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Summary of Blitzscaling by Reid Hoffman and Chris Yeh

summary fo Blitzscaling by Reid Hoffman and Chris Yeh

What is the book about?

This book, Blitzscaling, argues that it holds the secret to starting and scaling massively valuable companies. This secret is called “Blitzscaling”. Comprised of multiple techniques, the authors of this book believe that utilizing these techniques will place you head and shoulders above the competition. The techniques covered within the book are all related to scaling up on a business or product that you already have, or is only in idea form. These same techniques have been used by Google, LinkedIn and Facebook to allow them to rapidly double in size. Examples like this and case studies of entrepreneurs are provided throughout the book. 

Who are the authors?

Two Stanford University graduates, Reid Hoffman and Chris Yeh are the co-authors of this book. 

Reid Hoffman was a co-founder of LinkedIn and he is currently a partner at the venture capital firm Greylock Partners. As of last year, Hoffman was ranked the 1,349th richest person in the world with his net worth estimated by Forbes to be 1.8 billion dollars. 

Chris Yeh excelled while at university, earning two Bachelor’s degrees with distinction from Stanford University before being named a Baker Scholar at Harvard Business School. Since then, he has been helping people in the business and tech world live more productive and happy lives. Chris’ mission statement is that he helps “interesting people do interesting things”. He consistently writes for outlets like TechCrunch and VentureBeat, now sitting with over 2,000 posts to his name that cover a wider range of topics, from happiness in Silicon Valley to psychology in entrepreneurship.

The fundamentals

What is Blitzscaling?

Consisting of both a general framework and specific strategies, Blitzscaling is perfect for companies where scale is the most important thing. It is an aggressive approach and it ultimately prioritizes speed over efficiency in the face of uncertainty.

This is in contrast to the usual business approach which focuses on efficiency over speed. However, sometimes speed is more important as without scaling up fast you might lose your chance and, thus, lose your efficiency. Blitzscaling started out in Silicon Valley but it can work anywhere.

An offensive strategy, Blitzscaling thrives off of feedback loops. In its simplest form, Blitzscaling is based on three techniques:

  1. Design an innovative business model with growth potential
  2. Build growth factors into your business model through network effects and implement aggressive spending
  3. Innovate within your management team. Rapid growth requires top-quality HR

Each of these will be considered in greater detail later in this book summary.

Examples of companies that have succeeded because of Blitzscaling

There are multiple companies, especially within the tech realm, who have benefited hugely from Blitzscaling. The most obvious example is Amazon. They grew from 151 employees and $5.1 million in 1996 to 7,600 employees and $1.64 billion in 1999.

Developing an innovative business model

“The real value creation comes when innovative technology enables innovative products and services with innovative business models.”

– Reid Hoffman

Blitzscaling’s first core technique involved designing a business model that is capable of exponential growth. The growth factors that should be utilized, according to this book, are:

1.       Market size – You must appeal to a large market and have a plan for scaling up to this market. For example, Jeff Bezos saw bookselling, with Amazon book, as merely the start of Amazon

2.       Distribution – You want your business to turn viral, in that your users bring in more users for you. Importantly, virality normally starts with a service that is free and then requires you to pay to upgrade. An example of this would be Dropbox.

3.       High gross margins – This equates to sales minus the cost of goods. You want to maximize this with the optimum for Blitzscaling seemingly being a gross margin of roughly 60%.

4.       Network effects – This is the most important factor for your business’ long-term vision. Network effects are fundamental to developing the positive feedback loop spoken about earlier in which superlative growth and value creation are produced. These network effects can directly increase value, such as in the case of Facebook, or it can have indirect effects e.g. iOS encouraging third-party app developers who then boost the value of iOS. It is important to note, though that network effects won’t work until your product is being widely adopted in your market. 

