“Blitzscaling” by Reid Hoffman: Summary and Thoughts

Source: Harper Collins

Reid Hoffman’s “Blitzscaling” presents a set of processes and frameworks for startups that have successfully achieved traction and are now looking to scale.

I found the book to be a helpful resource as a VC looking to a) invest in Series B+ rounds, b) support the growth of our portfolio companies, c) participate in follow-on rounds and d) understand the potential long-term trajectory of Series A and Seed investments.

Given my previous background at West Point, in the strategy groups of large companies such as Disney and Fox and my experience as the COO of a digital publisher, it’s also very intriguing from an intellectual level, as many of the lessons I’ve learned from these roles were reinforced by Reid’s theories.

As such, wanted to provide a short summary of the work annotated with some of my personal thoughts and experiences:

Summary

Reid defines “Blitzscaling” as prioritizing speed of growth over efficiency. The key difference from traditional growth strategies, which he calls “fastscaling”, is that “blitzscaling” assumes substantial risks in the pursuit of scale. One of the largest hurdles to this tactic is that it requires a substantial mindset shift among executive management as the cultural, strategic, operational, financial and leadership philosophies required for success in a Series B+ company (i.e. a “scaleup”) are often diametrically opposed to those of a Seed or A stage company (i.e. a “startup). While Steve Jobs likened working at a startup to “being a pirate”, Reid argues that growing a scaleup is akin to “joining the Navy” (i.e. it’s a transitional phase where startups begin to adopt mature company processes and strategies).

Strategy

In opposition to the current Silicon Valley zeitgeist, “Blitzscaling” is not always the best strategy.

Why should a company “Blitzscale”?: This growth tactic is only necessary in industries with high demand-side network effects (e.g. “winner takes all markets”) where the risk of coming in second outweighs the cost of sloppy execution. Reid references the benefits of growth for software and online services companies detailed in the McKinsey report, “Grow Fast or Die Slow”. Some of the highlights include:

• High-growth companies return 5x more to shareholders.
• Companies growing at 60% when they reached $100M were 8x more likely to reach $1B than those growing at 20%.
• Increases in growth rate drive twice the market-capitalization gain of margin improvements.

When should a company “Blitzscale”?: This tactic is not appropriate for startups that have yet to achieve P/M fit or for companies in mature industries.

Marketing

Paul Graham famously quipped that successful startup founders “do things that don’t scale”, such as personally recruiting customers and working closely with them. Conversely, the marketing process in a scaleup focuses primarily on things that do scale, such as identifying the best distribution channels, setting up and testing reliable conversion funnels, optimizing LTV/CAC and automating the marketing function.

Management / Operations

The management culture of a successful Series A startup and successful growth stage company are often very different. While Series Seed and A startups often eschew hierarchy, Reid believes that this is a mistake as the enterprise scales — in short, once a company exceeds Dunbar’s number (~150 employees) a different tactic is needed. Of note are the following necessary transitions:

Generalists to Specialists: When companies are very young, they need to focus on hiring generalists — smart people that can solve almost any problem that comes their way. However, when a company begins to scale it needs to add resources with deep specialized knowledge in marketing, accounting, technology, etc.… This can often present serious cultural problems as early stage employees find themselves getting “passed over”. As such, part of the art of being a successful scaleup CEO is not only hiring the right specialists, but also redeploying key generalists in a way that maximizes their talents and keeps them motivated.

Dialogue to Broadcasting: As the company size increases, tribal knowledge begins to wane and the one-on-one communication style of startups begins to lose its effectiveness. At this stage, a “broadcasting” style of messaging is often required. Two things that I’ve found personally helpful in this area are:

• Strategic Plans: While plans and strategies in the digital age often change rapidly (leading many to pronounce the death of the traditional “strategic plan”), I agree with Eisenhower’s sentiment that “in preparing for battle I have always found that plans are useless, but planning is indispensable”. The discipline of creating and sharing a simple quarterly deck / document outlining the company’s core values, long-term strategic goals, financial & operational targets and quarterly objectives can be extremely helpful in focusing management’s efforts, reinforcing a company’s culture and creating a shared set of goals among the team. Once again though, it’s imperative that the organization understands that the contents of these plans are likely to change when new data is uncovered, as flexibility always trumps strategy in a “Blitzscaling” organization.
• Regular Meetings: Creating a “routine” of meetings, such as the weekly, quarterly and yearly meeting “pulse” from Gino Wickman’s “Traction”, helps to build trust and accountability.

