A Brief Book Review of Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman and Chris Yeh
GITTES: How much are you worth?
CROSS: I have no idea. How much do you want?
GITTES: I just want to know what you’re worth — over ten million?
CROSS: Oh, my, yes.
GITTES: Then why are you doing it? How much better can you eat? What can you buy that you can’t already afford?
CROSS: The future, Mr. Gittes — the future.
Chinatown (1974)
GRUBER: And when Alexander saw the breadth of his domain, he wept, for there were no more worlds to conquer.
Die Hard (1988)
Poor Alexander the Great; King of Macedon, bent on world domination, but—as our fictional villain tells it—frustrated by natural limits to applying his warrior and leadership skills. Alexander should have been born a couple millennia later. He would have loved our modern business world, especially its constant fight for “complete market dominance”, as explained and instructed by Reid Hoffman and Chris Yeh in Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies (2018).
Throughout the book the imagery of violent ends and the language of nation-building and military conquest are repeatedly called upon to make clear and serious the ambitions and stakes of startups, their founders, and their financial backers. What is blitzscaling? Well, you are welcome to read 300 pages to find out clearly but I’ll give you my best retelling of the thesis here. It’s an aggressive program of strategies and tactics that embraces chaos and uncertainty to “prioritize speed over efficiency”. That’s it in a nutshell—speed over efficiency, and aggression. This is at its heart a love letter to aggression, particularly the lifecycle of aggressive entities, which move fast and break things in their early years before, if successful, later holding hat in hand to ask for forgiveness and patience, as humble monopolists focused on “progress”, “making the world better”, and the future. Ahh, the future, Mr. Gittes, the future. The “ever enigmatic future” as Benjamin Graham called it. Let’s unpack this.
The speed part of “speed over efficiency” doesn’t require much unpacking: Our Networked Age enables more extreme growth than ever before; this means quicker decision making, regrets, and rebirth. Hoffman and Yeh have an easy time making this case with stories of ruthless competition right from the first page. Indeed, the first words of the Introduction are, “They’re probably going to kill you,” in reference to a competitive threat Airbnb faced in 2011 from a European fast-follower. When Hoffman tells stories like this of seemingly dire consequences (for the businesses at question, not the mortality of the founders), you believe him. He co-founded PayPal and LinkedIn, was an early investor in Facebook, and he currently sits on the boards of Airbnb and Microsoft; so he writes with command and authority both from personal experience and close secondary sources. It is to unpack the trade-off of speed for efficiency, namely which types of efficiencies you are likely to trade for at different stages of a company’s life to continue your extreme growth, that Hoffman and Yeh essentially dedicate the following 299 pages.
What do they mean by efficiency? Merriam Webster provides us with two useful definitions: “Effective operation as measured by a comparison of production with cost (as in energy, time, and money)” and “the ratio of the useful energy delivered by a dynamic system to the energy supplied to it”. What these both say is that efficiency is the act of optimizing processes to reduce input relative to output. That means getting a lot of bang for your buck. It also means reducing waste in a system. The authors contend that while this might be fine for established companies in “slow, boring industries”, it would be death-knell for others, primarily those in marketplaces with winner take-all or winner take-most dynamics, such as the two-sided marketplaces which Uber, Airbnb, and LinkedIn sit atop.
One way to gauge the stage a company is at and the type of blitzscaling strategies it might use competitively is by employee count. The authors suggest five successive stages for start-ups by this measure: Family (1 to 9 employees), Tribe (10s of employees), Village (100s of employees), City (1000s of employees), and Nation (10000s of employees). In each of these five stages companies must try to figure out what they can do that their competitors can’t or won’t do. If, conversely, they do the same as their competitors, chances are the winner will be the competitor with the most resources (i.e., people and money). This is to say that if you’re a David and you learn that Goliath also has a sling shot you better figure out another way to fight.
There are three types of innovations necessary to fight and make it through each of these stages without dying, which Hoffman and Yeh call the expected outcome for most start-ups. Those are (1) Business Model Innovations, (2) Strategy Innovations, and (3) Management Innovations. It is the first part, Business Model Innovations, that I found most compelling of the three and the richest source of stories, as it is essentially a catalog of how well-known companies faired through their lifetimes along a matrix of six key factors: (1) Market Size, (2) Distribution (which is captured by either (a) leveraging existing networks or (b) viralness), (3) Gross Margins, (4) Network Effects (which are either (a) direct, (b) indirect, (c) two-sided, (d) local, or (e) standards-based), (5) Product/Market Fit, and (6) Operational Scalability.
While the book does a great job describing with examples the ‘how to’ and ‘when to’ of blitzscaling, I think it suffers a bit on the ‘why to’. It makes clear why it works when it works but has trouble providing a reason for why people should choose to blitzscale in the first place. The authors try to make the case that it’s a “race to build things that make the world a better place”. But if several competitors are trying to make the world a better place at the same time, why go through the trouble of going so much faster if you possibly destroy lives, communities, careers, the economy, or the environment to get there? Is it always worth the trade off? The authors answer “no”, but I think they could have spent more time on this. Understanding ego-inflation and outsized wealth and prestige attainment as goals of many would-be conquerors would go a long way toward better framing the motivations of some and the responsibilities of others.
The authors have a chapter toward the end called “Responsible Blitzscaling”, which comes across almost as a surgeon general’s warning on the danger’s for a company and society of those that blitzscale improperly or at the wrong time. But it feels a little callous. It is unclear if blitzscaling is a term which can be applied to bad actors or is only applied to those who attempt to aggressively grow and then happily succeed. Do the losers not blitzscale? Or do they just blitzscale less well? More case studies of blitzscalers (other than Webvan) who didn’t become industry-dominant like the Microsofts and Amazons of the world would have been wonderful. The example of Theranos—chronicled in John Carreyrou’s magnificent Bad Blood (2018)—which more than any recent company I can think of made offerings at the temple of ‘speed over efficiency’ is nowhere in this book but would have been a great addition. Nor is Enron, Long-Term Capital Management, Countrywide Financial, or AIG. They all seem to be blitzscalers but are missing here.
Blitszcaling sounds effective and exciting, as does dominance, though the authors spend very little time on what one does once one is dominant other than worry about being dominated in turn. (Maybe they need a chapter on anti-antitrust-innovations?) I hope in any follow-up books they write, they can take a page from J. Paul Getty’s excellent How to Be Rich (1965), which while having sections on ‘how to win’ also tackles what your responsibility to society is once you’ve ‘won’.