Things that can limit your company’s rapid growth

The book identifies two main factors that can stunt your company’s growth:

  1. Your product not fitting a market
  2. Operational scalability

Ultimately, it might be that your unique advantage in the market isn’t so unique. Plus, although your company may be growing exponentially, if your infrastructure cannot keep up with this you could be taken over by another company. The perfect example of this is Friendster, who did exceptionally well for a few months but then their servers overloaded; they were then overtaken by a better equipped MySpace. Finally, they were taken over by a better equipped Facebook. 

7 Business Model Patterns and 4 Business Model Principles

This book provides 7 clear and concise patterns that can be adopted by companies as their business model, depending on their individual needs:

  1. Bits not atoms – Bits are easier to move than atoms. This is why Google and Facebook were able to grow so rapidly
  2. Platforms – Software-based platforms can be distributed globally with great ease e.g. iOS
  3. Free – With a free basic account and a premium paid account service you can reach a huge number of users through virality
  4. Marketplaces – Marketplaces have always been important in the business world. Now marketplaces have moved online, like Airbnb, growth can be global and exponential
  5. Subscriptions – Software-as-a-service is the dominant model for enterprise software, including streaming companies like Netflix and Spotify
  6. Digital Goods – In-app purchases are the intersection between bits and atoms
  7. Feeds – Facebook and Instagram provide personal feeds for their users but they make their money through sponsored updates

Additionally, there are 4 underlying principles for business model innovations:

  1. Moore’s Law – Computing power generally doubles every 18 months
  2. Automation – You want to automate your businesses; this is why Google’s server farms are running 24/7
  3. Adaptation – You must continually improve your company rather than just optimizing it
  4. Be contrarian – You need to challenge the status quo, sometimes, to be the leader in your field

How to use Blitzscale as an effective growth tool

“Data is the lifeblood of decision making for any company, but it is particularly fundamental if it informs the design of your product, or if acquisition marketing is your key distribution strategy.”

– Reid Hoffman

When you should Blitzscale

You should only Blitzscale when being speedy in the market is the critical thing to achieving massive growth. This is not the same as being the first to provide a product. Instead, you need to be the first to scale a product. If the latter is important to your success, then Blitzscaling should be used. You shouldn’t pursue Blitzscaling if you have a low-margin business model. 

When your business should stop Blitzscaling

Your business should stop when Blitzscaling stops having an impact. For example, if your market stops growing or it reaches an upper limit. There are a few telltale signs that you should stop:

  • A declining rate of growth relative to the competition
  • Worsening unit economics
  • Decreasing per-employee productivity
  • Increasing management overhead

The five stages of growth and how to transition between them

The book describes five sizes of business: Family, Tribe, Village, City, and National. Each transition requires different ways of scaling up. 

Family–>Tribe = High levels of competence and/or a brilliant growth strategy

Tribe–>Village = The founder now manages the people who are doing the first step but in a more differentiated way

Village–>City = Goals and strategies are still made by the founder and high-level decisions

City–>National = The strategy has to be pulled back from Blitzscaling and growth of new product lines and business units is required

How to manage in an innovative way

“The purpose of hiring a management team is to solve the organization’s problems in a more scalable way. The CEO should be the hub, and the executive team the spokes that connect the CEO to the frontline managers and employees operating where the rubber hits the road.”

It is vital that you optimize your management at every stage of your company’s growth. Amazon and PayPal are prime examples of companies that did exactly this. The book describes 8 key transitions that occur when managing a company through Blitzscaling:

