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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 that he didn’t simply mash his foot down on the gas pedal; Amazon has intentionally invested aggressively in the future, and, despite its accounting losses, generates a ton of cash. Amazon’s operating cash flow was over $16 billion in 2016, but it spent $10 billion in investments and $4 billion paying down debt. Its seemingly meager profits are a feature of its aggressive strategy, not a bug.

Blitzscaling requires more than just courage and skill on the part of the entrepreneur. It also requires an environment that is willing to finance intelligent risks with both financial capital and human capital, which are the essential ingredients for blitzscaling. Think of them as fuel and oxygen; you need both to propel the rocket skyward. Meanwhile, the infrastructure of your organization is the actual structure of your rocket, which you’re rebuilding on the fly as you rise. Your job as a leader and an entrepreneur is to make sure that you have sufficient fuel to propel your growth while making the necessary mechanical adjustments to the actual rocket ship to keep it from flying apart as it accelerates.

Fortunately, this is more possible today than it has ever been in the past.

SOFTWARE IS EATING (AND SAVING) THE WORLD

Historically, stories of breakneck growth involved either computer software, which offers nearly unlimited scalability in terms of distribution, or software-enabled hardware, such as the Fitbit fitness tracker or Tesla electric car, whose software component allows the company to innovate on software timescales (days or weeks) rather than hardware timescales (years). Moreover, the speed and flexibility of software development allow companies to iterate and recover from the inevitable missteps of haste.

What’s especially exciting these days is that software and software-enabled companies are starting to dominate industries outside of traditional high tech. My friend Marc Andreessen has argued that “software is eating the world.” What he means is that even industries that focus on physical products (atoms) are integrating with software (bits). Tesla makes cars (atoms), but a software update (bits) can upgrade the acceleration of those cars and add an autopilot overnight.

The spread of software and computing into every industry, along with the dense networks that connect us all, means that the lessons of blitzscaling are becoming more relevant and easier to implement, even in mature or low-tech industries. To use a computing metaphor, technology is accelerating the world’s “clock speed” (the rate at which Central Processing Units [CPUs] operate), making change occur faster than previously thought possible. Not only is the world moving faster, but the speed at which major new technology platforms are being created is reducing the downtime between the arrivals of each wave of innovation. Before, individual waves would sweep through the economy one at a time—technologies like personal computers, disk drives, and CD-ROMs. Today, multiple major waves seem to be arriving simultaneously—technologies like the cloud, AI, AR/VR, not to mention more esoteric projects like supersonic planes and hyperloops. What’s more, rather than being concentrated narrowly in a personal computer industry that was essentially a niche market, today’s new technologies impact nearly every part of the economy, creating many new opportunities.

This trend holds tremendous promise. Precision medicine will use computing power to revolutionize health care. Smart grids use software to dramatically improve power efficiency and enable the spread of renewable energy sources like solar roofs. And computational biology might allow us to improve life itself. Blitzscaling can help these advances spread and magnify their sorely needed impact.

THE TYPES OF SCALING

Blitzscaling isn’t simply a matter of rapid growth. Every company is obsessed with growth. In any industry, you live and die by the numbers—user acquisition, margins, growth rate, and so on. Yet growth alone is not blitzscaling. Rather, blitzscaling is prioritizing speed over efficiency in the face of uncertainty. We can better understand blitzscaling by comparing it to other forms of rapid growth.

Classic start-up growth prioritizes efficiency in the face of uncertainty. Starting a company is like jumping off a cliff and assembling an airplane on the way down; being resource-efficient lets you “glide” to minimize the rate of descent, giving you the time to learn things about your market, technology, and team before you hit the ground. This kind of controlled, efficient growth reduces uncertainty and is a good strategy to follow while you’re trying to establish certainty around what the authors Eric Ries and Steve Blank call product/market fit: your product satisfies a strong market demand for the solution to a specific problem or need.

