Blitzscaling

REID HOFFMAN is an entrepreneur and investor. In 1998, Reid Hoffman was a founding Board member and executive vice president of PayPal. In 2003, he co-founded LinkedIn, the world's largest professional networking service. He was an angel investor in Facebook and Zynga, and in 2009, he became a partner at the venture capital firm Greylock Partners. He currently serves on the boards of Airbnb, Apollo Fusion, Aurora, Coda, Convoy, Entrepreneur First, Gixo, Microsoft, Nauto, and Xapo, as well as not-for-profits Kiva, Endeavor, CZI Biohub and Do Something. He hosts Masters of Scale, an original podcast series. He is also the co-author of two New York Times best-selling books: The Start-Up of You and The Alliance. He is an Aspen Institute Crown Fellow, a Marshall Scholar at Oxford, and a graduate of Stanford University. CHRIS YEH is an entrepreneur, writer, and mentor. He holds two degrees from Stanford University and an MBA from Harvard Business School, where he was a Baker Scholar. He is co-author of the New York Times bestseller The Alliance with Reid Hoffman and Ben Casnocha.

PART I What Is Blitzscaling? Blitzscaling is what we call both the general framework and the specific techniques that allow companies to achieve massive scale at incredible speed. If you're growing at a rate that is so much faster than your competitors that it makes you feel uncomfortable, then hold on tight, you might be blitzscaling! Amazon's incredible growth in the late 1990s (and up through today) is a prime example of blitzscaling. In 1996, a pre-IPO Amazon Books had 151 employees and generated revenues of $5.1 million. By 1999, the now-public Amazon.com had grown to 7,600 employees and generated revenues of $1.64 billion. That's a 50 times increase in staff and a 322 times increase in revenue in just three years. In 2017, Amazon had 541,900 employees and was forecast to generate revenues of $177 billion (up from $136 billion in 2016). Dropbox founder Drew Houston described the feeling produced by this kind of growth when he told me, "It's like harpooning a whale. The good news is, you've harpooned a whale. And the bad news is, you've harpooned a whale!" While blitzscaling may seem desirable, it is also fraught with challenges. Blitzscaling is just about as counterintuitive as it comes. The classic approach to business strategy involves gathering information and making decisions when you can be reasonably confident of the results. Take risks, conventional wisdom says, but take calculated ones that you can both measure and afford. Implicitly, this technique prioritizes correctness and efficiency over speed. Unfortunately, this cautious and measured approach falls apart when new technologies enable a new market or scramble an existing one. Chris earned his MBA from Harvard Business School in the late 1990s, during the dawn of the Networked Age. Back then, his MBA training focused on traditional techniques, such as using discounted cash flow analysis to make financial decisions with greater certainty. Chris also learned about traditional manufacturing techniques, such as how to maximize the throughput of an assembly line. These methods focused on achieving efficiency and certainty, and the same emphasis was reflected in the broader business world. The world's most valuable company during that time, General Electric, was beloved by Wall Street analysts for its ability to deliver consistent and predictable earnings growth. But efficiency and certainty, while innately appealing, and very important in the context of a stable, established market, offer little guidance to the disrupters, inventors, and innovators of the world. 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. Over the years, many have criticized Amazon for its risky strategy of consuming capital without delivering consistent profits, but Amazon is probably glad that its "inefficiency" helped it win several key markets--online retail, ebooks, and cloud computing, to name just a few. When you blitzscale, you deliberately make decisions and commit to them even though your confidence level is substantially lower than 100 percent. You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster. These risks and costs are acceptable because the risk and cost of being too slow is even greater. But blitzscaling is more than just plunging ahead blindly in an effort to "get big fast" to win the market. To mitigate the downside of the risks you take, you should try to focus them--line them up with a small number of hypotheses about how your business will develop so that you can more easily understand and monitor what drives your success or failure. You also have to be prepared to execute with more than 100 percent effort to compensate for the bets that don't go your way. For example, anyone who knows Jeff Bezos knows