Blitzscaling The Lightning-Fast Path to Building Massively Valuable Companies

Metadata

• Author: Reid Hoffman

Highlights

Brian turned to one of his favorite decision-making techniques: reaching out to the world’s leading experts. — location: 168

Blitzscaling drives “lightning” growth by prioritizing speed over efficiency, even in an environment of uncertainty. — location: 194

He had been monitoring the rapid growth of a new social messaging product called Kik, which was especially popular among young people. He decided that Tencent needed to create its own social messenger for smartphones—and quickly. Zhang’s proposal represented not only a huge opportunity but also a huge risk, with equally huge uncertainty about the outcome. While a new messenger service might appeal to young consumers, it was probably going to cannibalize QQ, which was, after all, Tencent’s core business. Furthermore, Tencent had partnered with leading mobile carriers like China Mobile to receive 40 percent of the SMS charges that QQ users racked up when they sent messages to mobile phones. A new service could hurt Tencent’s financial bottom line and at the same time risk its relationships with some of China’s most powerful companies. It was the sort of decision that publicly traded, ten-thousand-person companies typically refer to a committee for further study. But Ma wasn’t a typical corporate executive. That very night, he gave Zhang the go-ahead to pursue the idea. Zhang put together a ten-person team, including seven engineers, to build and launch the new product. In just two months, Zhang’s small team had built a mobile-first social messaging network with a clean, minimalistic design that was the polar opposite of QQ. Ma named the service Weixin, which means “micromessage” in Mandarin. Outside of China, the service became known as WeChat. — location: 217

the key to rapidly building massive businesses in today’s environment is the aggressive growth strategy of blitzscaling: a set of techniques that allows both start-ups and established companies to build dominant, world-leading businesses in record time. — location: 260

the Networked Age. At the time, the rising stock prices of the dot-com boom attracted the most attention, but, in retrospect, the biggest change was that the Internet was beginning to connect all of us to people, information, resources, and other networks. — location: 265

the most important impact for businesses has been the rising significance and prevalence of so-called network effects that occur when increased usage of a product or service boosts the value of that product or service for other users. — location: 272

Network effects generate a positive feedback loop that can allow the first product or service that taps into those effects to build an unassailable competitive advantage — location: 276

the Networked Age also allows companies to reap incredible rewards much more rapidly than at any other point in history. We call the strategy and mindset they can use to get there “blitzscaling.†— location: 285

Blitzscaling is a strategy and set of techniques for driving and managing extremely rapid growth that prioritize speed over efficiency in an environment of uncertainty. — location: 287

In a 2004 working paper, “Schumpeterian Profits in the American Economy: Theory and Measurement,” Yale economist William Nordhaus examined the US economy from 1948 to 2001. Based on the data he collected, he concluded that only 2.2 percent of “profits that arise when firms are able to appropriate the returns from innovative activity” went to the disrupters. “Most of the benefits of technological change are passed on to consumers rather than captured by producers,” he concluded. — location: 306

Silicon Valley insiders and well-read outsiders believe that the key is the combination — location: 342

So what secret alchemy is at work in Silicon Valley to fuel such rapid-fire growth of so many of the world’s most valuable tech companies? And if there is a secret, can it be identified, analyzed, understood, and, most important, applied elsewhere? Blitzscaling is that secret. And the reason blitzscaling matters so much is that nothing about it is inherent to Silicon Valley. — location: 364

Here’s a startling fact: the global economy will need to create six hundred million new jobs by 2030 to meet the United Nations’ sustainable development goals. That’s less than fifteen years away. The world needs more than just new companies and new jobs; it’s going to need entire new industries. — location: 376

{ The War on Normal People

Andy Grove, Intel’s legendary CEO, understood and explained this when he wrote in a 2010 op-ed for Bloomberg: Start-ups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. — location: 380

even if you don’t want to build, invest in, or work for any of these companies, you’ll still need to navigate the world that they’re building. — location: 393

General Heinz Guderian devised for the initial military campaigns of Nazi Germany during World War II. Ironically enough, Guderian was heavily influenced by British military thinkers like Basil Liddell Hart and J. F. C. Fuller, and the term “blitzkrieg” was actually popularized by the British press; the German military never formally adopted it. — location: 417

Chris also learned about traditional manufacturing techniques, such as how to maximize the throughput of an assembly line. — location: 451

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. — location: 463

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. — location: 467

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. — location: 469

Classic start-up growth prioritizes efficiency in the face of uncertainty. — location: 509

Fastscaling means that you’re willing to sacrifice efficiency for the sake of increasing your growth rate — location: 517

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. — location: 515

Blitzscaling means that you’re willing to sacrifice efficiency for speed, but without waiting to achieve certainty on whether the sacrifice will pay off. — location: 522

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. — location: 535

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. — location: 549

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. — location: 570

Second, you can leverage your lead to build long-term competitive advantages before other players are able to respond. — location: 572

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. — location: 573

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. — location: 576

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. — location: 592

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. — location: 603

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 — location: 629

THE FIVE STAGES OF BLITZSCALING   Stage 1 (Family) 1–9 employees Stage 2 (Tribe) 10s of employees Stage 3 (Village) 100s of employees Stage 4 (City) 1000s of employees Stage 5 (Nation) 10000s of employees — location: 656

