Panelists
Chris Yeh: Writer, investor and entrepreneur, and author of the best-selling book, Blitzscaling with Reid Hoffman (world-famous venture capitalist). (Palo Alto, Ca., USA)
Scott M. Johnson: Venture capital investor (mostly early stage; founding partner of Blitzscaling Ventures). (Cambridge, Ma., USA).
Jeff Abbott: Venture investor, entrepreneur, founder and operator. (Palo Alto, Ca., USA).
Sean Hinton: Venture founder and investor. (Vancouver, British Columbia, Canada).
Interviewer
Dr. Dr. h.c. Peter Lorange, Chairman, Lorange Network, (Küssnacht am Rigi, Switzerland).
Questions
Per Lorange, Head of Deal Wall and Co-investments, Lorange Network, (Sandefjord, Norway).
1) Blitzscaling – how it came to be, the basics, pros and cons for it, challenges and opportunities, how it works.
First as background, the blitzscaling concept came about when Reid Hoffman, the very successful Silicon Valley venture capitalist (LinkedIn, Facebook, Airbnb), was asked during a visit to England, “why is Silicon Valley so successful at building gigantic, iconic companies?”. He and Chris Yeh did research regarding the topic and concluded that the answer seemed to be largely associated with an ability (and commitment) to scale up first (in “winner take most” markets) and quickly, so as to thus also to get a defendable competitive advantage!
Over time it has become clear that positive effects from blitzscaling are also dependent on:
The business in itself being healthy (product/market fit, sustainable customer relationships, large markets), above all with gross margin being ok.
That there is a possibility to scale up operation and organization.
The positive “network effect” from all of this is fast “the winner takes all”. Competition is stopped! Customers tend to stay with you “almost forever” (a “land grab” example), through the multiplying value of each user, making you immune to competition.
It should be noted that blitzscaling might also apply to distribution. Is this scalable? This might yield substantial competitive advantage also; differentiated markets, “virality”, and ability to tap into networks in an efficient way.
It should also be noted that whether a company is blitzscaling, or might be about to embark on this, represents a good indicator for venture investors when it comes to deciding to commit to a given business also. The actual price does not matter so much, as long as market leadership and other blitzscaling conditions are there, and are being followed by the firm in question.
2) How would one typically learn about blitzscaling, and what might have led one to decide to blitzscale?
The book and work by Hoffman and Yeh seems to be key for many. There is “word of mouth” speed regarding blitzscaling’s energetic “power”! And its features or “recipe” for it are being highlighted at conferences and in individual discussions.
The pandemic has brought about an accelerated access to new businesses that build on AI. This focus on “faster” has put blitzscaling in front line for many companies. The issue of scaling in this context has been thought about by many entrepreneurs, and blitzscaling seems to be a “natural approach”.
3) What were some of the biggest challenges one might be faced with in the blitzscaling process?
A big step is to build sufficient understanding regarding the blitzscaling approach (and the “logic to the chaos”) in one’s management team, so that there is a sufficient degree of comfort. These managerial attitudes might be predicted. Clear strategy and organizational alignment are critical. Challenges should be clarified upfront to management teams.
4) How can the blitzscaling approach change the mindsets of both potentially scalable companies as well as investors?
Growth is key for investors, and with that there needs to be a process and plan in place, a “playbook”. When focusing on a typical investor, he/she might indeed benefit from investing in line with the blitzscaling principle – look at Reid Hoffman’s success. To empower founders around the world to grow is important to investors. Founders can learn the playbook and investors can do a better job to identify those great companies already in place to help them go faster, illucidating a well-proven path.
This approach is valid everywhere, as long as a business entity is fully ready to compete. In some countries (notably in some European ones) there may be regulatory and/or tax regulations that might lessen this competitive focus; hence, relative less benefits from blitzscaling. It has been recognized that Europe needs competitive enhancement in the area of global champions (i.e. Macron’s statement). The Scaleup Europe movement is beginning, to build scaling through Europe intentionally. A focused approach for scaling and growth can benefit all nations and regions. There are companies worldwide being explicitly funded to scale up, to become market leaders, and the pandemic may have accelerated this. Key will be choosing which companies to scale, choosing wisely.
5) How does a company know if it can be scalable in a blitzscaling way? (Offering, team, stage, sector, industry). Are there certain “must-haves” in order to blitzscale?
It should be noted that “the winner takes all” market situation is necessary, when a dominant strategy has been established (when you have to be the winner!), through blitzscaling. Not all companies have this. And majorities of firms may not “see” how to make this happen. Blitzscaling does, however, typically imply that every decision might have be taken in line with these principles. Products, for instance, might be modified, so as to become more viral, and more easily scalable!
The need to blitzscale may be rare, but all blitzscaling concepts are applicable to all companies. Seek out network effect, change your product and how you market it to be more viral, change the market dynamic so it is more viral.
Top investors tend to be able to identify those firms that are/can blitzscale, who are in the growth stage, and pick winners (best jockey, fastest time on the track)! The trick is access. And is there traction?
Good leaders might see the opportunities to shift towards blitzscaling. But not all firms are candidates for blitzscaling! Even for many of these, however, the principles laid out in Hoffman’s/Yeh’s book might lead to benefits.