Classic scale-up growth focuses on growing efficiently once the company has achieved certainty about the environment. This approach reflects classic corporate management techniques, such as applying “hurdle rates” so that the return on investment (ROI) of corporate projects consistently exceeds the cost of capital. This kind of optimization is a good strategy to follow when you’re trying to maximize returns in an established, stable market.

Fastscaling means that you’re willing to sacrifice efficiency for the sake of increasing your growth rate. However, because fastscaling takes place in an environment of certainty, the costs are well understood and predictable. Fastscaling is a good strategy for gaining market share or trying to achieve revenue milestones. Indeed, the financial services industry is often happy to finance fastscaling, whether by buying stocks and bonds or lending money. Analysts and bankers feel confident that they can create elaborate financial models that work out to the penny the likely ROI of a fastscaling investment.

Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off. If classic start-up growth is about slowing your rate of descent as you try to assemble your plane, blitzscaling is about assembling that plane faster, then strapping on and igniting a set of jet engines (and possibly their afterburners) while you’re still building the wings. It’s “do or die,” with either success or death occurring in a remarkably short time.

Given these definitions, you might wonder why anyone would ever pursue blitzscaling. After all, it combines the gut-wrenching uncertainty of start-up growth with the potential for a much bigger, more embarrassing, more consequential failure. Blitzscaling is also hard to implement. Unless you’re like Microsoft or Google and can finance your growth from an exponentially growing revenue stream, you’ll need to convince investors to give you money, and it’s much harder to raise money from investors for a calculated gamble (blitzscaling) than for a sure thing (fastscaling). To make matters worse, you usually need more money to blitzscale than to fastscale, because you have to keep enough capital in reserve to recover from the many mistakes you’re likely to make along the way.

Yet despite all of these potential pitfalls, blitzscaling remains a powerful tool for entrepreneurs and other business leaders. If you’re willing to accept the risks of blitzscaling when others aren’t, you’ll be able to move faster than they will. If the prize to be won is big enough, and the competition to win it is intense enough, blitzscaling becomes a rational, even optimal strategy.

Once you convince the market for capital and the market for talent—which include clients and partners, as well as employees—to invest in your scale-up, you have the fuel required to start blitzscaling. At that point, your objective switches from going from zero to one to going from one to one billion in an incredibly compressed time frame.

A company might employ different types of scaling at different points in its life cycle. The canonical sequence that companies like Google and Facebook have gone through begins with classic start-up growth while establishing product/market fit, then shifts into blitzscaling to achieve critical mass and/or market dominance ahead of the competition, then relaxes down to fastscaling as the business matures, and finally downshifts to classic scale-up growth when the company is an established industry leader. Together, this sequence of scaling generates a classic “S-curve” of growth, with slower initial growth followed by rapid acceleration, eventually easing its way into a gentle plateau.

Of course, this canonical sequence is greatly simplified. The scaling cycle applies not just to whole companies but to individual products and business lines; the aggregate curves of these scaling cycles generate the overall scaling curve for the company.

For example, Facebook began as a classic blitzscaling story. The year-over-year revenue growth during its first few years of existence were 2,150 percent, 433 percent, and 219 percent, going from zero to $153 million in revenue in 2007. Then the company went through a key transition, and growth dropped into the double-digit range as Facebook struggled with both monetization and the shift from desktop to mobile. Fortunately, Facebook founder Mark Zuckerberg made two important moves: he personally led a shift from desktop-first to mobile-first, and he hired Sheryl Sandberg as the company’s COO, who in turn built Facebook into an advertising sales juggernaut. Growth rose back into the triple-digit range, and, by 2010, these moves had pushed Facebook’s revenues to over $2 billion. We’ll examine both of these key moves in greater detail later in the book, with Facebook’s shift to mobile featured in our analysis of Facebook’s business model, and Facebook’s hiring of Sheryl Sandberg in the section on the key transition from contributors to managers to executives.