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. — location: 675

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. — location: 682

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. — location: 695

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. — location: 700

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. — location: 730

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. — location: 749

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. — location: 773

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. — location: 790

Peter Drucker wrote that business models are essentially theories composed of assumptions about the business, which circumstances might require to change over time. Harvard Business School professor and author Clay Christensen believes that you need to focus on the concept of the “job-to-be-done”; that is, when a customer buys a product, she is “hiring” it to do a particular job. Then there’s Brian Chesky of Airbnb, who said simply, “Build a product people love. Hire amazing people. What else is there to do? Everything else is fake work.⠗ location: 864

a company’s business model describes how it generates financial returns by producing, selling, and supporting its products. — location: 870

if you want to build a massive company, you need to begin with the basics and eliminate ideas that serve too small of a market. A big market has both a large number of potential customers and a variety of efficient channels for reaching those customers. — location: 880

Predicting TAM and how it will grow in the future is one of the main sources of uncertainty in blitzscaling. — location: 885

œInvestors want B’s, baby,” Altman told Chesky. — location: 906

Aswath Damodaran, a professor of finance at NYU’s Stern School of Business, estimated that Uber was probably worth roughly $6 billion, based on its ability to ultimately win 10 percent of the global taxi market of $100 billion, or $10 billion. According to Uber’s own projections, in 2016 the company processed over $26 billion in payments. It’s safe to say that the $10 billion market was a serious underestimate, as the ease of use and lower cost of Uber and its competitors expanded the market for transportation-as-a-service. — location: 910

{ The signals are talking

œEvery billion-dollar business started as a ten-million-dollar business.†— location: 925

The second growth factor needed for a strong, scalable business is distribution. — location: 930

a good product with great distribution will almost always beat a great product with poor distribution. — location: 932

You have to be good at building a product, then you have to be just as good at getting users, then you have to be just as good at building a business model. If you’re missing any of the links in the chain, the whole chain is broken. — location: 937

A) Leveraging Existing Networks New companies rarely have the reach or resources to simply pour money into advertising campaigns. Instead, they have to find creative ways to tap into existing networks to distribute their products. — location: 946

B) Virality “Viral” distribution occurs when the users of a product bring more users, and those users bring additional users, and so on, much like an infectious virus spreads from host to host. Virality can either be organic—occurring during the course of normal usage of the product—or incentivized by some kind of reward. — location: 969

Incentives don’t have to be monetary; like PayPal, Dropbox used a similar combination of organic virality (as users share files with nonusers) and incentivized virality (Basic account holders get 500 MB of extra storage per user they refer; Pro account holders get 1 GB) to grow. — location: 985

What we did is we went on Craigslist and offered $40 to anyone who’d come in for half an hour—a poor man’s usability test. We’re like, “All right, sit down. This is an invitation to Dropbox in your e-mail. Go from here to sharing a file with this e-mail address.” Zero of the five people we tested succeeded. Zero of the five even came close. This was just stunning. We’re like, “Oh my God, this is the worst product ever created.” So we made a list of like eighty things in this Excel spreadsheet, then just sanded down all these rough edges in the experience, and watched our activation rate climb. Virality almost always requires a product that is either free or freemium (i.e., free up to a certain point, after which the user has to pay to upgrade—Dropbox, for example, offers 2 GB of free storage). — location: 994

Gross margins, which represent sales minus the cost of goods sold, are probably the best measure of long-term unit economics. The higher the gross margin, the more valuable each dollar of sales is to the company because it means that for each dollar of sales, the company has more cash available to fund growth and expansion. — location: 1008

Typically, you focus solely on the cost to you, and the perceived benefits of the purchase. This means that it’s not necessarily any easier to sell a low-margin product than a high-margin product. If possible then, a company should design a high-gross-margin business model. — location: 1026

Appealing to investors makes it easier to raise larger amounts of money at higher valuations when the company is privately held (we’ll delve into the details of why this is so important later on), and lowers the cost of capital when the company is publicly traded. This access to capital is a key factor in being able to finance lightning-fast growth. — location: 1031

GROWTH FACTOR #4: NETWORK EFFECTS — location: 1050

A product or service is subject to positive network effects when increased usage by any user increases the value of the product or service for other users. Economists refer to these effects as “demand-side economies of scale” or, more generally, “positive externalities.†— location: 1068

Five Categories of Network Effects — location: 1085

Direct Network Effects: Increases in usage lead to direct increases in value. — location: 1088

Indirect Network Effects: Increases in usage encourage consumption of complementary goods, which increases the value of the original product. — location: 1089

Two-Sided Network Effects: Increases in usage by one set of users increases the value to a different set of complementary users, and vice versa. — location: 1092

Local Network Effects: Increases in usage by a small subset of users increases the value for a connected user. — location: 1094

Compatibility and Standards: The use of one technology product encourages the use of compatible products. — location: 1097

With network effects businesses, you can’t start small and hope to grow slowly; until your product is widely adopted in a particular market, it offers little value to potential users. Economists would say that the business has to get past the “tipping point” where the demand curve intersects with the supply curve. — location: 1108

The value users place on the service when deciding whether or not to adopt it depends on both the current level of adoption and their expectations for future adoption. If they think others are going to jump on board, the perceived value of the service increases, and they become more likely to adopt it. — location: 1120

Geoffrey Moore’s Crossing the Chasm. — location: 1123

reshape the demand curve by designing the product to be valuable to the individual user regardless of network adoption. — location: 1127

Connectivity Enables Network Effects Businesses — location: 1131

Because products and services that are already popular will almost always come up first in search results, companies with a competitive advantage can quickly grow to the point where the increasing returns of network effects produce a winner-take-most or winner-take-all market. This also explains why the growth factor of distribution is as or more important to company success as the product itself—without distribution, it is difficult to reach the tipping point. — location: 1137

Craig Newmark simply started e-mailing his friends about local events in 1995; almost twenty-two years later, network effects have kept Craigslist a dominant player in online classifieds despite operating with a skeleton crew and making seemingly no changes to the website design during that entire period! — location: 1159