  1. Smaller teams become large teams – When your teams are small they can operate in a more spontaneous way, which makes hard pivots easier to execute. As teams grow larger more planning and formal processes are needed. Therefore, during this time you must ensure employees still remain connected with the company and feel needed: responsibilities rather than the title must be emphasized
  2. Generalists become specialists – Smart generalists will be needed within your team at the start of Blitzscaling. Not too early but at the right time, you must start hiring specialists. This does not mean you should remove your generalists, as they will know the company better than anyone else and will be able to adapt when the company transitions further later on
  3. Contributors become managers; managers shouldn’t necessarily become executives – Managers should be those who worry about the day-to-day tactics of the company; this means that it is useful for managers to be people who know the company inside out. However, managers often struggle to transition into an executive within a company. This means that hiring external executives who specialize in Blitzscaling is a more viable option
  4. Dialogue becomes broadcasting – Your internal communication will shift dramatically throughout the Blitzscaling stages. You will start with in-person communication to electronic broadcasting. All information on the table to only sharing specific information. 
  5. Inspiration shifts towards a reliance on data – At the beginning of your company you will be mainly relying on your inspiration and improvisation for ideas. However, as the company scales up data will become more crucial in decision making. This data should be easy to access and clear in its context. By the ‘City’ and ‘Nation’ stages you will want dedicated teams for analyzing this data. Make sure this data isn’t just painting a picture of what you want to hear. Instead, you want it to tell you what you need to hear
  6. Single focus has to become multithreading – At the start, companies often focus on a single product. This helps the company to do very well and become specialists in one small area. However, as the company scales you will need to continue to focus but with the inclusion of more product lines. At this stage, the company will have multiple threads, with different parts of the company controlling different product lines. Don’t make this shift too soon, though. You should only do this when it is necessary
  7. Shift your approach from offensive to being both offensive and defensive – Companies often start on the offense, waging somewhat of a war against bigger competitors. This changes when the company is big enough. When a company is big enough it can compete with the other companies while also acquiring some of the competing companies to help with infrastructure
  8. Founders must become leaders – As a founder, you will have to learn very quickly. As well as company scaling, you will have to do the same. You must be willing to delegate work to people who are talented in their field. Trust is hugely important. 

How Blitzscaling management differs from traditional management

“Sizing the market for a disruptor based on an incumbent’s market is like sizing a car industry off how many horses there were in 1910.”

As well as accepting and understanding these transitions that will occur during Blitzscaling, it is also important to understand the differences between traditional management and management within a company that is Blitzscaling. Therefore, the book offers 9 counterintuitive rules

  1. Accept uncertainty and take steps to manage it
  2. Hire people who fit the stage your company is at and fire people who no longer fit the company’s position in scaling up
  3. Reorganizing your team may be chaotic but it is vital
  4. Your product does not need to be perfect. Scaling up fast will give you greater opportunity to make the improvements that you need
  5. Let some problems remain. If there are bigger problems to deal with, deal with them first and leave the other problems for later
  6. Just because your approach during one stage of Blitzscaling may not work later down the line, don’t worry. Use whatever works at that time to help you reach the next stage. You can always change your approach when it no longer suits your company’s position
  7. ‘The customer is always right’ should not be adopted if it slows your company down. Provide the customer service you can at first before being able to improve on this as you grow
  8. Raise an excess amount of money. Unexpected things will always happen and as there are risks involved with Blitzscaling it is a good idea to raise an excess
  9. Evolve a company culture that will be conducive to success. Your company needs to hire on the basis of both conformity and diversity. Too much sameness leads to bias and stagnation

Your company doesn’t have to be high tech to Blitzscale

The book provides multiple examples of how Blitzscaling applies to companies that are outside of the Silicon Valley realm. For example, Zara takes only two weeks to develop a new product and get it into stores; the industry average is 6 months. Zara gets daily feedback from its store managers; this is analyzed by sales specialists who present to designers, who then send the designs to the factories for manufacturing. The business model focuses on responsiveness over efficiency. Products are shipped in small batches, which costs more logistically but allows Zara to get their clothes into stores in less than 24 hours in Europe and America, less than 48 in Asia and Latin America. Despite its inefficiencies, Zara’s gross margins exceed those of its competitors.

How to defend your company against Blitzscaling

Finally, this book offers advice for companies that are struggling with competitors who are Blitzscaling. There are three ways to approach this: beat them, join them, or avoid them. Beating them involves sticking for your traditional game and hoping the other company exhausts themselves of their resources. Joining them would involve Blitzscaling yourself. Finally, avoiding them involves moving slightly towards a more stable market. IBM is a great example of this, as they started at a Blitzscaler but moved into technology consultancy due to competitors, like Dell. 

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