6) Can founders and entrepreneurs learn blitzscaling?
Yes, the blitzscaling approach or skills can be learnt, even though not all companies might be able to actually blitzscale and reap the full benefits. Blitzscaling is a framework (a way to look at and solve problems), and its basics and tools can be taught! There is a “canvas” that entrepreneurs can use (chart course, plot it, see progress, etc.). But contexts regarding scaling potential are often overlooked. An intentional effort to develop a business model whereby scaling would be important: build and benefit from network effects. This might be contrasted with Deloitte Institute for the Edge’s approach of creating successful spin-offs “outside the edge”. Blitzscaling is focused on one’s core business, in contrast, i.e., “inside the edge”!
7) What is the focus on social impact in the blitzscaling process? Is this difficult?
While one should always attempt to create an organization (a business) that is successful from a profit perspective (apply blitzscaling), a true, positive social impact should also be aimed for (B Corp example; generating value for society). Competitive success might typically lead to economic growth more broadly, for instance, which would also be good for society at large. The blitzscaling model is applicable to scaling social impact, and is probably an accelerant. Other companies can adapt their messages when one company in the eco-system has blitzscaled; the power of example.
It is important that the “best” executives tend to be attracted to companies (“missionary organizations”, where mission is central, plus the great company to work for) that contribute to societal benefits through their competitive successes. This positive human quality effect typically might add to good results from blitzscaling. Join the mission, join success!
8) So, why is blitzscaling “good” for investors?
Blitzscaling is a return to classic investing fundamentals, but in a different form. A good start for any investor is to follow Warren Buffett’s advice to try to identify an undervalued asset, but as also emphasized by Buffett, to satisfy oneself that the management team in place is strong also, or at least might be evolved to become strong. Blitzscaling is an extension of that; investing in companies that have the business model which is suitable for 21st century, and can drive outsized returns . Successful investors might take a rather long-term view in order to reap full benefits!
As noted, the strength of the network effect is key; and there are different strengths. For service companies, there are different issues.
When a founder of a business first engages with typical investors, a critical phase for the potential success of any new start-up, then blitzscaling should be brought forward if conditions for it are there.
Investors too, must thus be comfortable with the blitzscaling concept and methodology (and its ambiguity). Blitzscaling is not for the “faint of heart”. A way to arrive at a reasonable degree of comfort for an investor might be to enter into a process with a business project “owner”, around vision and strategic priorities, all to be laid out by the project owner consistent with blitzscaling principles. “This is how I (i.e., a project owner) am thinking about it.” Founders must choose an investor that is mission-aligned.
9) How might one say that blitzscaling differs from other scaling techniques?
Blitzscaling is faster and more chaotic than other scaling techniques (bootstrapping, slow scaling, fast scaling). It allows for the fastest growth, creates the largest impact, corners the market). The fundamentals of scaling any organization are based on capital, speed and efficiency. Blitzscaling values speed over efficiency when operating under uncertainty.
10) What might be key differences between the owner of a massively valuable company and developing one by scaling?
What is important here is that the leader of such start-ups must be powerful, so as to find and snatch relevant niches and be confident that he/she shall be successful in scaling up such niche businesses, and applying blitzscaling. For instance, while eBay is a dominant leader in the virtual fleamarket space, the niche player, The RealReal, was able to build up a strength within the narrow area of handbags, and then luxury consignment. Intentional scaling applying to niche businesses might build successes!
11) What might be the future of blitzscaling? Are there any new rapid growth scaling techniques waiting around the corner?
The basic blitzscaling principles (“winner take all”, focus on getting to a critical scale ahead of competition) will stay the same, but how it is applied will change. This is partially from an industry perspective. Artificial intelligence is an example of an industry that will have a huge impact, or decentralized finance. We may see more and more network effects in these areas. Finally, in one way, the US is becoming more like Europe where there is a greater recognition of shareholder responsibility. There is a need now and will be so even more in the future, for “responsible blitzscalers”.
Additional Questions
Importance of hiring when blitzscaling?
Human capital harder to get than financial capital. Always be hiring, when you are blitzscaling. Recruit great people all the time! Spend a significant chunk of your own personal time getting the best people. As a leader/CEO, take an active role yourself to recruit. World dominating companies happen a lot in Silicon Valley, because Northern California has strong human capital.
What about B2B companies? Can they blitzscale?
B2B marketplace dynamics can create network effects (i.e. Slack, which is viral), but it is true that blitzscaling network effects are less common in B2B, or less dominant. B2C are the best examples as we are all consumers.
Challenge of redefining market segments as you scale? How do see if your company is scalable when you are already active in a market?
Firstly, are you in a large market with a “winner takes all” dynamic? If so, you have no choice whether or not to blitzscale. Apply the way of thinking as soon as possible. Think concretely about individual consumer or customer. Is it a land-grab where you will never leave or winner takes most? Look at the user experience.
What is your view on technology optimism and pessimism?
Historically, automation was seen as job-stealing. But this is not true. Rather automation has helped upscale the value of the human contribution, eliminating routine work, for example. AI will eliminate some human jobs, but the point of it is augmented intelligence so human being can do more. There will though be disruption.
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