Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies

In this book, we will argue that the key to rapidly building massive businesses in today’s environment is the aggressive growth strategy of blitzscaling: a set of techniques that allows both start-ups and established companies to build dominant, world-leading businesses in record time.

ENTERING THE BLITZSCALING ERA

Over the past two decades, the Internet has completely reshaped both our daily lives and the world of business. Netscape’s blockbuster IPO on August 9, 1995, marked the beginning of both the dot-com boom and what I call the Networked Age. At the time, the rising stock prices of the dot-com boom attracted the most attention, but, in retrospect, the biggest change was that the Internet was beginning to connect all of us to people, information, resources, and other networks. There have been other revolutions in the past—steam, electricity, and radio spring to mind—but what makes the impact of the Internet so unique and so far-reaching is the fact it has made everything so much faster. Today, every individual can connect to any other individual immediately; that increased velocity is what makes blitzscaling possible and so powerful.

The speed of the Internet has generated a number of second-order effects that have changed how businesses and organizations can grow. For example, the Internet has made it possible to access global markets and tap into massively scalable distribution channels in a way that wasn’t feasible during earlier eras. But perhaps the most important impact for businesses has been the rising significance and prevalence of so-called network effects that occur when increased usage of a product or service boosts the value of that product or service for other users. For example, each additional Airbnb host makes the service a tiny bit more valuable for every other Airbnb guest and vice versa. Each additional WeChat user makes the service a tiny bit more valuable for every other WeChat user, and so on.

Network effects generate a positive feedback loop that can allow the first product or service that taps into those effects to build an unassailable competitive advantage. For example, eBay was founded in 1995, yet network effects keep it a dominant player in peer-to-peer commerce two decades later. Airbnb offers over three million listings in sixty-five thousand cities around the world; think of how difficult it would be for a new entrant to offer anywhere close to the same selection and value.

We’re reminded of the famous scene from the movie Glengarry Glen Ross, in which Alec Baldwin’s character, Blake, is speaking to a group of salesmen:

As you all know, first prize is a Cadillac Eldorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you’re fired. Get the picture?

First prize in the first wave of consumer social networking went to Facebook; second prize to MySpace; third prize to Friendster. Remember Friendster? You need to win first prize in order to survive in the Internet era.

The level of competition can seem overwhelming at times, but the Networked Age also allows companies to reap incredible rewards much more rapidly than at any other point in history. We call the strategy and mindset they can use to get there “blitzscaling.”

Blitzscaling is a strategy and set of techniques for driving and managing extremely rapid growth that prioritize speed over efficiency in an environment of uncertainty. Put another way, it’s an accelerant that allows your company to grow at a furious pace that knocks the competition out of the water.

Blitzscaling requires hypergrowth but goes beyond the blunt strategy of “get big fast” because it involves purposefully and intentionally doing things that don’t make sense according to traditional business thinking. In the Blitzscaling Era, you have to make a tough call:

 Take on the additional risk and discomfort of blitzscaling your company,

 Or accept what might be the even greater risk of losing if your competition blitzscales before you do.

Was Airbnb’s decision to expand into European markets—a move that could have stretched the company so thin as to destroy its core business—either efficient or certain? Hardly. Airbnb could easily have failed, burning through all its capital while essentially ceding the European market to its copycat competitor Wimdu. Yet the risky decision proved the right one.

Blitzscaling disrupts entire industries, such as music, video games, and telephony, with both new technologies and new business models … and those are examples from just a single company. (You know, the one that produced the iPod, iTunes, the iPhone, and the iPad, to name just a few.) These waves of disruption affect every aspect of our daily lives, from the jobs we work, to the products we use, to the way we connect with one another.

Disruption on its own is neither good nor bad, but it always involves change. Replacing a $10 product with a $1 product of equal or better quality looks like a disaster to an incumbent player, but, for society as a whole, it means greater productivity. The buyer gets the desired product, and now also has $9 available to invest in other things. Netflix has been bad news for broadcast and cable networks, but it has been great news for fans and creators of movies and television. Yes, disruption produces losers as well as winners, but, as a whole, it is a vital source of growth and opportunity that you can’t afford to ignore.

