Blitzscaling: Why Does it Matter?

Blitzscaling: Why Does it Matter?

Blitzscaling is all about taking risks, growing fast and winning in the startup world.

During World War II, the German term “blitzkrieg” (lightning war in English) described a war tactic that if you carry what you need, you can move very fast, surprise your enemies and win. The startup world equivalent of blitzkrieg is “blitzscaling”, a term coined by LinkedIn co-Founder Reid Hoffman and entrepreneur Chris Yeh in their book Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies published in 2014. 

What is “blitzscaling”?

Blitzscaling refers to the science and art of rapidly growing a company to serve a global market to become the first mover at scale. It is all about prioritizing speed over efficiency in an environment of uncertainty and allowing a company to go from “startup” to “scaleup” at a furious pace that captures the market. While not all startups will need to blitzscale to be successful, it is important to understand what it is and how to do it to give your business the best chance at success. 

Blitzscaling companies can briefly achieve massive scale and market dominance, putting them in a better position to take on established incumbents. The practice also allows startups to raise money quickly and at a higher valuation, as investors are more willing to put their money into companies growing rapidly. 

According to Hoffman and Yeh, the four core growth factors of a successful blitzscaling are:

  • Market—a big market indicates great potential revenue to make up for the risks and expenses associated with rapid expansion.
  • Distribution—a good product with an extensive distribution will be more likely to capture the market.
  • High gross margins—a company needs to have a practical, realistic business model to generate great profits in the long run.
  • Network effects—establishing a substantial network of customers will make your platform more valuable and appealing to potential customers.

Amazon’s rapid growth in the 1990s is a popular example of blitzscaling. The company went from a pre-IPO bookseller with 151 employees and US$5 million in revenue in 1996 to 7,600 employees and US$1.64 billion in revenue in 1999. Its revenue rose by 322 times in just three years, and its staff increased by 50 times. Drew Houston, the co-founder of Dropbox, described this development as “harpooning a whale”. 

Blitzscaling necessitates more than just the risk-taking side of entrepreneurs. It’s either win big or lose big. It’s a risky endeavor that requires strategic planning and continuous learning on the part of the blitzscaler. Here are some strategies for blitzscaling your business:

How to blitzscale your startup

Make it quick

Speed forms the foundation for the process of blitzscaling. You need to be able to move quickly and decisively to take advantage of opportunities as they arise. However, it’s not just about speed relative to your competitors. You must also move quickly to get ahead of the curve and achieve a dominant market position. 

Give way to smart risks

There’s a lot of talk about taking risks in the business world. For the most part, that’s good advice. After all, if you’re not taking any risks, you will not likely see any rewards. Risk-taking is integral to blitzscaling—higher risks can lead to higher rewards. Yet, there’s a big difference between smart risks and reckless risks. Blitzscaling is all about taking smart risks.

Get your human resources right

When most people think of blitzscaling, they think of growth at any cost. Nonetheless, that’s not necessarily the case. Blitzscaling is about growing fast, but it’s also about growing smart. That means hiring the right people and ensuring you have the infrastructure in place to support your growth. Hire people whom you need now, rather than hiring for later. 

Winning is your ultimate objective

Blitzscaling is about winning—taking your business to the top where competitors cannot reach you. However, to do that, you need to be on the front foot. That may sound like a simple objective, but it’s not easy to achieve. You need to be constantly innovating, and you need to be relentless in your pursuit of success. Before developing a growth strategy, start by analyzing the competition and your company’s position in the market. Then, find ways to differentiate your company and outpace the competition.

For example, when Google first entered the search engine market, it was not the biggest or the best in the market. However, it was the first to achieve widespread adoption, allowing it to dominate the market. 

Blitzscaling can be dangerous—a brief look at how WeWork crashed

Expanding at light speed means spending a ton of money, which can be very risky for a startup before it becomes profitable. WeWork is an example of how accelerated scaling can set a business to crumble overnight. Valued at US$47 billion at one point in 2019, the Softbank-backed co-working space startup opened 400 locations in three years, and the meteoric expansion has brought in huge losses to the company. In 2021, while WeWork only made US$2.6 billion (a 25% drop from revenue in 2020), the net loss was at US$4.4 billion (a 42% rise from 2020). At some point, the company had to offer steep discounts to encourage tenants to relocate to new offices to fill them up so that they can attract more new tenants. On top of that, the very ambitious CEO, who was living an extravagant lifestyle and purchased some of the most expensive homes in the U.S., was planning to grow the “We” brand and venture into education (WeGrow), co-living (WeLive) and banking (WeBank).

While the growth binge has definitely made a name for WeWork and its then-CEO Adam Neumann, everything started to fall apart when they filed for an IPO in August 2019. Concerns and doubts were circulating about its chaotic governance structure, hard-partying office culture and massive net losses. Within a month after WeWork filed for an IPO, its valuation shrunk to just US$10 million, and Neumann was removed as CEO of WeWork, which was taken over by Softbank in October.

You might be tempted by the feeling of achievements to grow a business fast, but it can be fatal to your company to cater to demands bigger than your capacity. For some businesses, blitzscaling can be a game-changer. However, on top of business models, leadership styles and corporate governance structures, there are many aspects to consider when blitzscaling a business. After all, visions and promises are easy to make, but they can be hard to live up to. 

Also read:

Header image courtesy of Unsplash 

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