what-is-blitzscaling

What Is Blitzscaling And Why It Matters

Blitzscaling is a business concept and a book written by Reid Hoffman (LinkedIn Co-founder) and Chris Yeh. At its core, the concept of Blitzscaling is about growing at a rate that is so much faster than the competitors that make you feel uncomfortable. In short, Blitzscaling is prioritizing speed over efficiency in the face of uncertainty.

Origin of the name

Blitzscaling is prioritizing speed over efficiency in the face of uncertainty. 

The name Blitzscaling comes from a World War II association with the term “blitzkrieg” or lightning war, where the attacker risks it all to either win or lose the battle.

Understanding Blitzscaling might means having a framework that can help your small organization to scale up or your large company also benefit from a new and reinvigorated acceleration, which is critical to survival in a market that changes at a faster pace.

Let’s start with what Blitzscaling is not.

Course: Business Model Innovation Flagship Course

Blitzscaling is not growth hacking

Confusing Blitzscaling with growth hacking might be easy. There is a critical difference. Blitzscaling looks at massive growth, which is also accompanied by high uncertainty. As pointed out by Reid Hoffman in an HBR interview:

Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale.

Therefore three features of Blitzscaling are:

  • Grow really quickly.
  • Usually at a global scale.
  • Gain the first mover of scale advantage.

Thus, rather than a process of experimentation with the aim of testing what works and what doesn’t efficiently, Blitzscaling is about being all in!

Blitzscaling is not a magic formula

Rather than a magic formula that works in each scenario, Blitzscaling follows a framework that revolves around three key ingredients:

Those are three key ingredients of Blitzscaling.

What’s Blitzscaling, then? There are a few key elements I think are worth highlighting.

Related:  70+ Business Model Patterns

Speed in the face of efficiency

This is a critical difference between scale-up and Blitzscale. The former happens in a scenario of certainty and efficiency.

You allocated the resources necessary to test what works and what doesn’t with fewer assumptions as possible.

You have wider margins to test those things up to focus on what works. In a way, instead, Blitzscaling is about survival.

Thus, max speed is everything, because if you don’t reach the scale, you might be dead any time soon. That is why efficiency takes a back seat.

Blitzscaling is an uncertain process

As Blitzscaling is an uncertain process, it might also require massive resources as it is a sort of calculated gamble where many mistakes will be made.

Capital will be a crucial element in recovering from those mistakes. Making a mistake, also big ones, are part of Blitzscaling. In short, those who take the risks of Blitzscaling are able to also amass the rewards by building multi-billion companies on a global scale.

The reward is the first-scaler advantage

One key reward of Blitzscaling is the first-scaler advantage.

The first who succeed at Blitzscaling take all or most of the market which gives them a lasting advantage hard to overcome. 

What are the stages of Blitzscaling?

The main stages of Blitzscaling usually are:

  • Family-scale, up to 9 employees.
  • Tribe, defined in 10s employees.
  • Village in 100s of employees.
  • City: in 1000s of employees.
  • Nation: in 10,000s employees.

While this is a simplification, it is crucial to understand that a company that is Blitzscaling will go through several stages, each of which has differentiating features.

For instance, in some stages, financing might be the most important aspect, while in others building the winning team is.

Course: Business Model Innovation Flagship Course

Blitzscaling Business Model Innovation Canvas

blitzscaling-business-model-innovation-canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

FourWeekMBA readapted the concept of Blitzscaling to a business canvas, which is a particular process of massive growth under uncertainty that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Among the three key ingredients to Blitzscaling, there is business model innovation (actually the most critical element).

According to this framework, business model innovation can be achieved based on a few vital components made of four growth factors and two growth limiters.

blitzscaling-business-model

A glance at the four key growth factors

The four growth factors are:

Market size

How large is the market you’re targeting when Blitzscaling? Is it really reachable? 

A big market is a critical ingredient for a Blitzscaling business model. This market has to be large enough and reachable.

A large market has to be taken into account based on the context. Indeed, launching and scaling a startup in Silicon Valley is not the same as doing it in Italy or Spain.

In general, as pointed out in the book (Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies), venture capitalists are usually looking for investments that are returning many times over and can achieve a venture scale.

This often implies targeting a market that often is as large as a billion-dollar in annual sales. 

Distribution

Are there existing networks you can leverage on? What viral loops can you create to spread your product/service quickly and at scale?

Often, when you are the incumbent in a new space, those who already have an established brand and network are probably your best option to start.

This concept, known in growth hacking as other people’s networks is the perfect place to start.

One classic example is how Airbnb leveraged Craiglist to gain initial traction.

Another critical ingredient is virality and how you can instill it in your product. Usually, virality is achieved via a freemium pattern where a product or part of it is given for free to allow a cheaper and quicker distribution.

High gross margins

When you grow your revenues, do you generate larger amounts of cash available to finance growth

A gross margin or gross profit is merely the revenues left after subtracting the cost of sales (or the costs you have to sustain to generate the sale).

what-is-gross-profit-margin

This metric is fundamental when looking at tech companies as it determines their cost structure and whether they can be financially viable in the long run.

