April 10, 2019

"Blitzscaling" startups

Kut Akdogan

Hmph. I'm just not on board with the widespread use of "blitzscaling," the startup growth philosophy popularized by Reid Hoffman and Chris Yeh. Hoffman refers to their book Blitzscaling as "a handbook for anyone who wants to build their business to [sic] a multibillion-dollar market leader in a short number of years".

Blitzscaling may work in certain consumer product areas, but it is not a universal blueprint, as it is implied to be. Blitzscaling applies when:

  1. Future demand is certain to be high, perhaps due to an effective but disruptible product already existing (e.g. cinema/movie rentals vs Netflix, e.g. taxi vs Uber)—Hoffman phrases this as "the prize is big enough"
  2. The future experience curve is known and guaranteed to be so extreme that the product areas can only support a monopoly due to the cost advantage enjoyed by such a monopoly (i.e. massive scale effects on cost)
  3. Network effects on demand are significant (i.e. massive scale effects on revenue)

If (3) isn’t true, then first mover advantage doesn’t have much impact on demand.

If (2) isn’t true, then a new entrant competitor can come and compete fairly easily with you.

If (1) isn’t true, then you are blitzing off a cliff.

And here's the thing—(1) is rarely true. If such certainty existed, the market would be flooded with similar products. If you are certain (and correct), and no one else is, then you are a clairvoyant and you belong in a comic book. Startups are simply rooted in uncertainty. And the authors acknowledge this, by saying their book should be "use[d] in times of uncertainty." But how can you be certain your market size is enormous if you are uncertain? This isn't nitpicking—it's really easy to convince yourself and your board that your $1M revenue business has an enormous market size and is going to topple Cisco. (Just add the word "blockchain".)

I’d argue that the blitzscaling logic implies that the only highly valued companies in this day and age should be monopolies. Not true, I suspect. I can only think of a handful of product areas that satisfy the three criteria above.

Hoffman provides a caveat—he says, "The only time that it makes sense to blitzscale is have determined that speed into the market is the critical strategy to achieve massive outcomes." Not only does this undermine the universal applicability of the philosophy, but it is also the equivalent of saying "the only time it makes sense to blitzscale is when you have determined that you should blitzscale." (Sadly, even Hoffman and Yeh's retort in defense of their book doesn't address this fundamental problem.)

All that said, definitely worth a 2.5x speed Audible speedthrough.

PS were there no made-up words that didn't stem from the Nazis?

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