GROWTH LIMITER #1: LACK OF PRODUCT/MARKET FIT Product/market fit enables rapid growth, while the lack of it makes growth expensive and difficult. — location: 1172

œProduct/market fit means being in a good market with a product that can satisfy that market.†— location: 1176

Be so good they cant ignore

When you start a new company, the key product/market fit question you need to answer is whether you have discovered a nonobvious market opportunity where you have a unique advantage or approach, and one that competing players won’t see until you’ve had a chance to build a healthy lead. — location: 1183

The best way for a small, resource-strapped team to assess potential strategies is to leverage what we dubbed “network intelligence” in our previous book, The Alliance. Even a small group of founders is likely to have a huge collective personal network of smart people with relevant knowledge or experience. Initiate a conversation, inviting them to challenge your idea and tell you what else you should consider. — location: 1193

GROWTH LIMITER #2: OPERATIONAL SCALABILITY — location: 1200

outsource work to contractors or suppliers. — location: 1223

œDo everything by hand until it’s too painful, then automate it.” Ultimately, — location: 1230

Founder Brian Chesky describes this strategy succinctly: “Do everything by hand until it’s too painful, then automate it.†— location: 1229

It doesn’t matter how much demand you generate if your infrastructure can’t handle it. — location: 1236

B) Infrastructure Limitations on Operational Scalability — location: 1234

œFail Whale,” a whimsical error message that appeared whenever its servers couldn’t handle — location: 1247

œthe power of modularity.” As Baldwin and Clark describe in their book, Design Rules, Vol 1: The Power of Modularity, this principle makes it possible for a company like Amazon and its customers to build complex products out of smaller, standardized subsystems. But the power of modularity goes beyond just software development and engineering. By building easy-to-integrate subsystems like payments and logistics, Amazon makes its entire business more flexible and rapidly adaptable. — location: 1258

Open-source software serves a large market, has powerful distribution via open-source software code repositories, benefits from the network effects of standards and compatibility, and neatly avoids many of the human limitations on operational scalability by tapping into a distributed community of volunteer contributors rather than building a large organization of employees. — location: 1279

In technology, economics, and the politics of nations, wealth in the form of physical resources is steadily declining in value and significance. The powers of mind are everywhere ascendant over the brute force of things.â — location: 1296

PROVEN PATTERN #2: PLATFORMS — location: 1308

today’s software-based platforms can achieve global distribution almost immediately. And since transactions on today’s platforms are conducted through application programming interfaces (APIs) rather than person-to-person negotiations, they proceed swiftly, seamlessly, and in incredible volumes, all with barely any human intervention. — location: 1314

This dominance lets the market leader “tax” all the participants who want to use the platform, much as levies were imposed in the bygone Republic of Venice. — location: 1319

PROVEN PATTERN #3: FREE OR FREEMIUM — location: 1324

Dan Ariely wrote about the power of free in his excellent book Predictably Irrational, describing an experiment in which he offered research subjects the choice of a Lindt chocolate truffle for 15 cents or a Hershey’s Kiss for a mere penny. Nearly three-fourths of the subjects chose the premium truffle rather than the humble Kiss. But when Ariely changed the pricing so that the truffle cost 14 cents and the Kiss was free—the same price differential—more than two-thirds of the subjects chose the inferior (but free) Kisses. — location: 1326

The incredible power of free makes it a valuable tool for distribution and virality. It also plays an important role in jump-starting network effects by helping a product achieve the critical mass of users that is required for those effects to kick in. — location: 1330

The free product was a tool for discovery and gaining a critical mass of users, while the paid version of the software allows the business to extract value from those users once its value is clear. — location: 1340

PROVEN PATTERN #4: MARKETPLACES — location: 1344

PROVEN PATTERN #5: SUBSCRIPTIONS — location: 1367

Subscription Internet services have been successful because the sales and delivery model provides a larger market size and better distribution than traditional packaged software. — location: 1376

once a subscription business achieves scale, the predictability of its revenue streams allows it to be more aggressive with long-term investments, since it isn’t obliged to maintain large cash balances to weather short-term variations in the business. — location: 1385

PROVEN PATTERN #6: DIGITAL GOODS — location: 1391

PROVEN PATTERN #7: FEEDS — location: 1403

Hastings had the insight and persistence to wait nearly a decade for Moore’s Law to turn his long-term vision from an impossible pipe dream into one of the most successful media companies in history. — location: 1479

My friend Peter Thiel has written eloquently about the power of being a contrarian in his book Zero to One. — location: 1511

Being contrarian and right gives you a huge advantage because you get a head start on achieving scale. — location: 1519

As we’ve already seen, most great ideas look dumb at first. Being contrarian doesn’t mean that dumb people disagree with you; it means that smart people disagree with you! — location: 1525

When an investor funds “Uber for Pets,” that’s bad pattern matching. — location: 1538

{ The signals are talking

The movie Speed was famous for its high-concept pitch: “Die Hard on a bus.” And if you’re the first person to make the connection, you might succeed. Speed was in fact a commercial success, mostly because it did in fact live up to its description. But the success of Speed led to a raft of derivative and inferior movies, ranging from Steven Seagal’s Under Siege (“Die Hard on a ship”) to Steven Seagal’s Executive Decision (“Die Hard on a plane”). When an investor funds “Uber for Pets,” that’s bad pattern matching. — location: 1534

Our core distribution strategy was organic virality, much as it had been at PayPal. Our users would invite their contacts via e-mail because it helped them build their networks and keep track of their key connections. — location: 1568