Inspiration to Data: Although a data-driven culture is always an important competitive advantage, it becomes essential in the scaleup stage. From a management perspective, perhaps the most proven technique is the use of OKRs. A few important notes to keep in mind when using these tools:

• It’s helpful to focus on a small handful of the most important metrics.
• What matters most isn’t what you collect, but what you convey. As such, metrics that are difficult or time consuming to process or synthesize are of little value in the long-term.
• It’s important to watch out for “vanity metrics” — the best metrics are tied directly to profitability and growth.

“Pirate to Navy” cultural shift: As noted above, Steve Jobs famously quipped that “it’s better to be a pirate than join the navy”. While this rebellious, rule-breaking attitude works very well in startups seeking to disrupt an industry, as an enterprise scales it must begin to evolve its culture to one that focuses more on execution. In essence, a founder probably must hire MBAs, CFOs, HR teams and corporate executives (gasp!).

Leadership

Reid highlights a problem that many growing companies face, the changing role of the CEO as the organization scales.

Contributors to Managers to Executives: At West Point we were told that the ultimate goal was to develop “leaders that can train other leaders”. There are many parallels to this concept in a successful scaleup, as a CEO’s role evolves from working “in” the business to working “on” the business. In particular:

• “Family” Stage (1 to 9 employees): The CEO is often a product specialist — she personally drives growth and is involved in almost every decision.
• “Tribe” Stage (10s of employees): She begins to delegate, hire key employees and manage the people who are driving growth.
• “Village” Stage (100s of employees): The CEO focuses on creating a growth-oriented culture and developing the leadership skills of the executive team.
• “City” Stage (1,000s of employees): She transitions to a high-level position that focuses on corporate communications and the larger strategic picture.

At scale, the primary roles of a CEO are:

• Vision: Working with key stakeholders to define the overall strategy (see point #1 above).
• Recruiting: Recruiting and managing the C-suite.
• Coaching: Developing the leadership skills of the management team.
• Ops: Setting up command & control structures such as OKRs.
• Culture: Creating a culture that stresses the importance of growth.

According to Reid, the following personality traits are common in CEOs that are adept at Blitzscaling:

• Personal exceptionalism: Successful CEOs tend to have an irrational confidence and believe that they are not destined for a normal outcome.
• Black and white thinking: While “black and white” thinking often leads to a higher error rate, it greatly speeds up decision making (which is key in Blitzscaling) .
• Grit / “Schumpeter’s mindset”: Successful founders are willing to push through almost any challenge in pursuit of their goals.

Finance

While often not necessary (or perhaps overlooked) in very early stage investments, viewing growth through an “investor lens” becomes a critical role for the CEO as the company grows. This reminds me of the concepts captured in “The Outsiders” (one of Warren Buffet’s favorite books) which argues that the best CEOs aren’t industry experts, charismatic leaders or product gurus but instead have a deep understanding of finance and investing. In other words, they’re experts at deploying capital. Many of the success stories Reid highlights focus on a similar set of skills. In particular, the ability to:

• Identify areas with high demand-side economies of scale that would benefit from Blitzscaling.
• Determining the best path to enter these markets (build, buy or partner).
• Securing the necessary capital to scale.

Overall, much of the content in the book is a rehash of Reid’s Stanford MOOC course of the same name, Chris Yeh and Chris McCann’s notes on the topic on Medium, as well as the “Lean Startup” canon in general. That said, Reid does provide a deeper dive on these topics through numerous case studies and I think that it’s always helpful to review these concepts as a reminder.