Hoffman goes into incredible detail on how to achieve scale in the tech business, presenting a set of techniques for driving and managing extremely rapid growth.
The key to rapidly building massive businesses in today’s environment is the aggressive growth strategy of blitzscaling.
The speed of the internet has generated a number of second-order effects that have changed how businesses and organisations can grow.
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.
When you blitzscale, you deliberately make decisions and commit to them even though your confidence level is substantially lower than 100 percent. You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster.
My friend Marc Andreessen has argued that “software is eating the world.” What he means is that even industries that focus on physical products (atoms) are integrating with software (bits).
Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off.
The canonical sequence that companies like Google and Facebook have gone through begins with classic start-up growth while establishing product/market fit, then shifts into blitzscaling to achieve critical mass and/or market dominance ahead of the competition, then relaxes down to fastscaling as the business matures, and finally downshifts to classic scale-up growth when the company is an established industry leader.
Together, this sequence of scaling generates a classic “S-curve” of growth, with slower initial growth followed by rapid acceleration, eventually easing its way into a gentle plateau.
1. Blitzscaling is both an offensive strategy and a defensive strategy.
2. Blitzscaling thrives on positive feedback loops, in that the company that grows to scale first reaps significant competitive advantages.
3. Despite it's incredible advantages and potential payoffs, blitzscaling also comes with massive risks.
Some of the other measures of scale include the number of users (user scale), the number of customers (customer scale), and total annual revenues (business scale).
Technique 1: Business Model Innovation
Technique 2: Strategy Innovation
Technique 3: Management Innovation
A company’s business model describes how it generates financial returns by producing, selling, and supporting its products.
If you want to find your best business model, you should try to design one that maximises four key growth factors and minimises two key growth limiters.
Given the desire for home runs like eBay, most venture capitalists filter investment opportunities based on market size. If a company can’t achieve “venture scale” (generally, a market of at least $1 billion in annual sales), then most VCs won’t invest, even if it is a good business.
A good product with great distribution will almost always beat a great product with poor distribution.
You have to be good at building a product, then you have to be just as good at getting users, then you have to be just as good at building a business model.
These distribution techniques fall into two general categories: leveraging existing networks and virality.
The higher the gross margin, the more valuable each dollar of sales is to the company because it means that for each dollar of sales, the company has more cash available to fund growth and expansion.
It’s not necessarily any easier to sell a low-margin product than a high-margin product. If possible then, a company should design a high-gross-margin business model.
A product or service is subject to positive network effects when increased usage by any user increases the value of the product or service for other users.
Five Categories of Network Effects (NYU professor Arun Sundararajan): direct network effects, indirect network effects, two-sided network effects, local network effects, compatibility and standards.
When you design your business model to leverage network effects, you can succeed anywhere.
A key component of business model innovation is designing around these growth limiters.
Product/market fit means being in a good market with a product that can satisfy that market.
The only way to truly prove product/market fit is to get the product into the hands of real users.
Designing a scalable economic model isn’t enough if you can’t scale up your operations to meet demand.
1. Bits Rather Than Atoms (see Why Software Is Eating The World)
3. Free or Freemium
4. Market Places
6. Digital Goods
7. Feeds (e.g. Facebook, Twitter, Instagram)
1. Moore's Law
3. Adaption, Not Optimisation
4. The Contrarian Principle
The only time that it makes sense to blitzscale is when (whether for offensive or defensive reasons) you have determined that speed into the market is the critical strategy to achieve massive outcomes.
To achieve massive success, you need to have a big new opportunity—one where the market size and gross margins intersect to create enormous potential value, and there isn’t a dominant market leader or oligopoly.
Some big opportunities are so enormous that they spawn secondary opportunities for blitzscaling.
Facebook’s rise created the platform for Zynga’s initial growth,
It’s important not to confuse critical mass with first-mover advantage. Being first to launch in a market might earn you congratulations on being a product visionary, but if you aren’t also the first to scale, you’ll end up as a footnote in a Wikipedia article about your competitor who did.
It’s doing things that other companies normally don’t do, or choosing not to do things that they do because you’re willing to tolerate greater uncertainty or lesser efficiency.
Blitzscaling extends the simple three-step process of “Do Things That Don’t Scale” as follows:
One of the key features that sets global giants apart from those companies that flame out or implode before they can reach market dominance is an ability to evolve and optimise their management practices at each stage of growth.
1. Small teams to large teams
2. Generalists to specialists
3. Contributors to managers
4. Dialogue to broadcasting
5. Inspiration to data
6. Single focus to multithreading
7. Pirate to navy
8. Scaling yourself: Founder to leader
To succeed, you’ll have to violate many of the management “rules” that are designed for efficiency and risk minimisation.
OPTION #1: beat them - continue to play your traditional game.
OPTION #2: join them
OPTION #3: avoid them - cede the current market to blitzscalers and use your current assets to migrate to a new, less vulnerable market.
Here’s what all of us need to realise about the Blitzscaling Era: Speed and uncertainty are the new stability.
Be an infinite learner. The best and worst thing about the rapid pace of change today is that there are no experts with ten-plus years of experience in any emerging phenomenon.
If you’re able to climb the learning curve faster than others, you have the opportunity to create massive value from it.
The landscape is always changing, and learning is how you adapt.
Be a first responder. As new technologies and trends emerge, the uncertainty of where they are headed will paralyse many people and keep them from acting. Those who are willing to act—and act quickly—despite the uncertainty will have a disproportionate advantage.
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