The key inflection point came when we discovered that companies were willing to pay for the ability to scan LinkedIn profiles to find the best job candidates. So we offered it to companies as an enterprise subscription product, and once we proved that this new model was a source of significant high-gross-margin revenues, we had the confidence to blitzscale. — location: 1580

Merlin would analyze usage patterns and tell each salesperson which companies to call, how they were already using LinkedIn, and even create a personalized sales deck for each individual prospect! — location: 1606

Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop. — location: 1653

Careful planning, cautious investment, courteous service, and a tightly controlled “burn rate” (the amount of cash the company consumes each month to make payroll, pay the rent, and so on) may end up being tossed aside in favor of rapid guesstimates, ignoring angry customers, and inefficient capital expenditures. — location: 1835

The only time that it makes sense to blitzscale is when (whether for offensive or defensive reasons) you have determined that speed into the market is the critical strategy to achieve massive outcomes. — location: 1840

Netflix hired Ted Sarandos as its head of content, and successfully climbed this learning curve, just as it had climbed so many others in the past. Today, Netflix might very well be the leader in original video content, and even traditional Hollywood power players, such as superproducer Shonda Rhimes (Grey’s Anatomy, Scandal, How to Get Away with Murder) and comedian Adam Sandler (Happy Gilmore, Grown Ups), have switched from traditional studios to Netflix. What’s more, the other learning curves that Netflix climbed along the way actually helped it beat the studios at their own game. — location: 1923

The more intense the competition, the faster you should try to move. — location: 1934

The rise of both the Internet and the Networked Age has connected those “islands” into a single, hypercompetitive market, with fierce competition for a few disproportionately valuable leadership positions — location: 1941

GOING FASTER Once you decide to blitzscale, the key question you need to ask and answer is “How can we move faster?” This isn’t simply a matter of working harder or smarter with the same resources. It’s doing things that other companies normally don’t do, or choosing not to do things that they do because you’re willing to tolerate greater uncertainty or lesser efficiency. — location: 1970

A final word of caution—just because you can blitzscale doesn’t mean that you should. Throwing out the rules of business doesn’t guarantee success any more than following the rules does. — location: 1984

If your market stops growing or reaches its upper limit, you should stop blitzscaling. — location: 2003

you should pay attention to some of the leading indicators that can act as an early-warning sign that you’ve outgrown your strategy: Declining rate of growth (relative to the market and competition) Worsening unit economics Decreasing per-employee productivity Increasing management overhead When these leading indicators begin to appear, it is probably a sign that your current strategy won’t scale further, and it’s time to begin the cycle anew. — location: 2008

Every aspect of people management, from recruiting to coaching to communications, has to adapt to the different stages of blitzscaling. — location: 2186

PayPal (then known as Confinity) in December 1998, Confinity was intended to be a mobile phone encryption company using Max’s highly efficient encryption technology. From there, the company pivoted first to mobile phone cash (pivot #1) and then to PalmPilot payments via infrared beaming (pivot #2). Unfortunately, the network of PalmPilot users who wanted to beam money to each other simply wasn’t that robust, so we pivoted again and added e-mail payments (pivot #3). By the end of the year, we saw an emerging market in settling eBay transactions and pivoted our product development efforts to serve that market (pivot #4). — location: 2192

the marines take the beach, the army takes the country, and the police govern the country. Marines are start-up people who are used to dealing with chaos and improvising solutions on the spot. Army soldiers are scale-up people, who know how to rapidly seize and secure territory once your forces make it off the beach. And police officers are stability people, whose job is to sustain rather than disrupt. The marines and the army can usually work together, and the army and the police can usually work together, but the marines and the police rarely work well together. As you blitzscale, you may need to find new beaches for your marines to take rather than ask them to help patrol the existing ones. — location: 2218

Encourage employees to focus less on their job titles and more on how each tour of duty’s activities and experiences prepare them for greater responsibilities in the future. — location: 2235

if your executives can’t scale, your business won’t scale either. The ideal solution is to retain early employees in new roles that advance their careers and help the company, but if you have to choose between losing a cherished employee and allowing him to flounder in a role for which he isn’t suited, it is better to have an honest conversation and an amicable parting than it is to allow both the employee and ultimately the company to fail. — location: 2238

Google even codified the value of generalists in its Associate Product Manager (APM) program, an initiative Marissa Mayer founded because she believed that hiring technical people straight out of college as product generalists would result in flexible, adaptable employees who could fill a lot of needs. Today, distinguished APM alumni include Quip founder/CEO (and former Facebook CTO) Bret Taylor, Asana cofounder Justin Rosenstein, and Optimizely cofounders Dan Siroker and Pete Koomen. — location: 2255

œDemands for functional expertise often outstrip early employees’ abilities to keep up through organic learning,” wrote Harvard Business School’s Ranjay Gulati and Alicia DeSantola in “Start-Ups That Last: How to Scale Your Business,” which appeared in the March 2016 issue of the Harvard Business Review. — location: 2269

Managers are frontline leaders who worry about day-to-day tactics: they create, implement, and execute detailed plans that allow the organization to either do new things or do existing things more efficiently. By contrast, the role of the executive is to lead managers. For the most part, executives don’t manage individual contributors. Instead, they focus on vision and strategy. Yet they are still connected to the frontline employees because they are also responsible for the “fighting spirit” of their organizations; they need to be role models who help people persist through inevitable adversity. Both executives and managers are necessary for successful blitzscaling, but they play different roles at different stages. — location: 2295