It’s good to keep in mind that those who extoll the virtues of disruption tend to be—coincidentally enough—the ones in the winners’ circle. But disruption that spreads its benefits and new opportunities broadly is better for society. Fortunately, most disruption falls into this category. In a 2004 working paper, “Schumpeterian Profits in the American Economy: Theory and Measurement,” Yale economist William Nordhaus examined the US economy from 1948 to 2001. Based on the data he collected, he concluded that only 2.2 percent of “profits that arise when firms are able to appropriate the returns from innovative activity” went to the disrupters. “Most of the benefits of technological change are passed on to consumers rather than captured by producers,” he concluded. Like it or not, change is inevitable—but it doesn’t have to be wholly unexpected.

In their book Future Shock, the futurists Alvin and Heidi Toffler wrote that “change is the only constant,” and “to survive, to avert what we have termed future shock, the individual must become infinitely more adaptable and capable than ever before.” Those words were originally published in 1970. The pace of change has only accelerated since then.

Everyone should have the opportunity to learn how blitzscaling works, because it is already impacting their lives. And once they know how it works, they can use it to reshape the world. People should be part of building the future rather than feeling like the future is being forced upon them.

Blitzscaling is what separates the start-ups that get disrupted and disappear as the world changes from the ones that scale up to become market leaders and shape the future.

This book was born out of a class we taught at Stanford in which we dissected the process that went into growing the world’s largest technology companies and then codified a series of tactics and choices that made it work. The result was a specific set of principles that describes how to grow multibillion-dollar companies in a handful of years.

While writing this book, we talked to hundreds of entrepreneurs and CEOs, including those of the world’s most valuable companies, such as Facebook, Alphabet (Google), Netflix, Dropbox, Twitter, and Airbnb. (You can hear a number of these conversations on my podcast, Masters of Scale.) Even though the stories of their companies’ rise were very different in many ways, the one thing they all had in common was an extreme, unwieldy, risky, inefficient, do-or-die approach to growth.

In this book, we draw lessons from these world-leading companies to explain the nuts and bolts of how to blitzscale, when to blitzscale, why to blitzscale, and the global impact of the companies that are blitzscaling all around you right this second.

This quest will take us all over the globe, but one place in particular stands out.

SILICON VALLEY: THE PERFECT PLACE TO DECODE BLITZSCALING

Although companies have successfully blitzscaled on every continent except for Antarctica, the most prominent and most concentrated set of examples comes from California’s Silicon Valley. And while we can’t simply copy and paste the techniques that work in Silicon Valley and expect them to work the same way in Shanghai, neither can we cut and paste from Shanghai to Stockholm, nor from Stockholm to São Paulo. Instead, we try to extract some universal lessons and then explore how they apply across the world.

As of this writing at the end of 2017, there are only fourteen publicly traded technology companies in the world that have a market capitalization of over $100 billion. Want to guess how many of those are in Silicon Valley? Seven—that’s half of the world’s most valuable tech companies.

Taken together, Silicon Valley’s 150 most valuable publicly traded technology companies are worth $3.5 trillion. That number is so big it doesn’t mean anything to most of us. So consider this: those 150 companies alone make up 50 percent of the value of the NASDAQ, and they account for over 5 percent of the entire world’s market capitalization. That’s a lot of value created by a region with an estimated 3.5 to 4 million residents, or roughly 0.05 percent of the world’s population.

While we fully accept that this may change in the future, the historical and current success of Silicon Valley makes it the perfect place to examine this question: What is the most effective way to rapidly build massively valuable companies?

When outsiders look at Silicon Valley, they often think that the key to this question is innovative technology. But as you’ll read, technological innovation alone doesn’t make for a thriving company.

Silicon Valley insiders and well-read outsiders believe that the key is the combination of talent, capital, and entrepreneurial culture that makes it easy to start new companies. This too is wrong.

Sure, Silicon Valley is the leading hub for high-tech talent and venture capital, but it didn’t start out that way. Sure, it is blessed with great universities, such as Stanford and Berkeley, but so are plenty of other regions. The answer can’t be simply the combination of venture capital, research universities, and smart people. This combination of ingredients is far from unique. In fact, the same basic ingredients can easily be found in numerous start-up clusters in the United States and around the world: Austin, Boston, New York, Seattle, Shanghai, Bangalore, Istanbul, Stockholm, Tel Aviv, and Dubai.