Apple illustrates how this overlap looks over multiple decades. In its storied history, Apple went through complete scaling cycles for the Apple II, the Macintosh, the iMac, and the iPod (with the cycle for the iPhone still under way). It’s worth noting that Apple failed to launch any blitzscalable products after the Apple II and the Mac until Steve Jobs returned and launched the iMac, iPod, and iPhone. It was part of Steve’s rare genius that time and time again he was able to pick the right product for Apple to blitzscale, even without slowing down for a period of classic start-up growth to gather feedback from the market.

The scaling curve applies to every blitzscaler, regardless of industry or geography. The same multiple S-curve graph that describes Facebook or Apple also describes Tencent, which launched with QQ, then added a second curve for WeChat after QQ reached maturity in 2010. Just when you’ve finished blitzscaling one business line, you need to blitzscale the next to maintain your company’s upward trajectory. And as blitzscaling continues to spread, established companies with mature business lines should consider turning to intrapreneurs to blitzscale new business units.

THE THREE BASICS OF BLITZSCALING

Blitzscaling requires you to move at a pace that is almost certainly uncomfortable for your team. You will definitely make many mistakes as you navigate an environment full of uncertainty; the art lies in developing the skill to learn quickly from those mistakes and return to a relentlessly rapid advance. But first, it’s critical to understand three basics.

1. BLITZSCALING IS BOTH AN OFFENSIVE STRATEGY AND A DEFENSIVE STRATEGY.

On offense, blitzscaling allows you to do several things. First, you can take the market by surprise, bypassing heavily defended niches to exploit breakout opportunities. For example, Slack’s rapid growth after its launch blindsided a host of entrenched competitors like Microsoft and Salesforce.com. Second, you can leverage your lead to build long-term competitive advantages before other players are able to respond. We’ll explore this concept in greater detail later on. Third, blitzscaling opens up access to capital, because investors generally prefer to back market leaders. You can win this mantle if you blitzscale, and with it raise more money more easily and more quickly than your lagging competitors.

On defense, blitzscaling lets you set a pace that keeps your competitors gasping simply to keep up, affording them little time and space to counterattack. Because they’re focused on responding to your moves, which can often take them by surprise and force them to play catch-up, they don’t have as much time available to develop and execute differentiated strategies that might threaten your position. Blitzscaling helps you determine the playing field to your great advantage.

2. BLITZSCALING THRIVES ON POSITIVE FEEDBACK LOOPS, IN THAT THE COMPANY THAT GROWS TO SCALE FIRST REAPS SIGNIFICANT COMPETITIVE ADVANTAGES.

In April 2014, McKinsey & Company published a report entitled “Grow fast or die slow,” which analyzed the life cycles of three thousand software and Internet companies, and found that positive feedback loops made rapid growth the key factor in financial success:

First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent.

We believe that the mechanism behind the power of blitzscaling is “first-scaler advantage.” Once a scale-up occupies the high ground in its ecosystem, the networks around it recognize its leadership, and both talent and capital flood in.

For one, top professionals understand that they can have a greater impact working for the market leader. Meanwhile, joining a scale-up that is clearly a “rocket ship” offers many of the financial rewards of working for an early-stage start-up, with far more certainty and far less risk. Scale-up employees are paid market salaries, receive equity upside, and have a very good chance of becoming rich, if not filthy rich. By attracting the best people, scale-ups increase their ability to build and bring to market great products, which in turn increases their ability to rapidly scale.

A parallel calculus applies to investors. Venture capitalists (VCs) make investment decisions based on the confidence interval they have in their investment thesis. Achieving scale shrinks those intervals and makes it easier to decide to invest. And because the network that connects investors—especially within a tight-knit ecosystem like Silicon Valley—can disseminate this information quickly and broadly, a blitzscaling company can raise capital on a massive scale. This capital infusion can fuel explosive growth, which shrinks the confidence intervals even further.

