Not all companies can make this leap, but all those that have succeeded have done so by employing this strategy, which gives priority to speed over efficiency.
To make blitzscaling, a startup must have a powerful product, a robust distribution channel, a clear and good-sized market, and must act within an ecosystem that allows for an impressive capital raising.
Not only can high tech companies successfully use blitzscaling, as evidenced by Barak Obama’s presidential campaign.
What Blitzscaling is and how it works: Two very concrete examples
In 2011, Wimdu, a creature founded by Rocket Internet and Kinnevik (i.e. by the Samwer brothers and a Swedish investment company), challenges Airbnb. According to their usual tactics, the Samwer propose to the Airbnb co-founder, Brian Chesky, to buy Wimdu – which has the same business model and competes in its same market segment – in exchange for 25% of Airbnb.
Faced with this move, Chesky decides to listen to Mark Zuckerberg’s advice: “Fight, he will win the best product” choosing as a weapon for this blitzscaling battle, a very aggressive set of strategies and tactics that leads towards lightning growth, favoring speed over efficiency.
Blitzscaling derives from the use of the word blitz to mean something rapid, lightning-fast, meaning that was used for the first time in the twentieth century, in the word blitzkrieg: lightning war.
The year before, in China, another CEO had faced a very difficult situation. Tencent owned the QQ messaging system, 650 million active users per month, and was one of the most important Chinese internet companies, with revenues of 2 billion.
QQ, however, is a desktop product, and you need to move on to developing something for mobile. An opportunity that also constitutes a great risk, since it threatens Tencet’s relations with telephone operators such as China Mobile, which receives 40% of the economic value of the text messages that QQ users exchange.
In secret, a small team receives the go-ahead and in two months develops the Weixin service, a word that in Mandarin means micro message. Outside of China, the service becomes known as WeChat. Sixteen months after launch, it boasts 100 million users, which six months later grew to 200 million and, just four months later, reached 300 million.
At the end of 2016, Tencent’s earnings rose to $ 22 billion, an increase of 48% over the previous year and 700% over 2010. Tencent CEO Pony Ma defined the decision he made in 2010. and the following two months “question of life or death”.
A startup has a powerful product, a robust distribution channel, a clear and good-sized market. And now?
This startup has before it the chance to become a company that changes the world and touches billions of lives with its work.
To do so, it must take advantage of the aggressive growth strategy called blitzscaling , which despite appearing to be a crazy way of operating and requiring a truly impressive capital raising, is a very powerful tool. The prize, in competitions such as those that put our world in front of us, is only one and goes entirely to the winner: finishing second is useless.
Airbnb offers more than 3 million places in 65,000 cities worldwide. Think of the difficulty for a newcomer to position themselves in that same market.
“Software is eating the world” means that every type of company has intrinsic links with programming, because physical products are now integrated with software.
Think of the Tesla: it is an automobile, but it is the renewal of its software that can give an acceleration such as to lead it to have an autopilot in the space of one night.
For this reason, blitzscaling is an accelerator suitable for any type of company. Applying it requires more than courage and competence on the part of an entrepreneur: we need an ecosystem capable of financing risk from a financial and human capital point of view.
Dropbox founder Drew Houston describes his experience as follows: “Using blitzscaling is like harpooning a whale, the good news is wow, you’ve harpooned a whale! The bad guy is oops, you harpooned a whale! “
“You succeed or die”: a growth strategy very far from the traditional one
Blitzscaling plans to prioritize speed over efficiency when faced with uncertainty.
This is the opposite of what normally happens in the growth of a startup. Try to visualize it like this: launching a startup is like jumping off a cliff and, while rushing, assembling an airplane.
The traditional strategy involves slowing down the descent while building it: it is the precision with which you work, check and correct that allows you to control the fall and get to the result before touching the ground.
Applying blitzscaling, on the other hand, means making a “succeed or die” choice, it is like turning on the engines of a jet while the wings are still being built.
Blitzscaling requires you to move at a pace that is not comfortable for any team, and this will lead to making mistakes. The skill lies in being able to quickly learn from these mistakes, correct yourself and move forward without losing the rhythm.
It is not a speed that can be sustained forever, it corresponds to the central part of an “S” growth curve.
To understand this concept, let’s look at Google and Facebook: they both applied a 3-step sequence.
They started with traditional growth while developing the product so that it was suitable for the market, they applied blitzscaling to reach the critical mass needed to dominate the market, then they went back to a conventional growth model suitable for the role now achieved of affirmed company, drawing overall an “S” growth curve.
3 key features
1. It is both an offensive and defensive strategy
From an offensive point of view, it allows you to take the market by surprise, to take advantage of opportunities created by the fact that competitors are unaware of what is going on. This is the case with Slack, which has grown rapidly since its launch, surpassing well-established competitors of the caliber of Microsoft and Salesforce.com.
The speed gained and the detachment that follows create an important competitive advantage: competitors will need time to organize and respond. In addition, this situation opens up privileged accesses to capital, because investors generally prefer to support market leaders
On the defensive level, blitzscaling allows you to establish a rhythm that leaves your opponents breathless with little room to fight back. Since they will be focused on responding to your moves, they will often be forced to play recovery.
2. The first that climbs wins
According to a 2014 McKinsey & Company report, “Grow fast or die slowly”.
When a company climbs first, it occupies a space in the ecosystem that guarantees it a competitive advantage, in terms of recognition of market leadership and therefore of raising capital, but also in terms of raising talent: employees are often paid with wages of market, but in addition they have access to equity, a real opportunity to get rich.
Think of Silicon Valley and China: the world believes that startups that climb in these countries are destined for success more than others, and thus raise human and financial capital from all over the world.
3. It offers incredible benefits, but also huge risks.
The scientific term for out of control growth in the human body is not pleasant: cancer. The same is true of business.
Growth must be managed, so as to maintain control over things strictly necessary to quickly correct what stops working.
Until recently, the motto of the developers at Facebook was “move fast and break everything”, but there was a time – to solve the bugs produced and the problems that had been created – it took longer than necessary to proceed in development. Not surprisingly, the error of a simple intern was able to knock down the entire service for 30 minutes.
From the family to the nation, the 5 stages of blitzscaling
We use, among the various possible, a subdivision of the phases of the blitzscaling process based on the growth in the number of people employed in society.