To discover the secret to Silicon Valley’s success, you need to look beyond the standard origin story. When people think of Silicon Valley, the first things that spring to mind—after the HBO television show, of course—are the names of famous start-ups and their equally glamorized founders: Apple, Google, Facebook; Jobs/Wozniak, Page/Brin, Zuckerberg.

The success narrative of these hallowed names has become so universally familiar that people from countries around the world can tell it just as well as Sand Hill Road venture capitalists. It goes something like this: A brilliant entrepreneur discovers an incredible opportunity. After dropping out of college, he or she gathers a small team who are happy to work for equity, sets up shop in a humble garage, plays foosball, raises money from sage venture capitalists, and proceeds to change the world—after which, of course, the founders and early employees live happily ever after, using the wealth they’ve amassed to fund both a new generation of entrepreneurs and a set of eponymous buildings for Stanford University’s Computer Science Department.

It’s an exciting and inspiring story. We get the appeal. There’s only one problem. It’s incomplete and deceptive in several important ways.

First, while “Silicon Valley” and “start-ups” are used almost synonymously these days, only a tiny fraction of the world’s start-ups actually originate in Silicon Valley, and this fraction has been getting smaller as start-up knowledge spreads around the globe. Thanks to the Internet, entrepreneurs everywhere have access to the same information. Moreover, as other markets have matured, smart founders from around the globe are electing to build companies in start-up hubs in their home countries rather than immigrating to Silicon Valley.

Second, simply starting a company is obviously insufficient. The start-ups that achieve massive value are those that have found a way to grow into scale-ups at an exponentially faster pace than their competitors.

So what secret alchemy is at work in Silicon Valley to fuel such rapid-fire growth of so many of the world’s most valuable tech companies? And if there is a secret, can it be identified, analyzed, understood, and, most important, applied elsewhere?

Blitzscaling is that secret. And the reason blitzscaling matters so much is that nothing about it is inherent to Silicon Valley.

There’s a common misconception that Silicon Valley is the accelerator of the world. The real story is that the world keeps getting faster—Silicon Valley is just the first place to figure out how to keep pace. While Silicon Valley certainly has many key networks and resources that make it easier to apply the techniques we’re going to lay out for you, blitzscaling is made up of basic principles that do not depend on geography. We’re going to show you examples from overlooked parts of the United States, such as Detroit (Rocket Mortgage) and Connecticut (Priceline), as well as from international companies, such as WeChat and Spotify. In the process you’ll see how the lessons of blitzscaling can be adapted to help build great companies in nearly any ecosystem, albeit with differing degrees of difficulty.

That’s the mission of this book. We want to share the secret weapon that has allowed Silicon Valley to punch so much (more than a hundred times) above its population index so that those lessons can be applied far beyond the sixty-mile stretch between the Golden Gate Bridge and San Jose.

It is sorely needed.

Here’s a startling fact: the global economy will need to create six hundred million new jobs by 2030 to meet the United Nations’ sustainable development goals. That’s less than fifteen years away. The world needs more than just new companies and new jobs; it’s going to need entire new industries.

Those industries better generate scale-ups as well as start-ups. It seems to us that it will be a lot easier to add six hundred million new jobs worldwide by creating sixty thousand new ten-thousand-person companies rather than sixty million new ten-person companies.

The late, great Andy Grove, Intel’s legendary CEO, understood and explained this when he wrote in a 2010 op-ed for Bloomberg:

Start-ups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

Recognizing what powers the rapid growth from start-up to scale-up, and understanding the principles behind how it works, will help entrepreneurs and companies apply these principles not just in small pockets of the United States and China but around the world.

WHO SHOULD READ THIS BOOK?

This book is for anyone who wants to understand the techniques that allow a business to grow from zero to a multibillion-dollar market leader in a handful of years.