A high gross margin implies that the company will have enough resources to invest even further in the scale of the business.

If you look at the Google cost structure and Google business model, you realize how it is engineered to have high gross margins.

Facebook is even a better example, with higher gross margins than Google; given the Facebook’s low cost of traffic acquisition, this social network is a money-making machine.

That money is used to keep growing at a fast pace.

Network effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Is each additional user joining bringing a positive effect to the whole platform? 

A critical element of an innovative business model built on technological products and services is based on the network effect. This principle is simple yet powerful.

For each user that joins and uses a product or service, the value of the same product or service will improve for the other users on the platform.

The two growth limiters

The two growth limiters are:

Lack of product/market fit

Is the market satisfied with your product/service? If not, what is that it’s missing? 

Product/market fit is a well-known concept by anyone who has a minimum of experience in the startup world, and yet that is often misunderstood.

For instance, in general, the product/market fit aims at coming up with a minimum viable product (MVP) that solves a need for a group of people.

That MVP will allow an organization to gather more and more feedback about the product and improve it over time.

Another school of thought wants the product/market fit more focused on achieving an EVP (exceptional viable product).

In short, according to this way of thinking of product/market fit, you have achieved that once you have an exceptional product that leaves your audience extremely happy.

While this is a great alternative to traditional MVP, probably not the best suited for the Blitzscaling business model canvas, in the Blitzscaling business model canvas, a “good enough” product might do the job.

Indeed, that product, together with distribution will allow us to scale up.

Operational scalability

Are your operations sustainable at meeting the demand for your product/service? Are your revenues growing faster than your expenses? 

When you keep growing fast, profitability often becomes hard to manage. Indeed, focusing too much attention on growth and revenue but not having enough margins to cover the infrastructural cost and human resources might be a big problem and cause of failure for the business.

That is why a business model that doesn’t make sense from the operational standpoint is doomed to collapse over time!

Blitzscaling case studies

A business concept and framework, like Blitzscaling, attracts a lot of critics since it’s a way to look at business as a zero-sum game. 

Many of these critics are well founded when highlighting that Blitzscaling is not a sustainable model of action in the long term.

However, in some narrow contexts, Blitzscaling might be the only way out. 

Let’s analyze, therefore, two case studies.

One is about Amazon and how it has been blitzscaling its way through becoming a tech giant.

And another is about Facebook, rebranded as Meta, which is using blitzscaling as a survival mechanism. 

Amazon: the continuous blitzscaler

Since its inception, Amazon has been very open about its aggressive expansion strategy

Indeed, Jeff Bezos has epitomized that through what he defined as customer obsession

customer-obsession
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start with the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.

This mode of action, helped Amazon survive the dot-com bubble, and thrive later on. 

Yet, as Amazon has continued to scale, it has kept this mode, where speed is extremely important, and customers are all that matter. 

This, indeed, has created a distortion, where you get a tech giant, which only cares about growth and customer experience. 

In short, in the early days, using a blitzscaling-mode was critical to survive and thrive. 

In the long-term, by enabling blitzscaling as a built-in mode for Amazon, the company ended up seen as a continuous disruptor, hard to trust as a partner, and always looking for ways to eat up entire markets. 

Meta: blitzscaling into the Metaverse

Take the opposite example of Facebook. In 2021, Apple tightened its privacy policy and made it easy for iPhone users to opt-out of ads. 

This threatened the whole Facebook business model.

In fact, I’ve been highlighting since 2018 how Facebook’s business model was primarily skewed toward mobile ads. 

Indeed, what kept it alive, growing, and with fat margins was the fact that Instagram had become a cash machine through its dynamic ads network, which mostly served ads on mobile and video. 

Yet, as Apple tightened the ads pipeline, this threatened the whole Facebook business model. 

Thus, Zuckerberg went into blitzscaling mode and suddenly rebranded the company as Meta. 

The main issue that Facebook had was it never built its own distribution pipeline, relying mostly on products with huge branding traction.

In fact, the success of the Facebook business model has been founded on products like Facebook (initially), then Instagram, and WhatsApp, which had a strong consumer presence. 

Yet, it never managed to build its own distribution (to say, a Facebook device, with its operating system and marketplace to sell ads). 

This forced Facebook into a blitzscaling-mode of action, as the company deteriorating business model made it face a survival threat.

In this context, the move into the Metaverse is an attempt to quickly build an owned distribution pipeline by moving away from the Apple-Android distribution duopoly. 

In this case, Blitzscaling is powerful because it’s both defense and attack.

Indeed, while building the Metaverse won’t be easy, this is a way to move outside the Apple-Android ecosystem and create a whole new business ecosystem, which might have the potential to become even larger than the current one. 

Of course, blitzscaling is also a wild bet into the future.

And in these circumstances, when there is a survival threat ahead, it is way easier to place, as there is no other way out!