{ The Effective Executive - The Definitive Guide to Getting the Right Things Done

the “Standard Start-up Leadership Vacuum,” and the result is that inexperienced founders find themselves having to hire and integrate experienced executives from the outside. The situation is made worse when those founders wait until the strain on the organization has become unbearable before making the new hires, meaning that all the leaders are new to the company precisely at the time when tension and uncertainty are running high. The key to navigating this transition is open-mindedness: insiders need to be open to the outside ideas of the new executives, while the outsiders need to be open to learning from what happened before they arrived. — location: 2318

œIt takes years and years to grow candidates from within,” she told our Blitzscaling class at Stanford. “We take disciplines where we aren’t strong, like finance and HR, and hire in experts from the outside. When it comes to our secret sauce, like crowdsourcing, we grow people from the inside. Our VP Art and Stationery grew internally, while our VP Finance and Chief People Officer are outside hires.â — location: 2349

John was able to do this successfully by following the same three-step process that was used to hire him. — location: 2359

centralized authority becomes a bottleneck that hinders information flow, decision making, and execution. A couple of people at the top can’t effectively supervise everyone’s increasingly specialized day-to-day work; in such a system, accountability for organizational goals gets lost. — location: 2382

decentralized command

A Tribal meeting should be well organized, with an agenda and other materials provided in advance so that participants can engage in an interactive discussion rather than simply listen to senior leaders talking or, worse, suffer through text-dense PowerPoint presentations. The goal shouldn’t be to make decisions in these meetings (unless the topic is one on which everyone can and should have input, like where to hold the holiday party); rather, it’s to maximize input from smart people and make sure that everyone feels heard. — location: 2416

Dunbar’s number (the number of individuals with whom any one person can maintain stable relationships), — location: 2441

a start-up is not a natural environment. The optimal things to do don’t always feel natural. The social groups you belong to don’t typically grow 100 percent per year. — location: 2449

œI was a big believer in writing a weekly email,” Shishir told our Blitzscaling class at Stanford. “Leaders [who] write things down tend to deal with [fewer] communications issues. You have to clarify your thought processes in a completely different way. If you just have a meeting and say, ‘Okay, so we’ve all decided,’ then people play telephone.â — location: 2457

if you don’t have customers to listen to, the best you can do is listen to your gut. — location: 2489

œImprovisation is integral to young ventures; it’s how they make discoveries. However, as firms grow they need a framework of plans and goals to guide them. That way they can keep trying new things and reacting to dynamic markets, but with an eye toward larger objectives and sustaining the business. Otherwise improvisation essentially amounts to aimless riffing.†— location: 2491

Selina Tobaccowala joined SurveyMonkey in 2009, she had to build up the company’s data infrastructure quickly. “There were no analytics before 2009,” Selina told our Blitzscaling class at Stanford. “There was a daily cash report and that was it. I strongly believe that as a whole company, you can’t get behind more than three to five metrics. The key metrics we picked were free users, free users that become paid users, and then user engagement metrics—number of surveys, and return rate.⠗ location: 2496

Picking a single clarifying metric is very hard, but it clarifies decision-making and what constitutes success.” Whatever metric(s) you select, that information must be easy to access and provide clear context. Particularly when your company is still small and lean with limited manpower, it pays to invest in the infrastructure necessary to support fast, data-driven decision making. — location: 2503

In addition to simply supplying data and insights to existing business units, many of the top-performing companies create a dedicated growth team, which combines marketing, product, and engineering to drive and coordinate the response to these insights. — location: 2542

compare a typical marketing team to a Dickensian orphan, pleading with the product and engineering teams for resources: “Please, sir, may I have another landing page?” Any product changes or engineering infrastructure needed to drive growth, no matter how potentially valuable, typically end up taking a back seat to the product or engineering team’s own road maps. In contrast, a growth team’s engineers can move far faster because building scalable and extensible testing infrastructure is a core part of their jobs. — location: 2551

Joseph Ansanelli, the cofounder and CEO of the customer service software start-up Gladly, tells entrepreneurs, “Don’t try a second channel until you have your main flywheel working. Most successful companies dominate one channel.†— location: 2584

LinkedIn had grown to the point where the organization could support multiple threads. We reorganized the product team so that each director of product could focus on a different approach to address engagement. Even though none of those efforts alone proved a silver bullet, the overall combination of them significantly improved user engagement. — location: 2607

Assuming that you make the decision to multithread your organization, the optimal management approach is to think of each thread as a different company. For each thread, you’ll need to identify a leadership team (“cofounders”) and create an incentive structure that allows it to operate with a great deal of independence and reap the benefits of success, without making your current managers so envious that it tears the organization apart. — location: 2636

You want to give leadership a reason to make each thread work, but not at the expense of the others; in other words, you want the “owners” of each of the threads thinking like an owner of the overall company. — location: 2647

But if you succeed as a pirate, you’ll eventually win enough wealth and territory to blitzscale to the Village, City, and Nation stages. At that point, even the most inveterate pirates will have to trade in their Jolly Roger for the flag of a legitimate, disciplined navy. — location: 2680

One of the key ways to assess whether you’re being an ethical pirate or a sociopath is to ask, “Am I trying to change the rules for everyone, or just trying to get away with a personal exemption? — location: 2699

The YouTube, Instagram, and WhatsApp acquisitions were both defensive and offensive. Acquiring YouTube allowed Google to recover from its failed Google Video initiative, but it also kept YouTube out of the hands of competitors like Microsoft. The Instagram and WhatsApp acquisitions helped Facebook defend against mobile incursions, but they also made Facebook the leader in mobile. — location: 2749

if you’re building a global business, there are three key elements you need to put in place. A set of managers who are responsible for, and have strong executive control over, their individual markets globally An understanding of how those markets differ, which leads to a variety of plans for how to grow in each of those markets A unified executive team to coordinate global operations, including the activity of the individual managers leading operations in each country — location: 2798

