You will be executing immediately in 20 minutes | Blitzscaling Director's Cut

So one of the things that Reid Hoffman and I noticed is that companies were growing faster and more valuable than ever before. And we tried to figure out what was allowing this to happen. It applies when you are in a very particular kind of market with a very particular kind of opportunity.

The way you can tell is you can focus on two key principles. Hi, I'm Chris Yeh and I'm best known as the co-author of Blitzscaling. That's a book that I wrote with my friend Reid Hoffman, the co-founder of LinkedIn, which is all about how companies can grow enormous, multi-billion dollar businesses by prioritizing speed over efficiency to win a winner take most market.

So obviously everyone's very interested in OpenAI. But OpenAI is also a great example of how the techniques of Blitzscaling become important for building a great company. And with OpenAI they began just building out product.

That's wonderful. But the thing is, the number of users that your product has drives product value. It's played out in terms of the launch of the product, tapping into global distribution in order to grow quickly.

It plays out in terms of the alliance with Microsoft, they've been able to continue to keep that product up and running and to grow, even though it's the fastest growing product of all time. So the core principle of Blitzscaling, which is to prioritize speed over efficiency in the face of uncertainty, is something that is not found in any single business school textbook. I know because I went to Harvard Business School, that was not something we were taught.

Whereas in Blitzscaling, our message is no, no, sometimes you have to sacrifice efficiency and risk making mistakes in order to move faster. So the important thing to remember about Blitzscaling is it's not a strategy you apply in every single circumstance. It applies when you are in a very particular kind of market with a very particular kind of opportunity.

The way you can tell is you can focus on two key principles. The first is a winner take most market dynamic. You need to be in a market where the first company to achieve scale achieves enduring market leadership.

And this can come about because of network effect that you have elements like community or you have elements like a platform network effect. If you don't build that in from the start, you won't have that winner you won't have that winner take most market dynamic. The second part is equally important, and that is that you have a distribution advantage.

So your ability to grow depends on your distribution. You can think of it as a race where you're running against your competitors and you're trying to get to the finish line first. Your distribution is the thing that determines how quickly you can run.

There, companies should really focus on either using something like virality that allows them to build on growth from original organic growth, but you can also bring in incentivized virality, something like Drpbox, where if you refer a new user, you get additional free storage. That's something you have to consider as you're designing your business model. So a lot of people ask, okay, is Blitzscaling forever?

As we've described, it only applies to certain circumstances. But it's also the case that Blitzscaling is a difficult strategy to implement. It's not like, great, let me just grow and things will magically happen.

As we all know, growth is hard and Blitzscaling involves a level of growth that is uncomfortable and risky. So when you are prioritizing speed over efficiency, it means that you might be in danger of running out of money. And so if you do not need to Blitzscale it may be easier to actually pursue a slower growth strategy.

But that doesn't work if you are actually in a Blitzscalable market, if it's winner take most because while you are taking your time, another competitor may be Blitzscaling. The key is spending money in a way that is going to give you a better competitive advantage. And once they win that market, it doesn't matter how well you execute, you will never be able to catch up.

So when a founder decides they're going to Blitzscaling a company, they have to prepare themselves for uncertainty. You are trying to figure out how to grow faster than your competitors. Your competitors are also aggressive entrepreneurs.

They're also finding ways to grow quickly. And so as a result, the aggressiveness that's required means that you have to tolerate a lot of uncertainty and a lot of risk. And so in order to actually do Blitzscaling, you often have to do things that are counterintuitive in comparison to conventional wisdom.

So there are a couple of these counterintuitive examples, and I'll share one that has been very popular because it's probably one of Reed's most famous sayings If you're not ashamed of your first product, you've launched Too Late. So launch a product you're ashamed of. Now, this is really strange, right?

Because we normally say we want to launch a great product. We want to launch a product that people love. But Reed's insight is we have the ability to rapidly iterate and improve our products.

This is a lesson Reed learned with his first company, which was called Socialnet. What he discovered is they spent all this time perfecting all these little features they thought were important, and when they actually launched it, the customers ignored them, never used them. And so he took that lesson with him when he started LinkedIn.

When he started LinkedIn, right when they were about to launch, one of the things that people said was, you know what, We need to stop and delay the launch because we need to build the ability for people to find consultants on LinkedIn. That sounds interesting, but tell you what, we're just going to launch LinkedIn. And then if people really clamor for it and say they want it, we'll go back and we'll build it.

