PDF Summary:Blitzscaling, by Reid Hoffman and Chris Yeh
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1-Page PDF Summary of Blitzscaling
Want to know the growth tactics that Uber, Facebook, and Airbnb used to reach massive valuations in record time? Written by LinkedIn founder and Reid Hoffman, Blitzscaling describes the counterintuitive business strategy of putting efficiency and confidence aside for pure speed.
Learn common attributes of today’s most successful tech business models, when it’s appropriate to blitzscale and when it will fail, and the counterintuitive violations of business common sense. While nominally a business strategy book, Blitzscaling is also relevant for investors who want to discover the next big company, employees who want to know how to work in one, and anyone who wants to understand how today’s companies grow at an unprecedented pace.
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- Big new opportunity
- Market size and gross margins create enormous potential value, and there isn’t a dominant market leader.
- Often, this is when a technological innovation upends existing markets, creating large opportunities that incumbents are not well-suited to capture.
- First-scaler advantage
- These opportunities often involve positive feedback loops. The mechanisms that confer first-scaler advantage include network effects, returns to data, economies of scale.
- Blitzscaling often doesn’t work if another company has first-scaler advantage.
- Competition
- Can somebody else realize this opportunity earlier than me? If yes, moving faster reduces risk of competition.
- Startups who act quickly can evade incumbents who aren’t focusing on the space.
When Should You Stop Blitzscaling?
Blitzscaling are like fighter jet afterburners - you don’t switch them on and never turn them off. Blitzscaling is used for a specific purpose for a limited time, after which you turn to fastscaling or another type of company growth.
You stop blitzscaling when your business it outgrowing your current strategy. Warning signs of when this is:
- Declining rate of growth (relative to market and competition)
- Worsening unit economics
- Decreasing per-employee productivity
- Increasing management overhead
Managing Teams through Blitzscaling
As the company grows from a handful of people to 10s, then 100s, then 1000s of people, drastic changes in management need to happen. Here are a few critical ones:
Generalists to Specialists
At each stage of a company, different types of people are required to provide what the organization needs at that time. An analogy to the military: “the marines take the beach, the army takes the country, and the police govern the country.”
In the beginning up until 100 people, you should tend to hire generalists. They adapt quickly to the rapidly changing needs of the business in its volatile early days.
At Village stage (100s of people), specialists are critical to scale. They perform functions better than generalists can, and you need them sooner than generalists can learn the job. Thus specialists may need to be hired from outside the org.
Managers to Executives
The types of senior team members you need to hire will change.
Managers manage contributors and execute detailed day-to-day plans. Executive manage managers.
Managers can be trained from within, because individual contributors can learn how to manage from good managers. In contrast, executives are initially harder to train because managers in your organization don’t have model executives to learn from. Therefore, start by hiring executives from outside.
Founder to Leader
You need to step back from fighting fires and day-to-day decisions to the bigger picture. There are three ways to scale yourself:
- Delegation: people do work you previously did
- Amplification: people augment what you continue to do
- Making yourself better
Read the full summary for the complete set of 9 management tips.
Rules of Blitzscaling
Blitzscaling also requires counterintuitive actions that contradict common business sense and will feel unnatural.
Be a “Bad” Manager
Be OK with breaking best practices of standard management. You might need to restructure the hierarchy of the company 3 times a year, churn through management teams, have unclear career progression for new hires, and retain confusing job titles. This feels like chaos to the team, but having this flexibility keeps the company nimble. You risk the organization in exchange for focusing wholly on growth.
Launch Products Before You Feel They’re Ready
Always launch before you feel the product is fully ready. Otherwise, you’ll waste time building things no one cares about.
Once you launch, listen to the data more than anecdotal user feedback. People are bad at articulating what they want. Look at how they’re using your product to know what they really feel.
Leave Small Problems Unsolved
You’ll have a host of problems to solve. You need to triage them.
- Deal with urgent systemic risks.
- When an Airbnb host went public about how her house was trashed by guests, it risked triggering systemic pullbacks by other hosts. The company quickly instituted an insurance policy to reassure hosts.