Paradoxically, globalization has both leveled the playing field for entrepreneurs around the world and increased the value of being in a premier scaling hub like Silicon Valley or China. Because the rest of the world believes that these ecosystems have an advantage in scaling up start-ups, those start-ups and their investors attract capital (human and financial) from all over the world, further bolstering their ability to keep growing. This is a key reason why scale-ups like Uber and Pinterest have achieved a scale and valuation that dwarf those of most publicly traded companies. Due to my role at Greylock Partners, I can’t comment on the valuations of Dropbox and Airbnb, but they occupy a similar place in the ecosystem.

Consider the case of two very similar companies, Twitter and Tumblr. Both had brilliant, product-oriented founders in Evan “Ev” Williams and David Karp. Both were hot social media start-ups. Both grew at a remarkable rate after establishing product/market fit. Both had a major impact on popular culture. Yet Twitter went public and achieved a market capitalization that peaked at nearly $37 billion, while Tumblr was acquired by Yahoo!—another start-up that used blitzscaling to become a scale-up, only to decline and fade away—for “only” $1 billion.

Was this dumb luck on Twitter’s side? Perhaps. Luck always plays a larger role than founders, investors, and the media would like to admit. But a major difference was that Twitter could draw on numerous networks for advice and help that Tumblr could not. For example, Twitter was able to bring in Dick Costolo, a savvy executive with prior scaling experience at Google. In contrast, even though Tumblr was arguably the most prominent start-up in its New York City ecosystem, it couldn’t easily draw upon a pool of local talent who had experience dealing with rapid growth. According to Greylock’s John Lilly, for every executive role that Tumblr needed to fill, there were less than a handful of candidates in all of New York City. This paucity of talent made hiring difficult; the company was reluctant to replace existing employees due to a lack of better alternatives. Without the ability to hire an executive team that could blitzscale, Tumblr decided to sell the company.

Of course, while geography can present challenges to blitzscaling, they become much more solvable if you’re aware of them. For example, over the past decade, Priceline—the world’s most successful online travel company—has been able to blitzscale from its headquarters in Connecticut. The CEO who led Priceline during its growth phase, Jeffery Boyd, saw advantages to this geographic isolation, noting that the company’s location meant that it faced fewer bidding wars for the key software engineers and designers needed to support the rapid growth of the business.

It’s extremely difficult for later entrants to compete directly with a blitzscaling company that has first-scaler advantage. Unless these players find a different game in which they can capture this advantage, they’ll simply become irrelevant.

3. DESPITE ITS INCREDIBLE ADVANTAGES AND POTENTIAL PAYOFFS, BLITZSCALING ALSO COMES WITH MASSIVE RISKS.

Until recently, “Move fast and break things” was Facebook’s famous motto. Yet rapid growth can cause nearly as many problems as it solves. As Mark Zuckerberg told me in an interview for my Masters of Scale podcast, “We got to a point where it was taking us more time to go back and fix the bugs and issues that we’re creating than the speed that we were gaining by going faster.” In one famous incident, a summer intern introduced a bug that brought down the entire Facebook site for thirty minutes.

There is a scientific term for out-of-control growth in the human body: “cancer.” In this context, uncontrolled growth is clearly undesirable. The same is true for a business. Successful blitzscaling means that you’re maintaining at least some level of control by rapidly fixing the things that will inevitably get broken so that the company can maintain its furious pace without flaming out or collapsing in on itself. Like an American football player streaking down the field for a game-winning touchdown, even a company that has achieved first-scaler advantage can lose the ball prior to crossing the goal line if it takes on a bigger risk than it can handle.

Blitzscaling is risky from a management perspective as well. Reinventing your leadership style, your product, and your organization at every new phase of scale won’t be easy, but it is necessary. In the words of leadership guru Marshall Goldsmith, “What got you here won’t get you there.”

Market share and revenue growth earn headlines, but you can’t achieve customer and revenue scale without scaling up your organization, in terms of the size and scope of your staff, as well as your financial, product, and technology strategy. If the organization doesn’t grow in lockstep with its revenues and customer base, things can quickly spiral out of control.