The first two elements involve a decentralized command structure that allows the individual “captains” of the ships in the fleet to operate with entrepreneurial vigor. The third involves a centralized staff that can help the “admiral” coordinate the actions of the fleet for maximum impact. — location: 2804

The CEO should be the hub, and the executive team the spokes that connect the CEO to the frontline managers and employees operating where the rubber hits the road. — location: 2825

Kalanick was trying to be the hub and the spokes rather than helping the organization build the ability to get things done without his personal oversight. — location: 2826

Decentralized command

As your fleet of pirate ships and followers grows, you need to intentionally shape them into a disciplined navy. A fleet of ships requires strong captains and a strong centralized staff that can coordinate and harness their entrepreneurial vigor. — location: 2857

There are only three ways to scale yourself: delegation, amplification, and just plain making yourself better. — location: 2871

œWill someone else be able to do this as well as I can?” The answer is almost certainly “No, especially not at first, but they’ll probably figure it out over time, just like you did.†— location: 2876

A key technique I use to overcome this challenge is to picture the hire as a specific living, breathing person rather than as a role written down on a piece of paper. When you try to picture an abstract “head of product,” for example, you might have a hard time visualizing this faceless entity doing a better job than you are. But when you picture a particular individual (say, Joe Zadeh of Airbnb), all of a sudden your mind shifts to thinking, “Wow, just imagine how awesome it would be to have someone like this running our product team.†— location: 2883

Unlike a traditional assistant or even a technical assistant, your chief of staff should amplify your business impact: he or she should be a businessperson who can not only make certain decisions for you but also triage the important decisions that you have to make yourself. A chief of staff can also make sure that all the people who want to meet or interact with you are “briefed” in advance so that your time together can be as efficient and effective as possible. — location: 2896

So how do you accelerate your learning curve so that you can learn more faster? The key is to stand, as Isaac Newton wrote, “on the shoulders of giants.” This means talking with other smart people, often, so that you can learn from their successes and failures. It’s usually easier and less painful to learn from another’s mistakes than from your own. — location: 2920

œIf you find the right source, you don’t have to read everything. I’ve had to learn to seek out the experts. — location: 2925

Embracing chaos, on the other hand, means accepting that uncertainty exists and therefore taking steps to manage it. If you know that you’ll make mistakes, the answer isn’t to sit back and wait for answers to find you, nor is it to charge ahead without preparation or forethought. You can still make smart decisions based on your estimate of the probabilities, even without certainty. And, perhaps most important, you can make sure that you have the ability to correct your mistakes. — location: 2970

one of the key employees who fit the description of Ms. Right Now was Minna King. Minna is an incredibly accomplished professional who has carved out a valuable niche at a very specific stage in the life of a start-up. You see, Minna specializes in taking a successful software product and helping it go global. — location: 3017

when you find Ms. Right Now, she can add huge value to the organization. This is precisely what Minna did for me at LinkedIn, just as she did for Overture and eBay before joining LinkedIn, which is exactly the same thing she did for two other highly successful software companies, SurveyMonkey and Nextdoor, after she left LinkedIn. In each case, she came to the company at the early Village stage because in order for her work to add the most value, the company needed to be big and successful enough to need to globalize, but small enough to not have the internal skills to do so. — location: 3025

One of the misconceptions of entrepreneurship is that you work out a plan and then execute it. Think of the embedded metaphor in “building” a business—the very language suggests that you’re following an architectural plan. But when you’re creating and scaling an innovative business model, you often don’t have any detailed blueprints. Instead, it’s more like “I think a building over there would be a good idea. Let’s start digging!” Then once the cement is poured and the walls go up you realize, “It should be a hotel, and therefore we need to do this kind of a floor plan.” Is that “bad” management? Maybe. But if bad management saves you from building a warehouse in the wrong part of town and lets you quickly turn that structure into a successful hotel (or saves you from losing money on mobile cash and lets you quickly capture the market for global payments), then it might be the best approach you can take. — location: 3067

Getting to market fast allows you to start getting the feedback you need to improve it. Any product that you’ve carefully refined based on your instincts rather than real user reactions and data is likely to miss the mark and will require significant iteration anyway. The ideal is a tight OODA loop—observe, orient, decide, act—over and over again. — location: 3078

a list of features that we thought were the minimum required to enter the market. Years later, Steve Blank and Eric Ries would dub this a “minimum viable product” (MVP). — location: 3092

you should be embarrassed by your initial release—not ashamed or indicted! The desire for speed is not an excuse to cut dangerous corners. If you trigger lawsuits or burn through your money without learning, it means you did launch too soon. The point of launching your product early is to learn as quickly as possible. — location: 3108

Design thinking often calls for rapid prototyping and user testing through paper prototypes or visualization tools like InVision and testing tools like UserTesting.com. — location: 3123

I often tell entrepreneurs that starting a company is like jumping off a cliff and assembling an airplane on the way down. — location: 3148

Picture an emergency room surgeon trying to save the life of a trauma patient; as she’s conducting emergency surgery, she might notice a suspicious-looking mass, but she’s going to focus on patching the patient’s arteries first—there will be time for biopsies and tests later. After all, if the patient dies on the operating table, even a potential tumor will be irrelevant. — location: 3158

The art, of course, is knowing which fires to let burn. Prioritizing your fires tends to be a function of a combination of different factors. The first is urgency: Which fire is going to damage or kill your business the soonest? — location: 3161

The second factor you want to look at is efficacy: Which fires do you have the ability to extinguish right now, and which will be easier to extinguish later (and vice versa)? — location: 3171