That's because Reed knew that, which we think is going to be essential to the user might not be. And the best way to improve the product is to get real world feedback and iterate. And so they launched LinkedIn and it turns out that's not what people wanted.

The number one request that came in from LinkedIn users was very simple. I want to put my picture on my LinkedIn profile. And so launching a product that embarrasses you is a way of getting over your fear of what if it's not perfect?

Guess what? It's not going to be perfect. It's going to have problems.

And the reason is none of us are geniuses. None of us is smart enough to know exactly what the market wants. But you'd rather be fixing real problems based on real user feedback than trying to fix things based on your own intuition, which could very well be wrong.

So the question I always get when it comes to Blitzscaling is, okay, how do I prepare myself to Blitzscale? Is it just a matter of of being aggressive? I'm like, No, no, no, hold on.

Aggression is not the point. Speed is the point. And the most important speed you can have is actually speed of learning, because the world around us is constantly changing.

The thing that worked three months ago may not work today. And so the thing you want to train yourself to do is to be what we call an infinite learner, someone who is able to constantly learn new things, but more importantly, let go of old lessons. We all learn lessons in our lives, often from the things that help us be successful.

But that doesn't mean those lessons still apply. And so learning to let go of the lessons that made you successful in order to have room for the new lessons that will make you successful in the future is one of the most important things you can do as a Blitzscaling entrepreneur. So there are a lot of misconceptions about how startups grow.

Some people think that you just raise a lot of money and spend it on marketing. You can buy growth. To some extent you can, but you're not going to buy sustainable success.

That's why it's so important. Early on and as detailed in the book, The Lean Startup, that companies find product market fit Without product market fit, No company can achieve long term success if you Blitzscaling before you achieve product market fit, that's very risky because if you Blitzscaling a product that doesn't yet retain its users, it may be that you're just spending money to buy temporary market share. The best time for a founder to implement Blitzscaling is After achieving product market fit, But before the competitors begin to scale up, that's the ideal scenario.

You've achieved product market fit and you know that you can benefit from throwing money into growth, but at the same time, you haven't fallen behind your competitors. If your competitors are starting to grow before they achieve product market fit, you may need to start growing earlier. That's that judgment call where you have to decide can my competitors achieve product market fit as they scale or not?

Now the issue is it becomes nuanced. Let's say your competitor is scaling up very quickly. You have to ask yourself, is that competitor going to be able to achieve product market fit as they grow?

Because if they do and they've grown out in front of you, you won't be able to catch up with them. However, if you think that they're far from product market fit, you may let themselves go ahead and grow quickly and then swoop in and buy up their assets after they go bankrupt. This has happened many times in history as well.

But if achieving product market fit occurs simultaneously with scaling up you may need to blitzscale even before you achieve product market fit One of the most fascinating stories about why Blitzscaling is necessary is the story of Airbnb. So I want you to think back in time to when Airbnb was a much smaller company. It had about 30 or 40 people at the time it was primarily in the United States, and that is when the Samwer brothers of Germany decided they wanted to create an Airbnb clone.

So they actually created a clone called Wimdu and they funded it with $100 Million and they hired 400 people to build out the company. So $100 million, 400 employees, Airbnb at that point had maybe 40 employees and $10 Million of funding. So it is a sudden situation where Airbnb had gone from the leading company in the field into the David versus the Goliath of Wimdu and the Samwer brothers were also interested in starting Wimdu because they thought what they could do is they could merge Wimdu and Airbnb, and so that in the end Wimdu shareholders would own 25% of the company.

Airbnb shareholders will own 75% of the company. This was a nasty shock to the founders of Airbnb because here there was a situation where now there was a competitor with ten times as much money and ten times as many people going after the same market It'd be very easy to just say yes to the Samwer brothers to go ahead and accept this merger agreement, which would still allow them to keep most of the value, but to involve giving up so much of their value. And it would involve rewarding bad behavior.

We don't want to set a precedent where people who just clone products get to extort people for their equity. And so what Airbnb decided to do is is we're going to Blitzscale the term hadn't been invented yet, but that's essentially what they decided to do. We have to raise more money.

We have to hire more people. We have to compete head to head with Wimdu in Europe so that we can outgrow them. So that's exactly what they did.