For example, during a period of blitzscaling in the late 1980s and early 1990s, Oracle Corporation focused so single-mindedly on sales growth that its organization lagged badly on both technology (where it fell behind archrival Sybase’s) and finance and nearly went bankrupt as a result. It took the turnaround efforts of Ray Lane and Jeff Henley to stave off disaster and reposition Oracle for its later success.

Blitzscaling your organization will require hard choices and sacrifices; for example, the people who are adept at launching a company aren’t necessarily going to be the right people to scale it, as the Oracle example above demonstrates. Later in the book we’ll discuss how successful blitzscalers consciously manage growth rather than letting it manage them.

THE FIVE STAGES OF BLITZSCALING

Blitzscaling a start-up isn’t a linear process; a global giant isn’t simply a start-up that’s been multiplied by one thousand, working out of a gleaming high-rise headquarters instead of a grimy garage. Each major increment of growth represents a qualitative as well as quantitative change. Drew Houston of Dropbox expressed this well when he told me, “The chessboard keeps adding new pieces and new dimensions over time.”

In the physical sciences, materials often undergo phase changes as their circumstances (e.g., temperature and pressure) change. Ice melts into water; water boils into steam. As a start-up scales up from one phase to the next, it undergoes fundamental changes as well.

And in the same way that ice skates are useless on water, and you can’t skip rocks on water vapor, the approaches and processes that worked for one phase break down once the scale-up reaches the next phase.

This book is designed to help you successfully navigate the phase changes you’ll face on the path to global dominance.

Throughout this book, we will refer to the five key stages of blitzscaling using the metaphor of a community. Since the most obvious, visible, and impactful change in a scale-up is the number of people it employs, we’ll define the stages based on the number of employees in the company, or its organizational scale.

Each stage has critical differences when it comes to management and leadership. When you’re head of a nuclear Family, you have close relationships with all of your Family members. When you’re the head of a whole Nation, you’re responsible for the lives of a multitude of people, most of whom you’ll never meet. (Later in the book we’ll talk about how to optimize your people management strategy as your company grows.)

It’s important to remember that while these powers of ten provide a clear and consistent set of categories, real life is often messier. For example, a start-up with a tight-knit team might feel and act like a Family even if it has nearly twenty employees. So these definitions are meant simply to offer a useful set of guidelines.

We also recognize that the number of employees is only one of several measures of an organization’s scale. Some of the other measures of scale include the number of users (user scale), the number of customers (customer scale), and total annual revenues (business scale). These measures usually, but don’t always, move in lockstep. While it’s nearly impossible to achieve customer scale or business scale without organizational scale—customers require customer service representatives, and revenues typically require salespeople—it is possible to achieve user scale without organizational scale. Consider the example of Instagram: when that company was acquired by Facebook for $1 billion, it had over one hundred million users but just thirteen employees and no significant revenues.

The fact that the phases don’t always move in lockstep is a feature of blitzscaling, not a bug. As we’ll discuss, operational scalability is one of the primary growth limiters that scale-ups need to address. When a business can grow users, customers, and revenues faster than the number of employees without collapsing under the weight of its own growth, the business can achieve greater profitability and keep growing without being as tightly constrained by the need for financial or human capital. In contrast, when the number of employees grows faster than users, customers, and revenues, it’s a major red flag that could indicate issues with the fundamental business model.

Nevertheless, for the sake of simplicity, this book will typically define the stage of a company by its organizational scale. A Family-stage company will have one to nine employees, a Tribe-stage company will have ten to ninety-nine employees, and so on. When exceptions arise, we’ll specifically call them out to avoid confusion.

THE THREE KEY TECHNIQUES OF BLITZSCALING

Through much study of, direct access to, and conversation with the leadership at companies such as Google, Amazon, and Facebook—and through my own experiences as an entrepreneur and an investor—we’ve been able to identify the three key techniques applied by entrepreneurs and investors to build dominant companies. These basic principles do not depend on geography and can be adapted to build great companies in any ecosystem, albeit with varying degrees of difficulty.

