Blitzscaling, The Lightning-Fast Path To Building Massively Valuable Companies, by Reid Hoffman and Chris Yeh, is a compelling read whose thesis states if a company has access to ample capital and the potential opportunity to capture most or all of a market, it should prioritize growth speed over efficiency, and accept, even ignore the inefficiencies and non-life-threatening fires that come along with it.

Blitzscaling is a counterintuitive strategy that goes against many classic old-school business techniques as you need to accept operating inefficiencies and uncertainties in exchange for speed.  “When a market is up for grabs, the risk isn’t inefficiency – the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant.”

The book discusses many of the most well-known, fastest growing and currently most valuable companies, including: Airbnb, Alibaba, Amazon, Apple, Dropbox, Facebook, Google, LinkedIn/Microsoft, Netflix, PayPal, Uber and others.  A couple years ago when Uber was raising money at a $60 billion private valuation, it may have been difficult to understand the astronomical valuation, but Blitzscaling presents a solid argument for it.  If Uber uses inexpensive capital to subsidize both sides of the market when it enters a new city, it has a substantially stronger likelihood of quickly capturing significant share. Uber has a chicken and egg scenario as both sides of the market need to be built simultaneously for Uber to be successful.  Uber needs to recruiter drivers to ‘supply’ rides, needs to acquire customers (‘demand’ for rides).  By utilizing economical capital to subsidize drivers (paying drivers a higher percentage or bonuses as additional incentives to join the platform) and subsidizing passengers (with cheaper rides to incentivize them to try the new platform), Uber achieves massive momentum from dual-sided network effects.

The story of Airbnb is fascinating, and an area that can easily be overlooked is how customer-obsessed they were from the very beginning. “Paul Graham, the cofounder of Y Combinator, wrote a famous essay in which he advised entrepreneurs to do things that don’t scale.”  This advice may seem counterintuitive (especially in a book about Blitzscaling), but it is vital to developing an optimal product.  When your business is small you want to can into a customer’s complete experience to understand everything the customer thinks and desires.  Airbnb realized that listings are more successful if they are accompanied by professional photographs, so founders Brian Chesky and Joe Gebbia, in the beginning knocked on customer’s doors to photograph their homes.  Obviously, the founders could not personally scale to photograph all Airbnb listings, but it allowed them to truly get to know and understand their customers (listen to Brian Chesky’s fantastic talk on Reid Hoffman’s Master of Scale podcast titled Handcrafted.  Their Obama O’s and Captain McCain’s were brilliant gorilla fundraises and the 11-star experience demonstrates their obsession with customer experience).

Possibly the company to most successfully implement Blitzscaling (although the term did not exist at the time) is Amazon.  Amazon’s substantial access to capital through inexpensive public funds as well as generated revenue allowed it to build out its massive infrastructure and best-in-class fulfillment systems.  Throughout the years, Amazon was constantly criticized for not consistently showing ‘Wall Street profits’ while it utilized these inexpensive funds to subsidize its distribution and logistics expenses, as well as the fees it charged third-party sellers, to capture an astonishing portion of US online market sales. Currently about fifty cents of every new dollar online is spent on the Amazon platform.  In addition, due to this market dominance, Amazon continually recaptures these earlier subsidized dollars by squeezing the margins of third party resellers (who, in aggregate, account for more sales on the Amazon platform than goods sold directly by Amazon).  Ten years ago, third-party sellers paid less than 20% of aggregate sales in fees to Amazon.  Whether third-party sellers knew it or not, Amazon was subsidizing their expenses to capture dominant market share of the massive overall online retail category. Every year Amazon raises fees to third-party sellers, squeezing their margins and redistributing it back to Amazon.  Currently third party sellers pay 40% of aggregate sales in fees to Amazon, but this would not have been possible without the successful Blitzscaling done by Amazon years ago.

If you like Blitzscaling, The Lightning-Fast Path To Building Massively Valuable Companies, I highly recommend checking out Reid Hoffman’s Master of Scale podcast which I personally look forward to listening to every week.  Blitzscaling is difficult to implement, and the likelihood of failure far exceeds success, however this risk is compensated for by the massive rewards that can be achieved from its success.

#Blitzscaling #ReidHoffman #CounterIntuitive #ContinuousLearning #GrowthStrategy

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