Blitzscaling. Reid Hoffman
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or China. Because the rest of the world believes that these ecosystems have an advantage in scaling up start-ups, those start-ups and their investors attract capital (human and financial) from all over the world, further bolstering their ability to keep growing. This is a key reason why scale-ups like Uber and Pinterest have achieved a scale and valuation that dwarf those of most publicly traded companies. Due to my role at Greylock Partners, I can’t comment on the valuations of Dropbox and Airbnb, but they occupy a similar place in the ecosystem.
Consider the case of two very similar companies, Twitter and Tumblr. Both had brilliant, product-oriented founders in Evan “Ev” Williams and David Karp. Both were hot social media start-ups. Both grew at a remarkable rate after establishing product/market fit. Both had a major impact on popular culture. Yet Twitter went public and achieved a market capitalization that peaked at nearly $37 billion, while Tumblr was acquired by Yahoo!—another start-up that used blitzscaling to become a scale-up, only to decline and fade away—for “only” $1 billion.
Was this dumb luck on Twitter’s side? Perhaps. Luck always plays a larger role than founders, investors, and the media would like to admit. But a major difference was that Twitter could draw on numerous networks for advice and help that Tumblr could not. For example, Twitter was able to bring in Dick Costolo, a savvy executive with prior scaling experience at Google. In contrast, even though Tumblr was arguably the most prominent start-up in its New York City ecosystem, it couldn’t easily draw upon a pool of local talent who had experience dealing with rapid growth. According to Greylock’s John Lilly, for every executive role that Tumblr needed to fill, there were less than a handful of candidates in all of New York City. This paucity of talent made hiring difficult; the company was reluctant to replace existing employees due to a lack of better alternatives. Without the ability to hire an executive team that could blitzscale, Tumblr decided to sell the company.
Of course, while geography can present challenges to blitzscaling, they become much more solvable if you’re aware of them. For example, over the past decade, Priceline—the world’s most successful online travel company—has been able to blitzscale from its headquarters in Connecticut. The CEO who led Priceline during its growth phase, Jeffery Boyd, saw advantages to this geographic isolation, noting that the company’s location meant that it faced fewer bidding wars for the key software engineers and designers needed to support the rapid growth of the business.
It’s extremely difficult for later entrants to compete directly with a blitzscaling company that has first-scaler advantage. Unless these players find a different game in which they can capture this advantage, they’ll simply become irrelevant.
3. DESPITE ITS INCREDIBLE ADVANTAGES AND POTENTIAL PAYOFFS, BLITZSCALING ALSO COMES WITH MASSIVE RISKS.
Until recently, “Move fast and break things” was Facebook’s famous motto. Yet rapid growth can cause nearly as many problems as it solves. As Mark Zuckerberg told me in an interview for my Masters of Scale podcast, “We got to a point where it was taking us more time to go back and fix the bugs and issues that we’re creating than the speed that we were gaining by going faster.” In one famous incident, a summer intern introduced a bug that brought down the entire Facebook site for thirty minutes.
There is a scientific term for out-of-control growth in the human body: “cancer.” In this context, uncontrolled growth is clearly undesirable. The same is true for a business. Successful blitzscaling means that you’re maintaining at least some level of control by rapidly fixing the things that will inevitably get broken so that the company can maintain its furious pace without flaming out or collapsing in on itself. Like an American football player streaking down the field for a game-winning touchdown, even a company that has achieved first-scaler advantage can lose the ball prior to crossing the goal line if it takes on a bigger risk than it can handle.
Blitzscaling is risky from a management perspective as well. Reinventing your leadership style, your product, and your organization at every new phase of scale won’t be easy, but it is necessary. In the words of leadership guru Marshall Goldsmith, “What got you here won’t get you there.”
Market share and revenue growth earn headlines, but you can’t achieve customer and revenue scale without scaling up your organization, in terms of the size and scope of your staff, as well as your financial, product, and technology strategy. If the organization doesn’t grow in lockstep with its revenues and customer base, things can quickly spiral out of control.
For example, during a period of blitzscaling in the late 1980s and early 1990s, Oracle Corporation focused so single-mindedly on sales growth that its organization lagged badly on both technology (where it fell behind archrival Sybase’s) and finance and nearly went bankrupt as a result. It took the turnaround efforts of Ray Lane and Jeff Henley to stave off disaster and reposition Oracle for its later success.
Blitzscaling your organization will require hard choices and sacrifices; for example, the people who are adept at launching a company aren’t necessarily going to be the right people to scale it, as the Oracle example above demonstrates. Later in the book we’ll discuss how successful blitzscalers consciously manage growth rather than letting it manage them.
THE FIVE STAGES OF BLITZSCALING
Blitzscaling a start-up isn’t a linear process; a global giant isn’t simply a start-up that’s been multiplied by one thousand, working out of a gleaming high-rise headquarters instead of a grimy garage. Each major increment of growth represents a qualitative as well as quantitative change. Drew Houston of Dropbox expressed this well when he told me, “The chessboard keeps adding new pieces and new dimensions over time.”
In the physical sciences, materials often undergo phase changes as their circumstances (e.g., temperature and pressure) change. Ice melts into water; water boils into steam. As a start-up scales up from one phase to the next, it undergoes fundamental changes as well.
And in the same way that ice skates are useless on water, and you can’t skip rocks on water vapor, the approaches and processes that worked for one phase break down once the scale-up reaches the next phase.
This book is designed to help you successfully navigate the phase changes you’ll face on the path to global dominance.
Throughout this book, we will refer to the five key stages of blitzscaling using the metaphor of a community. Since the most obvious, visible, and impactful change in a scale-up is the number of people it employs, we’ll define the stages based on the number of employees in the company, or its organizational scale.
Each stage has critical differences when it comes to management and leadership. When you’re head of a nuclear Family, you have close relationships with all of your Family members. When you’re the head of a whole Nation, you’re responsible for the lives of a multitude of people, most of whom you’ll never meet. (Later in the book we’ll talk about how to optimize your people management strategy as your company grows.)
It’s important to remember that while these powers of ten provide a clear and consistent set of categories, real life is often messier. For example, a start-up with a tight-knit team might feel and act like a Family even if it has nearly twenty employees. So these definitions are meant simply to offer a useful set of guidelines.
We also recognize that the number of employees is only one of several measures of an organization’s scale. Some of the other measures of scale include the number of users (user scale), the number of customers (customer scale), and total annual revenues (business scale). These measures usually, but don’t always, move in lockstep. While it’s nearly impossible to achieve customer scale or business scale without organizational scale—customers require customer service representatives, and revenues typically require salespeople—it is possible to achieve user scale without organizational scale. Consider the example of Instagram: when that company was acquired by Facebook for $1 billion, it had over one hundred million users but just thirteen employees and no significant revenues.
The fact that the phases don’t