Blitzscaling From Startup to Scaleup | Greymatter Podcast

Greylock’s Reid Hoffman and Josh McFarland on the basic principles for successful blitzscaling.

Blitzscaling is a set of practices for igniting rapid growth to accelerate to the stage in a startup’s life cycle where the most value is created. Bitzscaling prioritizes speed over efficiency in an environment of uncertainty, and it allows a company to go from “startup” to “scaleup” at a furious pace to capture the market.

In this episode of Greymatter, Greylock partner Josh McFarland moderates a discussion with Reid Hoffman at Recode’s 2019 Code Conference. McFarland and Hoffman outline the rationale for the Blitzscaling set of practices and the counterintuitive rules necessary to scale up super fast.

An accomplished entrepreneur and executive, Reid has played an integral role in building many of today’s leading consumer technology businesses, including LinkedIn and PayPal. He co-founded and led LinkedIn as CEO through its first four years and to profitability. Prior, Reid served as executive vice president at Paypal, where he was also a founding member. As a Greylock investor, he currently serves on the boards of Airbnb, Apollo Fusion, Aurora, Coda, Convoy, Entrepreneur First, Gixo, Microsoft, Nauto, Xapo and a few early stage companies still in stealth. He is the co-author of Blitzscaling and two New York Times best-selling books: The Start-up of You and The Alliance.

Josh is an experienced product leader and entrepreneur who specializes in designing, building, and scaling technology driven businesses. He has led Greylock’s investments in Coinbase, Ribbon, and PayJoy. Previously, Josh was VP of Product at Twitter, a role he transitioned into following the acquisition of TellApart. Josh was the founder and CEO of TellApart, which he incubated at Greylock as an EIR. In 2015, Twitter acquired TellApart for more than $500M, the largest acquisition in Twitter’s history.

Blitzscaling Basic Principles

“Where do the next six hundred millions jobs come from and how do you create good jobs? It’s going to be through entrepreneurship and you’re going to need to get the entrepreneurship to scale. A simple definition of blitzscaling is to prioritize speed over efficiency in an environment of uncertainty. If you’re in that environment, you being the first to scale is what really matters. Not first mover, but first to scale. So you must determine the set of items that your company can do to move very fast and become that first to scale.

That means that you’re spending inefficiently, you aren’t being as disciplined about hiring, and you are trying things where you where you may not have all of the information, like customer acquisition costs. But you’re still prioritizing on speed of motion versus efficiency of business operations.” — Reid Hoffman

When To Blitzscale

“In considering whether or not to blitzcale, there are three main items to consider. One, most often blitzscaling is driven by either extant or anticipated competition. So if you are in a market that does not have competition, blitzscaling is not the right approach. Instead it’s important for your company to prioritize efficiency.

Two, because you will spend inefficiently your company must be able to raise what we call “blitzcapital” early on. This is one of the advantages that startups in Silicon Valley and China have over startups in the rest of the world. Broadly speaking, blitzscaling is as much capital as you can get your hands on. A classic early entrepreneurial mistake is to maximize percentage versus maximize value. In fact what you are really trying to do is determine the calculus of how you grow the value of the company and value of the shares as reflected in the value of the company in this really great way? And that’s what matters, not the exact percentage. That being said, if the capital is extremely expensive, then that is usually a time where you probably not yet at that point where you can blitzscale in a good way.

Finally, do you have enough product market fit? Do you have enough product market fit that if you pour in jet fuel to the afterburners, are you actually taking off or are you hitting the mountain?“ — Reid Hoffman

Where To Blitzscale

“Blitzscaling is possible anywhere. It can be more difficult than blitzscaling in areas including China and Silicon Valley partially for reasons of talent, but it is doable. In terms of competing with Silicon Valley companies, the good news is that Silicon Valley is still an area where starting companies is still pretty easy. The intermediate cases, where your company is not quite ready to blitzscale, but you’re trying to scale in Silicone Valley, it is actually harder.

In comparison to China, I believe Silicon Valley is in slow motion. For example, in China they have a work practice known as the 9–9–6 policy. 9AM to 9PM, six days a week, as an employee you are discoverable at your desk. We do not do that in the U.S., we work extremely hard but we don’t do that. So where China does things much faster than Silicon Valley is the raw effort, speed, and aggression of the workforce.” — Reid Hoffman

Getting Culture, Diversity & Inclusion Right

“Culture, diversity, and inclusion are the main items that you want to get right as early as possible. You want to build the culture that will define your company and how your company is being the change in the world. Culture, diversity, and inclusion are incredibly difficult to fix later. They are fixable, but it’s like doing a complete genome rewrite.

One of the mistakes that leadership thinks is that when they have a culture it is fixed when in fact, culture evolves. Consider items that help your culture become better year by year. So when you are considering hiring a person into your company, you don’t think, ‘is this person a culture fit?’ Instead, consider ‘will this person make our culture better?’” — Reid Hoffman

Responsible Blitzscaling

“The catch-22 that blitzscalers face is that when you are prioritizing speed to get to market first, shouldn’t you throw everything, like responsibility and culture, overboard to get there? The answer is decidedly no. Blitzscaling does not excuse blitzscalers from the ethical obligation to consider the possibility of unintended, unforeseen consequences. The key to responsible blitzscaling is the ability to distinguish between various forms of risk, which we define as systemic and non-systemic risk.

Non-systemic risk is localized, and at most, affects a part of the system. Systemic risk is serious risk that can impact or even destroy the entire system, either directly, or as the result of a cascade of problems. Systemic risks are risks to individuals, where serious harm could come to an individual. Systemic risk means that your company is breaking a payment system or a logistics system, where it breaks the system of society. You should not take those risks.“ — Reid Hoffman

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