Blitzscaling Why is it important?

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Blitzscaling is all about taking risks, growing fast, and winning in the startup world.

During World War II, the German term “blitzkrieg” (lightning war in English) described a war tactic where if you carry what you need, you can move very quickly, surprise your enemies and win. The equivalent of blitzkrieg in the startup world is “blitzscaling,” a term coined by LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh in their book. Blitzscaling: The Lightning-Fast Way to Build Extremely Valuable Companies published in 2014.

What is blitz scaling?

Lightning scaling refers to the science and art of rapidly growing a business to serve a global market to become the first player at scale. It’s about prioritizing speed over efficiency in an environment of uncertainty and allowing a business to go from startup to scaleup at a breakneck pace that captures the market. While not all startups need blitzscale to succeed, understanding what it is and how to do it is important to give your business the best chance of success.

Flash scaling companies can briefly achieve massive scale and dominate the market, putting them in a better position to compete against established incumbents. The practice also allows startups to raise funds quickly and at a higher valuation, as investors are more willing to put their money into fast-growing companies.

According to Hoffman and Yeh, the four main growth factors of successful scaling are:

  • Market— a large market indicates great revenue potential to offset the risks and expenses associated with rapid expansion.
  • Distribution— a good product widely distributed will have a better chance of conquering the market.
  • High gross margins— a company must have a practical and realistic business model to generate big profits in the long term.
  • Network effects— establishing a substantial network of customers will make your platform more valuable and attractive to potential customers.

Amazon’s rapid growth in the 1990s is a popular example of blitzscaling. The company grew from a pre-IPO bookseller with 151 employees and $5 million in revenue in 1996 to 7,600 employees and $1.64 billion in revenue in 1999. Its revenue business has grown 322 times in just three years and its staff has grown 50 times. Drew Houston, the co-founder of Dropbox, described this development as “speeking a whale”.

Lightning scaling requires more than just entrepreneurs taking risks. It’s either win big or lose big. It’s a risky business that requires strategic planning and continuous learning by the blitzscaler. Here are some strategies to quickly grow your business:

How to scale your startup

Be quick

Speed ​​forms the basis of the lightning scaling process. You must be able to act quickly and decisively to take advantage of opportunities as they arise. However, it’s not just about speed compared to your competitors. You also need to act fast to get ahead of the game and achieve market dominance.

Make way for smart risks

There is a lot of talk about taking risks in the business world. For the most part, this is good advice. After all, if you don’t take any risk, you probably won’t see any rewards. Risk taking is an integral part of lightning scaling – higher risks can lead to higher rewards. Yet there is a big difference between smart risk and reckless risk. Blitzscaling is all about taking smart risks.

Manage your human resources well

When most people think of blitzscaling, they think of growth at all costs. However, this is not necessarily the case. Blitzscaling is about growing fast, but also getting smart. This means hiring the right people and making sure you have the infrastructure to support your growth. Hire the people you need now, rather than hiring for later.

Winning is your ultimate goal

Blitzscaling is about winning, that is, taking your business to the top where competitors can’t reach you. However, to do this you need to be on the front foot. It may seem like a simple goal, but it’s not easy to achieve. You must constantly innovate and you must be relentless in your pursuit of success. Before developing a growth strategy, start by analyzing the competition and your company’s position in the market. Next, find ways to differentiate your business and stay ahead of the competition.

For example, when Google first entered the search engine market, it was neither the biggest nor the best in the market. However, it was the first to be widely adopted, which allowed it to dominate the market.

Lightning scaling can be dangerous – a quick look at how WeWork crashed

Growing at the speed of light means spending a ton of money, which can be very risky for a startup before it becomes profitable. WeWork is an example of how accelerated scaling can collapse a business overnight. Valued at US$47 billion at one point in 2019, the Softbank-backed coworking startup opened 400 locations in three years, and the meteoric expansion has resulted in huge losses for the company. In 2021, while WeWork only made $2.6 billion (a 25% drop in revenue in 2020), the net loss was $4.4 billion (a 42% increase from 2020 ). At one point, the company had to offer deep discounts to encourage tenants to move into new offices to fill them up so they could attract more new tenants. On top of that, the highly ambitious CEO, who led an extravagant lifestyle and bought some of the most expensive homes in the United States, planned to expand the “We” brand and get into education (WeGrow), cohabitation (WeLive) and banking (WeBank).

While the growth spree definitely made a name for WeWork and its then-CEO Adam Neumann, it all began to crumble when they filed for an IPO in August 2019. Concerns and doubts swirled about its chaotic governance structure, party-going office culture. and massive net losses. Less than a month after WeWork filed for an IPO, its valuation fell to just US$10 million and Neumann was removed as CEO of WeWork, which was taken over by Softbank in October. .

You might be tempted by the feeling of accomplishment to grow a business quickly, but it can be fatal for your business to meet demands beyond your capabilities. For some companies, blitzscaling can be a game-changer. However, in addition to business models, leadership styles, and corporate governance structures, there are many aspects to consider when lightning scaling a business. After all, visions and promises are easy to make, but they can be hard to keep.

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Header image courtesy of Unsplash

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