Airbnb: the perfect blitzscaler 

In 2007, a trio of brothers from Germany had mastered a playbook, which consisted of taking the most innovative start-ups developing in the Valley and copying and pasting these ideas in Germany/Europe. 

That playbook worked wonders as, over the years, the trio managed to create many multi-million successes. 

So much so that, by 2011, they applied the copy-paste playbook to travel by copying Airbnb.

The playbook was straightforward; through their venture capital arm, the trio of brothers managed to find capital to quickly grow the size of the team and build a competitor to Airbnb.

This playbook was supposed to end with the acquisition of the company they had founded in Europe at a great multiple, thus generating a huge exit for the German founders!

In 2011, they figured this is what was going to happen as they created a company called Wimdu, which aggressively expanded to become the “European Airbnb.”

That posed a threat to the survival of Airbnb, as, at that time, the company only had its presence in the US. It was a turning moment, a moment of redefining Airbnb for a decade to come.

At that moment, Brian Chesky, with the company’s help, had to decide whether to buy Wimdu from the German brothers or to blitzscale!

Yet Chesky didn’t go for the deal, and instead, Airbnb acquired a smaller player in Europe and swiftly changed its focus to expanding aggressively there.

In a few months, in the classic blitzscaling-model, Airbnb had quickly recouped its position, and it managed to compete with Wimdu.

While Wimdu was a competitor to Airbnb for a while, by 2018, the company shut down, burning over €90 million in funding from Rocket Internet!

What lessons, if any, are there?

A few points to remark. 

  • Blitzscale if in survival threat: Airbnb’s threat from Wimdu was a wake-up call and a defining moment. Airbnb had to make a quick move into the European market, which till that moment, had been postponed. Blitscaling, in short, was not only a defense tactic but an offensive tactic. 
  • Don’t merge if you can’t make the culture work. On deciding whether to merge with Wimdu, Chesky realized the deal would not have worked. As the story goes, Chesky talked to legendary venture capitalist Paul Graham, he explained to Chesky that Wimdu was a company of mercenaries, whereas instead, Airbnb was a company of missionaries. And this not only indicated that Aibnbr could win, but it also indicated that a merger wouldn’t have worked. As you can’t mix missionaries with mercenaries. 
  • Double down on the aggressor’s weakness – scale sustainably: Chesky also realized a key weakness of the German trio. They didn’t want to run the company in the long run. They wanted an exit by selling to Airbnb. Instead, Chesky and Airbnb’s team were there for the long run. He figured that if he managed to scale operations in Europe quickly, he could manage to put Wimdu in the corner! Airbnb expanded its team quickly in Europe, yet it still did it sustainably, with a long-term perspective (where instead, Wimdu had hired 400 people in a very short time span, when Airbnb itself had no more than 40 hires within the company). 
  • Don’t panic as you blitzscale, since execution is all you got! When it comes to blitscaling, once defined the strategy, it’s all about extremely fast execution. That is why, as you blitzcale, you want to be very lucid.

Key takeaway

There isn’t a single way to define what a business model is. For the sake of this discussion, we took into account the Blitzscaling business model canvas.

In short, this is a one-page framework I put together, inspired by the book Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies which gives an alternative way to define a business model.

More precisely that is – in my own words – a process of massive growth under uncertainty and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

This business model can be engineered and designed or figured out along the way.

Ideally designing it would be best as it allows to integrating within its four key growth factors (market size, distribution, high gross margins, and network effects) and avoid the two key growth limiters (lack of product/market fit and lack of operational scalability).

Blitzscaling: A must-read

blitzscaling-book-cover

Blitzscaling is a must-read for anyone in the entrepreneurial world – I believe.

Connected Business Concepts And Frameworks

Growth Hacking 

growth-hacking
Growth hacking is a process of rapid experimentation, coupled with the understanding of the whole funnel, where marketing, product, data analysis, and engineering work together to achieve rapid growth. The growth hacking process goes through four key stages of analyzing, ideating, prioritizing and testing.

SEO Hacking

what-is-seo-hacking
SEO hacking is a process of quick experimentation that aims at efficiently growing the organic traffic of web properties. Where traditional SEO strategies look at a steady growth, SEO hacking finds unconventional ways to quickly gain traction. That is a process well suited for small web properties and startups looking to scale up organic traffic against large media outlets.

North Star Metric

north-star-metric
A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

ICE Scoring

ice-scoring-model
The ICE Scoring Model is an agile methodology that prioritizes features using data according to three components: impact, confidence, and ease of implementation. The ICE Scoring Model was initially created by author and growth expert Sean Ellis to help companies expand. Today, the model is broadly used to prioritize projects, features, initiatives, and rollouts. It is ideally suited for early-stage product development where there is a continuous flow of ideas and momentum must be maintained.

Virtuous Cycle

virtuous-cycle
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Digital Strategy

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Bootstrapping

bootstrapping-business
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.

Engines Of Growth

engines-of-growth
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.

TAM, SAM, SOM

total-addressable-market
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.

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