TECHNIQUE #1: BUSINESS MODEL INNOVATION

The first technique of blitzscaling is to design an innovative business model that can truly grow. This sounds like a Start-ups 101–level insight, but it’s astounding how many founders miss this key element. A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business. And by “business” we simply mean how the company makes money by acquiring and serving its customers. In contrast, despite the popular “engineers are gods” narrative prevalent in Silicon Valley, the companies and founders we universally hail as geniuses aren’t just technology nerds—they’re almost always business nerds too. At Google, Larry Page and Sergey Brin built great search algorithms, but it was their innovations to the search engine business model—specifically, considering relevance and performance when displaying advertisements rather than simply renting space to the highest bidder—that drove their massive success.

As the world has gone digital, business model innovation has become even more important. So many technologies are available as services, which are on demand and built to be integrated, that technology is no longer as strong a differentiator, while figuring out the right combinations of services to bring together into a breakthrough product has become a major differentiator. Most of today’s successful companies are more like Tesla, which combines a set of technologies that already existed, rather than SpaceX, which had to pioneer new ones.

Business model innovation is how start-ups are able to outcompete established competitors who typically hold a host of advantages over any upstarts. As a start-up, Dropbox competes with giants like Microsoft and Google, who ought to have major advantages in technology, finance, and market power. Dropbox founder and CEO Drew Houston knows that his company can’t simply rely on better technology or outexecuting the competition: “If your playbook is the same as your competitor’s, you are in trouble, because chances are they are just going to run your playbook with a lot more resources!”

Drew had to design a better business model, in which the focus on sharing files means that the number of files Dropbox has to store (or in the past, pay Amazon to store) increases far more slowly than the value created for the customer and thus the revenues Dropbox can collect from those customers. Uber and Airbnb also built large businesses at incredible speed based on novel business models rather than unprecedented new technologies. If technological innovation alone were enough, federal research labs would produce $100 billion companies on a regular basis. Spoiler alert: they don’t.

This is not to say that technology innovation is unimportant. Technology innovation is the most common trigger for launching a new market or upending an existing one. Uber wasn’t the first company to try to improve the experience of hailing a taxi. But prior to the technological innovation of the smartphone, complete with wireless Internet connection and GPS-enabled location-based services, Uber’s business model simply wouldn’t have worked. These innovations reduced the friction for both driver and rider, making Uber’s core UberX ridesharing model a mass-market possibility for the first time.

Nor can companies afford to ignore technology innovation after they successfully blitzscale their way to City or Nation stage. Each and every one of the technology companies worth over $100 billion has used technology leadership to reinforce its competitive advantages. Amazon may have started as a simple online retailer with no unique technology, but today its technological prowess in cloud computing, automated logistics, and voice recognition help to maintain its dominance. In fact, the megacompanies built by blitzscaling are often the ones buying the technology innovators, much as Google bought DeepMind and Facebook bought Oculus.

Technology innovation is a key factor in retaining the gains produced by business model innovation. After all, if one technology innovation can create a new market, another technology innovation can render it obsolete, seemingly overnight. While Uber has achieved massive scale, the greatest threat to its future doesn’t come in the form of direct competitors like Didi Chuxing, though these are formidable threats. The greatest threat to Uber’s business is the technology innovation of autonomous vehicles, which could make obsolete one of Uber’s biggest competitive advantages—its carefully cultivated network of drivers—essentially overnight.

The key is to combine new technologies with effective distribution to potential customers, a scalable and high-margin revenue model, and an approach that allows you to serve those customers given your probable resource constraints.

Ideally, you design your business model innovation before you start your company. This is what happened when I cofounded LinkedIn. The key business model innovations for LinkedIn, including the two-way nature of the relationships and filling professionals’ need for a business-oriented online identity, didn’t just happen organically. They were the result of much thought and reflection, and I drew on the experiences I had when founding SocialNet, one of the first online social networks, nearly a decade before the creation of LinkedIn. But life isn’t always so neat. Many companies, even famous and successful ones, have to develop their business model innovation after they have already commenced operations.