The final factor to consider is dependency: Will extinguishing Fire A make it easier to extinguish Fires B and C? — location: 3175

I believe that there is a Maslovian hierarchy of fires that applies to most rapidly growing start-ups, where the top of the list is the most important fire to fight first: Distribution Product Revenue model Operations Competition What’s next? — location: 3177

if your people can’t let fires burn, they’ll spend all of their time fighting them, which won’t leave any time for coming up with breakthrough opportunities to advance the business. — location: 3203

Daniel Kahneman and his longtime collaborator, the late Amos Tversky, described this general phenomenon when they wrote about the “planning fallacy” in their 1979 paper “Intuitive Prediction: Biases and Corrective Procedures.” The planning fallacy is that you make a plan, which is usually a best-case scenario. Then you assume that the outcome will follow your plan, even when you should know better. — location: 3278

Mariam Naficy, CEO of Minted, told me, “Act like you’ve got half the amount you have in the bank because you’ve got to factor in all the failures and all the optimizations that kill great entrepreneurs and businesses all the time. Both of us know so many people who had good ideas and were on the right track, but just ran out of money.†— location: 3285

If the unit economics are positive in the long run, and capital is available at low cost, then it makes sense to take in investment capital to fuel rapid growth. — location: 3297

For technology start-ups, the amount of money you need to raise will tend to be a function of two primary factors: people costs and the cost of outbound customer acquisition. — location: 3300

The classic rule of thumb in Silicon Valley is to raise enough cash for eighteen to twenty-four months of operations. — location: 3302

Only spend money to fix things that are on the critical path to reach the next phase of scale; everything else can wait. — location: 3310

Brian Chesky of Airbnb defines culture in a simple and concise way: “a shared way of doing things.” Clearly defining the way an organization does things matters, because blitzscaling requires aggressive, focused action, and unclear, hazy cultures get in the way of actually implementing strategy — location: 3319

When organizations have strong cultures, their employees give consistent answers and act accordingly. — location: 3333

The mentality isn’t: “We’ll know it when we see it.” Instead, it is: “Does this person already live the way we do? — location: 3355

Companies today might also have a product culture, design culture, marketing culture, finance culture, or even an operations culture. Any and all of these cultures can be successful, but you should focus on whichever function is key for your organization to succeed. — location: 3381

If you want to operate with very few rules, you need to set context.” Yet while early employees often fear that deliberate cultural development will bring bureaucracy, as Reed argues, culture is actually a substitute for bureaucracy and rules. The stronger you make your culture, the less you’ll have to bind people’s behavior with rigid directives. — location: 3414

The weekly e-mail cofounder Brian Chesky sends to all Airbnb employees is a powerful one. “You have to continue to repeat things” Brian told our class at Stanford. “Culture is about repeating, over and over again, the things that really matter for your company.⠗ location: 3420

the unconscious habits and patterns of early employees often form and crystallize into an organizational culture without any experienced oversight. — location: 3453

One of the reasons for evolving your culture is the “Ship of Theseus” paradox. The ancient historian Plutarch coined the term in reference to the ship on which the mythical hero Theseus returned to Athens after slaying the Minotaur. As the legend goes, the Athenians had preserved the famous vessel by replacing broken parts with new wood, until at last none of the original wood remained. Plutarch reported that philosophers argued strenuously, and without resolution, over whether the ship of replacement parts was still the Ship of Theseus. (Amusingly, the philosopher Thomas Hobbes complicated matters by asking what would happen if the original wood parts were preserved after being replaced, and were then used to build a second ship!) All companies are like the Ship of Theseus. Employees join, stay for one or more tours of duty, and leave, only to be replaced by new employees. A stable, low-growth company might persist for decades or longer, slowly replacing employees but remaining the same size and retaining a strong sense of continuity. In other words, the “planks” of the ship remain essentially unchanged from decade to decade. In contrast, a blitzscaling company like Facebook might grow from the Family to Nation stage in a single decade, doubling or tripling in size each year, so that the employees who made up the entire ship on New Year’s Day end up as a small minority by the following New Year’s Eve. — location: 3461

longer feel like they belong. In the words of the Dutch historian Johan Huizinga, “If we are to preserve culture, we must continue to create it.⠗ location: 3480

Ortega devised this model when he was sixteen years old—don’t order inventory and hope it sells; instead, figure out what people want, and then make it. — location: 3605

Jeff Bezos talked about this in one of his famed shareholder letters. Bezos wants to make sure that Amazon continues to have the start-up mindset, which he calls “Day 1.” Bezos writes, “Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.⠗ location: 3724

Approaching venture capitalists is a quick way to get a sense of how knowledgeable professionals assess the value of your assets. — location: 3747

a blitzscaling project needs to be insulated from the rest of the company so that the executive in charge can run it effectively. The classic example is Steve Jobs’s approach to managing the original Macintosh team, which had separate offices that were off-limits to regular Apple employees. More recently, Larry Page applied this same technique to Android by allowing Andy Rubin’s team to work in separate offices—Google employee badges didn’t grant access to Android offices—and adopt different hiring practices from those of the parent company. Much the same was true for the PlayStation project at Sony, the Kindle project at Amazon, and the Watson team at IBM. — location: 3751

geography allows Elon Musk to run both Tesla (Silicon Valley) and SpaceX (Los Angeles). — location: 3898

Indian e-commerce giant Flipkart has raised nearly $7.3 billion from investors around the world, including Accel (Silicon Valley), Tiger Global (New York), Naspers (South Africa), GIC (Singapore), and SoftBank (Japan). Its founders, Sachin Bansal and Binny Bansal—the two are not related—both worked for Amazon. — location: 3927

