality
Incentivized
– If you referred a friend to PayPal, you each got $10.
– Led to 7-10% Growth per day.
– Dropbox: You and your friend each get free account storage
Organic Virality
– PayPal: You had to set up an account to get paid.
– Address book importer – connect LinkedIn to Outlook contacts
– Use LinkedIn pages as primary professional page on the internet (value to user as well as to others). Public profiles led to viral growth.
– Dropbox: You need an account
Retention
– Not just about front door acquisition. You need people to use the product.
– Usability test – 0/5 people succeeded in referrals – hence its worth making the experience better and doing user testing.
– Virality is often free / freemium