PayPal didn’t have a business model when it began operations (I was a key member of the PayPal executive team). We were growing exponentially, at 5 percent per day, and we were losing money on every single transaction we processed. The funny thing is that some of our critics called us insane for paying customers bonuses to refer their friends. Those referral bonuses were actually brilliant, because their cost was so much lower than the standard cost of acquiring new financial services customers via advertising. (We’ll discuss the power and importance of this kind of viral marketing later on.)

The insanity, in fact, was that we were allowing our users to accept credit card payments, sticking PayPal with the cost of paying 3 percent of each transaction to the credit card processors, while charging our users nothing. I remember once telling my old college friend and PayPal cofounder/CEO Peter Thiel, “Peter, if you and I were standing on the roof of our office and throwing stacks of hundred-dollar bills off the edge as fast as our arms could go, we still wouldn’t be losing money as quickly as we are right now.” We ended up solving the problem by charging businesses to accept payments, much as the credit card processors did, but funding those payments using automated clearinghouse (ACH) bank transactions, which cost a fraction of the charges associated with the credit card networks. But if we had waited until we had solved this problem before blitzscaling, I suspect we wouldn’t have become the market leader.

TECHNIQUE #2: STRATEGY INNOVATION

The most obvious element of blitzscaling is the pursuit of extreme growth, which, when combined with an innovative business model, can generate massive value and long-term competitive advantage. Many start-ups believe they are pursuing a strategy of extreme growth, when in fact they have the goal and the wish for extreme growth but no understanding of an actual strategy that will get them there. To achieve your goals, you have to know what you plan to do and, just as important, what you plan not to do. Also, growth doesn’t create value in and of itself; for that, it has to be paired with a working business model. It’s easy to achieve extreme customer and revenue growth if your company sells $20 bills for $1, but “we’ll make it up in volume” won’t allow you to build any sustainable value.

For successful blitzscaling, the competitive advantage comes from the growth factors built into the business model, such as network effects, whereby the first company to achieve critical scale triggers a feedback loop that allows it to dominate a winner-take-all or winner-take-most market and achieve a lasting first-scaler advantage. For example, Uber’s strategy of aggressive city-by-city expansion allows its customers to hail rides with fewer delays than its competitors. Uber wants you to be able to get a ride faster with Uber than with anyone else. This attracts more customers, which attracts more drivers, which increases the liquidity of the marketplace, which allows customers to hail rides even more quickly, which attracts more customers, and so on. Early Uber investor Bill Gurley laid out Uber’s strategy in his 2012 blog post “All Markets Are Not Created Equal.”

As the company grows, they are able to facilitate more cars on the road, and along with their investment in route and load optimization, this allows for shorter and shorter pickup times. The experience gets better and better the longer they are in the market.

Blitzscaling goes beyond just a strategy of aggressive growth because it involves doing things that don’t make sense according to traditional business thinking, such as prioritizing speed over efficiency despite an uncertain environment. At the same time, blitzscaling also goes beyond just risk taking. It may be risky to bet the company, as Walt Disney did when he borrowed against his own life insurance to build Disneyland, but it’s not blitzscaling. Blitzscaling would have involved inefficiencies like paying construction crews to work twenty-four hours a day in order to get Disneyland open a few months earlier, or reducing ticket prices 90 percent to get to one million visitors faster—knowing that those one million visitors were networked to ten million more.

Here is one of the ruthless practices that has helped make Silicon Valley so successful: Investors will look at a company that is on an upward trajectory but doesn’t display the proverbial hockey stick of exponential growth and conclude that they need to either sell the business or take on additional risk that might increase the chances of achieving exponential growth. Achieving 20 percent annual growth, which would delight Wall Street analysts covering any other industry, simply isn’t enough to transform a start-up into a multibillion-dollar company fast enough. Silicon Valley venture capitalists want entrepreneurs to pursue exponential growth even if doing so costs more money and increases the chances that the business could fail, resulting in a bigger loss. Dropping below even 40 percent annual growth is a warning sign for investors.