- For important but not critical problems, put in a hack fix, and commit to solving it later.
- Punt all other issues.
If someone wheels into the ER with a gunshot wound, you don’t cut out a suspicious cancer you find along the way.
Read the full summary for the complete set of 9 counterintuitive tips.
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PDF Summary Shortform Introduction
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In the most punishing case, your market doesn’t have huge returns of scale or winner-take-all dynamics, you raised too much capital to burn on strategies that don’t return, and liquidation preferences for investors sap your returns on exit. In an alternate universe, you might have built a more sustainable, meaningfully successful company and pocketed more returns.
This Book Focuses on Operations
Finally, like most startup/management advice, Blitzscaling focuses more on operational best practices, which are repeatable and teachable. It doesn’t teach as much on how to generate the core idea of the business - the best it gets is describing commonalities of previously successful strategies.
This isn’t the authors’ fault: vetting good ideas that will work is a hard problem, and even professional investors have a low batting average. Plus, many valuable ideas are contrarian and thus by definition unteachable; the more “obviously good” ideas will have been competed away.
To set your expectations for what the book does cover, Blitzscaling answers these questions: “What attributes are common to winner-take-all markets, and to strategies that benefit from blitzscaling?...
PDF Summary Introduction
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Thus, for companies vying for market dominance, it’s imperative to move fast and take on large risk, or forever lose the fight. Blitzscaling is a book that covers important questions:
- Why do you need to grow fast?
- In what situations should you grow fast? When do you not?
- How do you grow fast? What problems slow you down, and how do you fix them?
PDF Summary Chapter 1: What is Blitzscaling?
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These form four quadrants:
A condition of efficiency with uncertainty is classic start-up growth.
A condition of speed with uncertainty is blitzscaling.
A condition of speed with certainty is fastscaling.
A condition of efficiency with certainty is classic scale-up growth.
In typical chronological order for a company/product:
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In typical chronological order for a company/product:
- Start-ups prioritize efficiency in uncertainty. Resource efficiency lets you learn more about your business before you run out of money. This establishes the beach head.
- Blitzscaling sacrifices efficiency for speed, without waiting for certainty on whether the sacrifice will pay off. This tries to achieve critical mass or market dominance.
- Fastscaling sacrifices efficiency for speed in times of certainty. This is used to gain market share or achieve revenue milestones, using proven strategies. The business is in a dominant position and maturing.
- Scale-up growth grows efficiently in certainty. This is classic corporate management, using ROI and DCF analysis to maximize returns in an established, stable...
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Learn more about our summaries →PDF Summary Chapter 2: Business Models that Scale
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- Scrappy startups can find ways to co-opt existing networks.
- PayPal made it easy for eBay sellers to add a “Pay with PayPal” button to listings
- Airbnb sent requests to Craigslist posters to replicate their listings on Airbnb.
Word of Mouth/Virality
- A virality strategy requires good retention, to better increase the number of referrals made.
- Virality usually requires a free or freemium product. The authors can’t recall a company with a paid product that grew to massive scale using virality.
- Examples
- Linkedin built address book scrapers to invite contacts; added public profiles which users started integrating in their email signatures.
- For each referral, PayPal paid the referrer $10 and the new user $10. People obviously like free money.
- Dropbox gave perks (extra storage) for inviting friends.
3. High Gross Margins
Gross margins = Revenue - cost of goods sold. This is a good measure of long-term unit economics.
Software companies have high fixed costs and low marginal costs, often above 60%. In contrast, “old economy” businesses like restaurants have low gross margins. (Shortform note: part of the reason is...
PDF Summary Chapter 3: Do I Blitzscale or Not?
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* Note that your competitor might not be in the same country as you. Geographic boundaries have dissolved - your competition can now be global.
* Startups who act quickly can evade incumbents who aren’t focusing on the space.
When Should You Stop Blitzscaling?
