Book SummaryBlitzscaling, by Reid Hoffman and Chris Yeh

1-Page Summary1-Page Book Summary of Blitzscaling

In markets where Internet technology is a dominant factor, there are powerful winner-take-all dynamics. The first company to achieve a critical mass can dominate its industry for a long time.

The enabler is the Internet - specifically, its power of zero-marginal-cost distribution. The ability to reach millions (or billions) of users and service their needs automatically, at nearly no marginal cost, creates situations where a powerful company becomes ever more powerful through positive feedback loops, like network effects and virality.

Traditional business strategy involves gathering information and making decisions with a certain degree of confidence. Take calculated risks that you can measure and afford. Prioritize correctness and efficiency over speed.

But in certain markets today, this is too slow. The risk isn’t inefficiency or wasting money - the risk is playing it too safe. If you win, efficiency isn’t important; if you lose, efficiency is irrelevant. As in Glengarry Glen Ross, “second prize is steak knives. Third prize is you’re fired.”

Blitzscaling drives fast growth by prioritizing speed over efficiency, even in an environment of uncertainty. When you blitzscale, you make decisions before knowing exactly how things will play out. You accept the risk of making mistakes and operating inefficiently, in exchange for moving faster.

Business Models that Scale

There isn’t a universal business model that works for every company, but most great business models overlap with these four growth factors.

1. Market Size

A big market has a large number of potential customers and efficient channels for reaching those customers. Ideally, the market is also growing quickly, meaning markets that seem small initially can grow to become massive.

2. Distribution

Many startups focus on product but overlook the importance of distribution. Roughly speaking, there are two general categories: existing networks (paid advertising and SEO) and word-of-mouth/virality.

3. High Gross Margins

Software companies have high fixed costs and low marginal costs, often above 60%. In contrast, “old economy” businesses like restaurants have low gross margins.

For a fixed amount of revenue, higher margins create more funds for companies to reinvest in R&D and growth to ward off competitors.

4. Network Effects

Network effects apply when a user using the product makes the product more valuable for other users. This is also called “demand-side economies of scale” by economists. Services that benefit from network effects include social networks, two-sided marketplaces, and technology platforms.

When Do You Start to Blitzscale?

The only time it makes sense to blitzscale is when speed into the market is the critical strategy to achieve massive outcomes.

You should not blitzscale if you’re not at product/market fit, your business model doesn’t work, or if the market conditions aren’t right. If taking on cost, risk, and speed don’t actually confer an advantage, it’s better to follow traditional business rules and wait for the time that blitzscaling becomes appropriate.

Blitzscaling also...

Blitzscaling Summary Shortform Introduction

Be Aware of the Viewpoints of Venture Capitalists

Reid Hoffman spends part of his time as a venture capitalist. Much as with Peter Thiel’s Zero to One, be aware of the incentives venture capitalists have to push the “take huge risks, move fast at all costs” narrative, and how these incentives might conflict with yours as a founder:

• VCs need outsized returns on a few companies to make up most of the returns of their entire portfolio. They’d prefer for each company to go for broke than to be conservative - for a VC, it’s ok for 9 companies to fail if 1 is a blockbuster. In contrast, you only have your one company, and another company’s success is little condolence when yours fails.
• VCs need to deploy large amounts of capital if they raise large funds (e.g. if they raise a $1B fund, they can’t write $1MM checks). For you, raising more capital may not be worth the dilution and [liquidation...

Blitzscaling Summary Introduction

In markets where Internet technology is a dominant factor, there are powerful winner-take-all dynamics. The first company to achieve a critical mass can dominate its industry for a long time.

The enabler is the Internet - specifically, its power of zero-marginal-cost distribution. The ability to reach millions (or billions) of users and service their needs automatically, at nearly no marginal...

Blitzscaling Summary Chapter 1: What is Blitzscaling?

Traditional business strategy involves gathering information and making decisions with a certain degree of confidence. Take calculated risks that you can measure and afford. Prioritize correctness and efficiency over speed.

But in certain markets today, this is too slow. The risk isn’t inefficiency or wasting money - the risk is playing it too safe. If you win, efficiency isn’t important; if you lose, efficiency is irrelevant. As in Glengarry Glen Ross, “second prize is steak knives. Third prize is you’re fired.”

Blitzscaling drives fast growth by prioritizing speed over efficiency, even in an environment of uncertainty. When you blitzscale, you make decisions before knowing exactly how things will play out. You accept the risk of making mistakes and operating inefficiently, in exchange for moving faster.

• The term “blitzscaling” was inspired from the WWII German military technique “blitzkrieg.” In contrast to traditional military strategies of moving at a slow pace to secure supply lines and retreat, blitzkrieg pushed speed and surprise at the risk of running out of provisions.
• Blitzscaling goes beyond the simplistic “get big fast” because it purposefully...

Blitzscaling Summary Chapter 2: Business Models that Scale

Business models are how the company makes money by serving its customers. This chapter discusses aspects of successful business models in general, and business models that are especially suited to blitzscaling.