This mindset can be difficult for people to understand. “Why should I risk it all and potentially blow up what is a successful, growing business?” they might rightfully ask. The answer is that blitzscaling businesses tend to play in winner-take-most or winner-take-all markets. The greater risk for a successful, growing business is to move too slowly and allow its competitors to win market leadership and first-scaler advantage.

Nokia is a great example of the cost of caution. In 2007, Nokia was the world’s largest and most successful maker of mobile phones, with a market capitalization of just under $99 billion. Then Apple and Samsung came blazing into the market. In 2013, Nokia sold its money-losing handset operations to Microsoft for $7 billion, and in 2016 Microsoft sold its feature phone assets and the Nokia handset brand to Foxconn and HMD for just $350 million. That’s a drop in value for Nokia’s mobile phone business from somewhere in the neighborhood of $99 billion to $350 million in less than a decade—a decline of over 99 percent.

At the time, Nokia’s decisions may have seemed to make sense. Nokia actually continued growing even after the launch of the iPhone and Google’s Android operating system. Nokia hit its peak in terms of unit volume when it shipped 104 million phones in 2010. But Nokia’s sales declined after that, and were surpassed by Android in 2011 and iPhone in 2012. By the time Nokia’s management realized the existential threat facing them, it was too late; even the desperation play of aligning themselves with Microsoft as its exclusive Windows Phone partner couldn’t reverse the decline.

Because blitzscaling often requires spending significant amounts of capital in ways that traditional business wisdom would consider “wasteful,” implementing a financial strategy that supports this aggressive spending is a critical part of blitzscaling. For example, Uber often uses heavy subsidies on both sides of the marketplace when it launches in a new city, lowering fares to attract riders and boosting payments to attract drivers. By paying out more than it takes in on those early trips, Uber is able to reach critical scale faster than a more conservative competitor. Given the winner-take-most nature of the ridesharing market, that “wasteful” spending has helped Uber achieve a dominant market position in the cities in which it operates. Of course, that strategy isn’t possible without the ability to raise massive amounts of capital on favorable terms. In Uber’s case, it has been able to raise nearly $9 billion between its founding and the writing of this book. At some point, Uber will have to demonstrate the ability to significantly improve its unit economics, or its investors will get very grumpy. This concern helps explain Uber’s significant investments in autonomous vehicle technology, which could eliminate its biggest expense—driver payments—in one fell swoop.

The willingness to take on the risks of blitzscaling is one of the major reasons why Silicon Valley has produced such a disproportionate share of blockbuster companies in comparison to other geographies. To be fair, it has also produced a disproportionate share of financial disasters—hence the word “risk” when talking about blitzscaling. But as the rise of juggernauts like Alibaba and Spotify illustrates, blitzscaling is also starting to take off around the world.

TECHNIQUE #3: MANAGEMENT INNOVATION

The final technique required for blitzscaling is management innovation. This is necessary because of the extreme strains placed on the organization and its employees by hypergrowth.

I am fond of pointing out to entrepreneurs and executives that “in theory, you don’t need practice.”

What I mean is that no matter how brilliant your business model and growth strategy, you won’t be able to build a real-world (i.e., non-theoretical) blockbuster company without a lot of practice. But that problem is magnified when you’re trying to blitzscale.

The kind of growth involved in blitzscaling typically means major human resources challenges. Tripling the number of employees each year isn’t uncommon for a blitzscaling company. This requires a radically different approach to management than that of a typical growth company, which would be happy to grow 15 percent per year and can take time finding a few perfect hires and obsessing about corporate culture. As we will discuss in more detail later in the book, companies that blitzscale have to rapidly navigate a set of key transitions as their organizations grow, and have to embrace counterintuitive rules like hiring “good enough” people, launching flawed and imperfect products, letting fires burn, and ignoring angry customers.

Over the course of this book, we’ll see how business model, growth strategy, and management innovation work together to form the high-risk, high-reward process of blitzscaling.