Israel, which boasts more start-ups per capita than any other nation, is a leading center for cybersecurity companies and is also home to a thriving venture capital community. — location: 3932

In 2001, eBay acquired a French company called iBazar, which had a Brazilian subsidiary. Because eBay wanted to focus on Europe, it made MercadoLibre an offer: take over the Brazilian operation in exchange for 19.9 percent of MercadoLibre. The deal included both a five-year noncompete agreement (which meant that MercadoLibre didn’t have to worry about eBay expanding into the Latin American market for at least that time period) and a best practices sharing agreement. — location: 3947

PricewaterhouseCoopers projects that China’s economy will overtake that of the United States in size by 2030. In many areas, it already has. In 2016, the volume of mobile payments in China was $8.6 trillion. In comparison, the same figure for the United States was $112 billion. In other words, China’s mobile payments market was nearly seventy-seven times that of the United States. Didi Chuxing provides twenty million rides per day in China, over triple the volume of Uber worldwide. — location: 3973

Chinese blitzscalers work with an intensity that few in Silicon Valley can match. Rather than staying open during the standard American business hours of 9 a.m. to 5 p.m., Xiaomi operates on a “996” model—get in at 9 a.m., leave the office at 9 p.m., and work six days a week. — location: 4002

A by-product of this intense work ethic is that it allows for much faster decision making, a key advantage in blitzscaling. — location: 4006

rapid decision making might make many feel uncomfortable, but by consistently making quick decisions, Chinese entrepreneurs become comfortable with the discomfort and uncertainty, allowing them to move even faster. — location: 4011

despite China’s massive labor pool and incredible supply of technical talent, it lacks the density of Silicon Valley, and is still limited in terms of the bench strength of scale executives available to help manage blitzscaling companies. — location: 4032

Unlike in Silicon Valley, in China senior managers are rarely brought in from external companies, and the few that have been hired typically haven’t worked out well. — location: 4037

If you find yourself in a position where competitors are trying to blitzscale your existing business out of existence, you have three basic options to defend yourself: beat them, join them, or avoid them. — location: 4064

Blitzscaling is risky, but so is doing nothing if a competitor seems likely to succeed in scaling up. — location: 4092

OPTION #3: AVOID THEM The final and perhaps most often “successful” option is to cede the current market to blitzscalers and use your current assets to migrate to a new, less vulnerable market. — location: 4094

Finding yourself in the crosshairs of a blitzscaling competitor can and should be frightening, but it is not a death sentence if you choose the right response. But decide quickly; the speed of blitzscaling means that taking your time is the same as doing nothing. — location: 4112

blitzscaling companies grow so quickly that they often become key players in society before they’ve had time to fully mature. This can result in problematic corporate cultures, adversarial relationships with regulators, and questionable decision making. — location: 4124

The art lies in marrying responsibility and velocity so that we are able to successfully capture the first-scaler advantage while still developing and adhering to a strong moral compass. — location: 4127

the better approach to tempering the potential abuses of scale is to leverage the principles for a healthy republic that James Madison laid out in “Federalist No. 10.†— location: 4146

a greater variety of powerful companies—if they are prevented from colluding—can counterbalance the malevolent or selfish goals of any one particular entity. — location: 4152

Start-ups can and will fail, and all entrepreneurial enterprises create risk for founders, employees, and investors. At the same time, they also create the possibility for new businesses, new innovations, and new jobs. But the most successful modern societies err on the side of freedom rather than trying to outlaw all risks, and on the whole we are all better off because we allow entrepreneurs to take those risks. — location: 4154

In other words, your success is contingent upon society functioning properly. Here in Silicon Valley, some might fantasize about floating cities in international waters, but the fact is that blitzscaling businesses rely on the rule of law, robust financial markets, and an education system that produces talented employees and a healthy market of consumers. To paraphrase Warren Buffett, we win the “ovarian lottery” when we’re born into blitzscaling ecosystems. — location: 4178

& Peter Thiel

Known versus Unknown and Systemic versus Nonsystemic. Known Unknown Systemic Known/Systemic Unknown/Systemic Nonsystemic Known/Nonsystemic Unknown/ — location: 4190

when you combine uncertainty with the possibility of a negative outcome, you produce risk. The magnitude of the risk is a function of the probability, and severity, of that potential negative outcome. — location: 4202

regulatory regimes to manage these risks. Responsible blitzscalers should give serious considerations to systemic risks and seek structural dialogue that involves a broad set of stakeholders rather than defying or stonewalling regulators. — location: 4234

What’s needed is a dynamic public/private partnership where government input meshes with private implementation. — location: 4250

Because our transaction volume was still low, and because we judged the probability of illegal transactions occurring to be very low, we deferred working on the problem, but we also committed to building the necessary expertise and infrastructure to better manage the issue later on. — location: 4287

{ Zero to one

Early on, during the Family and Tribe stages, responsible blitzscaling means clearly defining the company’s mission and laying the foundation for a culture that values being a responsible part of a larger society. To do so, you should imagine a future in which the company has succeeded in becoming a global giant, and then evaluate the likely impact of that success on your key stakeholders and on society as a whole. — location: 4295

when your company is a City or a Nation, you need to start thinking like a mayor or a president and set rules for the good of humanity as a whole rather than just for the good of your profits. — location: 4320

be a source of stability. In a world of constant change and uncertainty, people will need reassurance and support. Offering stability and calm in the middle of the storm while others are caught in the tumult will make you a natural leader. — location: 4391

We believe that the future can and should be better than the past, and that it’s worth tolerating the discomfort we feel when blitzscaling to get to the future as quickly as we can. — location: 4400