Blitzscaling

Blitzscaling is the strategy some of today’s most valuable companies have used to achieve huge market shares, insanely fast growth, big profit margins, and become corporate giants in a very short time.

Exponential growth is what every startup dreams about. But achieving it is neither simple nor always healthy.

A friend of mine has a Leonberger dog. It’s one of the largest breeds and looks like a lion. In its first year, the dog grows to about 75 cms in height and up to 70 kg in weight. Imagine your newborn baby growing to that size that fast. As a result, these dogs often have problems with their bone structure and need extremely good food to be able to survive the transformation.

For companies, similar side effects can occur when reaching one, ten, one hundred million users within just a few months. That’s why Hoffman coined the term ‘blitzscaling’ to describe what it takes to survive this growth and mature successfully.

‘Blitz’ is the German word for ‘lightning’ and hints at the speed of the expansion. ‘Scaling’ separates into two components. First, it’s about developing a company while keeping all parts in proportional sizes. Second, it’s about reaching a massive scale of operations, serving thousands of customers or millions of users.

As a result, blitzscaling is the process of quickly scaling a company to a massive size and customer base while ensuring its sustainability of operations during exponential growth.

Until recently, exponential growth was mostly about virality. A few smart growth hackers could balloon a new company to a huge size with clever tricks and then the team could figure out a business model. But it’s not so simple anymore. According to Reid, there are now four growth factors, which, if combined well, can lead to blitzscaling. Their distinct mix will be different for each company, but businesses should seek to maximize all of them, if they hope to succeed. Network effects. The best networks become more useful for all involved participants with each new member. A fax machine, for example, is only good if the people you want to send faxes to also have one. Market size. Startups need to select and dominate a niche to cross the chasm to mainstream consumers. But if your total addressable market isn’t big enough, for example because it’s not online, you’ll soon run into growth limits. Distribution. The channels you pick for spreading your product must suit the speed of your expansion. You can pick an existing distribution network, like Amazon did with the United States Postal Service, bet on organic virality thanks to word-of-mouth, or incentivize people to pass on the good word, like PayPal did with its $10 sign-up bonus.…