These techniques should be of interest to entrepreneurs who want to build massive companies, venture capitalists who want to invest in them, employees who want to work for them, and governments and communities who wish to encourage the growth of these companies in their own regions. And even if you don’t want to build, invest in, or work for any of these companies, you’ll still need to navigate the world that they’re building.

If you are a manager or a leader who is trying to rapidly scale a project or a business unit within a larger company, blitzscaling can help you too. And while we draw these lessons primarily from the world of high tech, many of the principles and frameworks the book lays out (especially regarding people management) are applicable to high-growth companies in most industries worldwide, from European fast-fashion retailers to Texan oil shale companies.

Even organizations outside the business world can use blitzscaling to their advantage. Upstart presidential campaigns and nonprofits serving the underprivileged have used the levers of blitzscaling to overturn conventional wisdom and achieve massive results. You’ll read all these stories, and many more, in the pages of this book.

Whether you are a founder, a manager, a potential employee, or an investor, we believe that understanding blitzscaling will allow you to make better decisions in a world where speed is the critical competitive advantage.

With the power of blitzscaling, the adopted son of a Syrian immigrant (Steve Jobs), the adopted son of a Cuban immigrant (Jeff Bezos), and a former English teacher and volunteer tour guide (Jack Ma) were all able to build businesses that changed—and are still changing—the world.

The strategy and techniques we describe in this book are based on my experiences as a member of the founding team at PayPal; as the cofounder, CEO, and now executive chairman at LinkedIn; as a leading investor in Facebook and Airbnb; and as an investor at Greylock Partners, where I worked with many other billion-dollar companies, such as Workday, Pandora, Cloudera, and Pure Storage. My partners at Greylock and I have helped these companies go from garage to global dominance, and, in this book, we’ll share with you what we believe are important frameworks for understanding and addressing the challenge of blitzscaling across the different elements of your organization.

Yet as many good business books disclaim, while this is a playbook and a strategy guide, it isn’t a book of precise recipes. Regardless of how the popular press portrays things, each formula for building a great company is unique and depends on the market opportunity, the founders, and the network in which they operate. The truth is there is absolutely nothing guaranteed as a one-size-fits-all, must-follow rulebook for everyone. However, there are patterns. So in addition to individual tips and tricks, this book offers a set of frameworks and strategies for leaders, entrepreneurs, and intrapreneurs to adapt to their own needs and circumstances.

A QUICK NOTE ON THE TERM “BLITZSCALING”

The term “blitzscaling” derives from the twentieth-century usage of “blitz” as a way of describing a sudden, all-out effort. The first usage of blitz in this way was to describe the “blitzkrieg” (“lightning war”) strategy that General Heinz Guderian devised for the initial military campaigns of Nazi Germany during World War II. Ironically enough, Guderian was heavily influenced by British military thinkers like Basil Liddell Hart and J. F. C. Fuller, and the term “blitzkrieg” was actually popularized by the British press; the German military never formally adopted it.

The advancing armies in these campaigns abandoned the traditional approach of moving at the slow pace at which they could establish secure lines of supply and retreat. Instead they fully committed to an offensive strategy that accepted the possibility of running out of fuel, provisions, and ammunition, risking potentially disastrous defeat in order to maximize speed and surprise. The speed of these armies’ advance shocked and overwhelmed their opponents, allowing the blitzkriegers to outmaneuver and outfight the defending forces.

The early success of the German army helped spread the lessons of blitzkrieg to all the forces in the war. For example, the American general George S. Patton later put these lessons to good use in leading the US Third Army’s advance from the beaches of Normandy all the way to Berlin. Since then, the term “blitz” has been used to describe everything from an American football play to the way in which large corporations roll out new products. Like the all-out blitz defense in football—which involves the risky move of sending every available defender to pursue the quarterback—or the proverbial marketing blitz of television, print, and online advertising that accompanies the release of a new blockbuster movie, blitzscaling strives for a relentless and dizzying speed that overwhelms the market.

While we are wary of the negative connotations of “blitz,” especially in those nations that felt the effects of blitzkrieg in World War II, we believe that the strength of the metaphor and the widespread and colloquial use of the term in nonmilitary contexts make it the best fit for the concepts discussed in this book.

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