Four Growth Factors

There isn’t a universal business model that works for every company, but most great business models overlap with these four growth factors.

1. Market Size

A big market has a large number of potential customers and efficient channels for reaching those customers. Ideally, the market is also growing quickly, meaning markets that seem small initially can grow to become massive.

Sometimes the market size for an innovative company is underestimated, because the potential to grow the market and the potential for the company to expand are underestimated. Therefore, don’t fix your sense of market size to the size of the incumbent - this can drastically underestimate how large the market can grow.

• Analogy: Don’t size the car industry off of how many horses there were in 1910.
• Some analysts once found Uber’s valuation ridiculous since it represented a sizable percentage of the global taxi market. It turns out Uber’s superior...

Blitzscaling Summary Chapter 3: Do I Blitzscale or Not?

This chapter of Blitzscaling discusses the choice of whether to blitzscale and when.

When Do You Start to Blitzscale?

The only time it makes sense to blitzscale is when speed into the market is the critical strategy to achieve massive outcomes.

You should not blitzscale if you’re not at product/market fit, your business model doesn’t work, or if the market conditions aren’t right. If taking on cost, risk, and speed don’t actually confer an advantage, it’s better to follow traditional business rules and wait for the time that blitzscaling becomes appropriate.

Blitzscaling also makes sense in a few other specific conditions:

• 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...

Blitzscaling Summary Chapter 4: How to Manage Teams Through Blitzscaling

(Shortform note: this is the longest chapter of Blitzscaling, possibly because creating successful business models is the least predictable and formulaic part, while management and operations is relatively predictable.)

The company progresses through five orders of magnitude:

1. Family: 1-9 employees
2. Tribe: 10s of employees
3. Village: 100s of employees
4. City: 1000s of employees
5. Nations: 10000s of employees

The management approach must change with each of these stages. What used to work at one stage will cause chaos in a bigger stage.

The founder also has to evolve through each stage of the company.

1. Family (1-9): Founder personally pulls levers of hypergrowth
2. Tribe (10s): Founder manages people pulling the levers
3. Village (100s): Founder designs an organization that pulls the levers
4. City (1000s): Founder makes high-level decisions about goals and strategies
5. Nations (10000s): Founder figures out how to start blitzscaling new business units

Nine Key Transitions

A company that is growing rapidly needs to transition its approach along 9 different dimensions.

Transition 1: Small Teams to Large Teams

Naturally, as your company grows, the...

Blitzscaling Summary Chapter 4-2: Nine Counterintuitive Rules of Blitzscaling

Blitzscaling also requires counterintuitive actions that contradict common business sense and will feel unnatural.

Rule 1: Embrace Chaos

This is a mindset thing. Get comfortable taking action in uncertainty. You’ll rarely have as much information as you want, and you need to make decisions before you get to that point. Believe that things will get figured out as you take action.

Once you know chaos will happen, be prepared for a variety of outcomes. Have a Plan A, Plan B, and Plan Z (fallback for worst-case scenario).

Rule 2: Hire People You Need Now, Not Later

It’s tempting to keep waiting to hire someone who will be great at a later stage in the company. Then when you reach that stage, that person will be around.

But you don’t need that person now. That’s premature optimization. You need the right person for your current situation. Without the right people here, you might never make it to the later stage.

People tend to have a preferred stage of company they like working in. Few people can excel across the board at being an individual contributor, a manager, and an executive. See if the hire is self-aware of this.

Rule 3: Be a “Bad” Manager

Be OK...

Blitzscaling Summary Chapter 5: Blitzscaling Outside of Startups

We’ve talked up to this point about blitzscaling in the context of technology startups. But can blitzscaling work outside of technology? Can it work in companies that aren’t startups? And if you’re not a blitzscaler, how do you deal with a competitor who is?

Blitzscaling Outside Technology

The concept of blitzscaling generally means preferring speed and responsiveness over efficiency. This can happen in a variety of industries.

• Zara takes this into fashion, hiring an excess of designers, manufacturing clothes in Europe, and shipping fully racked clothes - all normally cost-inefficient moves, but worthwhile for the speed advantage. (Shortform note: though this doesn’t describe blitzscaling necessarily if Zara isn’t opening new stories at rapid pace - just a model around having fast operations.)
• When fracking was invented, Chesapeake Energy moved faster than rivals to secure land rights. The company borrowed money to lease land at higher prices, until the 2008 recession killed it.

Blitzscaling can also be applied to nonprofits, who can borrow concepts from business like market/impact size, distribution, gross margin, and product/market fit (especially concerning...

Blitzscaling Summary Chapter 6: Responsible Blitzscaling

The final chapter of Blitzscaling is Reid Hoffman opining about the inevitability of blitzscaling and our country’s need to collaborate on it, rather than suppress it out of fear. His points:

• Large modern companies that spark concerns of being monopolists (Google, Facebook, Amazon) are clearly improving consumer welfare. Contrast this to the more exploitative monopolies of the past that cornered markets and...