Blitzscaling are like fighter jet afterburners - you don’t switch them on and never turn them off. Blitzscaling is used for a specific purpose for a limited time, after which you turn to fastscaling or another type of company growth.
You stop blitzscaling when your business it outgrowing your current strategy. Warning signs of when this is:
- Declining rate of growth (relative to market and competition)
- Worsening unit economics
- Decreasing per-employee productivity
- Increasing management overhead
All of these tend to signal that you’ve reached the ceiling of the market. When you’re moving fast, it’s easy to overshoot, as Groupon did when its daily deals model suffered, and as Twitter did when it overstaffed.
Do I Have to Blitzscale?
No. The French Laundry is still a single restaurant. If it’s antithetical to your mission, or you don’t want to deal with the headaches of a larger...
PDF Summary Chapter 4: How to Manage Teams Through Blitzscaling
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In the beginning up until 100 people, you should tend to hire generalists. They adapt quickly to the rapidly changing needs of the business in its volatile early days.
At Village stage (100s of people), specialists are critical to scale. They perform functions better than generalists can, and you need them sooner than generalists can learn the job. Thus specialists may need to be hired from outside the org.
This can cause resentment from people who have stayed from the beginning, if they expected to be promoted to lead the specialized team. To counter this, set expectations clear from the beginning - just because they’re running engineering now doesn’t guarantee they’ll be VP of engineering at 1000 employees.
Use the “tours of duty” model partly to help explain why they won’t be promoted. The idea is that when someone joins a company, they commit to a stint of 2-3 years. At that point, they've advanced their careers and can now do great things elsewhere, without expectation from either side that they should stay.
Hiring generalists is still important at all stages of a company’s growth. These are the undifferentiated stem cells of your organization, better equipped to handle...
PDF Summary Chapter 4-2: Nine Counterintuitive Rules of Blitzscaling
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Once you launch, listen to the data more than anecdotal user feedback. People are bad at articulating what they want. Look at how they’re using your product to know what they really feel.
Rule 5: Leave Small Problems Unsolved
You’ll have a host of problems to solve. You need to triage them.
- Deal with urgent systemic risks.
- When an Airbnb host went public about how her house was trashed by guests, it risked triggering systemic pullbacks by other hosts. The company quickly instituted an insurance policy to reassure hosts.
- For important but not critical problems, put in a hack fix, and commit to solving it later.
- Punt all other issues.
If someone wheels into the ER with a gunshot wound, you don’t cut out a suspicious cancer you find along the way.
Hoffman considers issues in this order of descending importance: Distribution > Product > Revenue model > Operations > Competition > What’s next?
- In general, each top one solves all the other bottom problems. Being able to acquire users gives you data to improve your product, which drives revenue, which gives funds for operations, and so forth.
- Inversely, if your distribution/marketing is...
PDF Summary Chapter 5: Blitzscaling Outside of Startups
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Large orgs have the following advantages over startups:
- Scale - they can use existing distribution channels and customer relationships to introduce new products.
- Iteration - large companies have enough capital to shake off failed attempts. Startups often can only make a few big bets before they run out of money.
- Longevity - large companies have longer time horizons than startups, which need to show short-term results to keep raising money.
- M&A - large companies have the funds to acquire other companies.
Large orgs also have these disadvantages over startups:
- Bureaucracy and size generally make it move more slowly.
- Large companies tend to ignore smaller business lines until it’s too late to compete, which is particularly dangerous for disruptive technologies that first look like toys but eventually transform the industry.
- Companies face pressure from shareholders and press for short-term financial results, and get blamed for public launch failures.
- Unlike founders in a startup, employees at a large company gain little upside from a new project working and aren’t as driven.
- Irrational commitment - companies may spend too much on failed...
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PDF Summary Chapter 6: Responsible Blitzscaling
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- Large companies should self-regulate to avoid government intervention.
- People have complained about changes for millennia. Socrates warned that the written word would harm memory; another argued that printing presses would cause too much confusing information. Social media and smartphones is just another iteration of this. So this wave of technology shouldn’t be feared.