They raised $100 million of their own. They launched 12 different offices in Europe in the subsequent six months, and ultimately they outgrew Wimdu. In fact, Wimdu went bankrupt in 2019 and Airbnb, thanks to the power of Blitzscaling of prioritizing growth for the sake of achieving a better competitive position was able to become the dominant company we see today.

So there are a series of things that you have to follow as you're growing your company. One of them is to do things that don't scale. And so it's very tempting early on to say, well, let's build this infrastructure so it will serve us from 1 to 10 million.

That's actually a bad idea because first of all, it's going to be very expensive. But the second thing is it doesn't even accomplish what you think it's going to accomplish. By the time you're halfway there, the market will have changed all the things that you believe will have changed.

And so doing things that don't scale means understanding that change is the constant. One of the things that ReId and I observed is that at every order of magnitude of growth, your company is essentially a different company. So we actually named these after units of human organization.

So the smallest, which is less than ten people would call a family, It's like a family. You're probably under one roof and you see each other all the time. It's very informal.

The next level up, which is about 10 to 99, that's what we call the tribe stage. And there you're not under one roof. You may be in different homes and you don't necessarily see every single person on a daily basis, But you still know everyone in the organization.

It's still pretty informal. The next stage, which is about 100 to 9999, is what we call the village stage. That's when you have to bring in specialists who are really good at one thing, as opposed to having generalists who can adapt to just about anything.

It's not about the personal relationships. You have to start building a culture that allows people to relate to each other even if they don't see each other on a daily basis. The next stage is up from there are from 1000 to 9999.

That's the city stage. Now you have different departments that you're working with, right? It's not just something where you have a bunch of generalists.

You're going to have specialists in different areas. And then the final level of scale is 10,000 plus. That's what we call the nation At the national level, all of sudden, you're really thinking about foreign policies How does my giant company interrelate with these other giant companies?

You can't just focus internally. You have to look externally and figure out how do you find your place within a broader ecosystem. And the thing about these stages, you as a founder need to recognize that the things that you did to get you from one stage to the next won't necessarily work when you get to that next stage.

And as a founder, you have to evolve with your company as it grows. So there are two key variables that I would argue determine a company's growth rate. What is the friction involved to adopting the product and what is the virality involved in using the product?

The friction of adoption is what really helps you determine how quickly you can grow. The more friction there is, the slower the growth is. And this is one of the reasons why one of the key techniques of Blitzscaling is offering a freemium product because you want to take away any hesitation to sign up for and start using the product.

But it's not enough just to have an easy product to onboard. The usage of the product has to begin driving additional customer acquisition. Otherwise you're going to have to spend all your money just acquiring customers.

So when you're trying to build your product and build out your business model, make sure you've built it in a way that has extremely low friction for adoption. And where there is an inherent kind of virality or customer acquisition. When you find a product, it really fits the market and you have the growth engine of virality or distribution.

You can grow at rates that seem utterly impossible. A great example of this is the early days of PayPal. It took them a while to find the product market fit and once they found that product market fit, things happened very quickly and the company began growing at the rate of about 1 to 5% a day, 1 to 5% a day.

It's growing like 10x per year. And that introduces a whole bunch of stresses into the equation. It's very hard to deal with.

And so we always tell the entrepreneurs they need to anticipate, they need to understand what are the key transitions that you're going to go through. One of the biggest transitions that entrepreneurs face is when they go from being a tribe to a village. And the reason is you're going from an informal organization to a formal organization.

That's where so many of these key transitions comes in, and you as a founder, need to be ready for it. Now there's a whole bunch of them, but I'll mention a couple of the most important ones. The first is the transition between individual contributors to managers, to executives.

Now, the reason this one is very important is because as your company grows, you're going to have to build out a management hierarchy. There's no way to have a thousand person company where everyone just sort of reports to you, the founder. And so you need to start building out these layers.

But there's a big transition when you start bringing in executives. When you have executives, they're actually managing managers. They're not working directly with the work.

So how do you actually find executives who are effective? So understanding the nature of executive work and being able to successfully bring them in from outside the organization becomes one of the key lessons that Blitzscaling founders have to learn. Second major transition is the transition between dialog to broadcasting.

What this means is when you are in a small company very early on, you can just dialog with your other employees. You have the personal touch and you can really convey your vision to everyone one on one. But when you have a thousand employees, that's impossible.

So you need to think about how you can broadcast your ideas. Somebody like Brian Chesky over at Airbnb for example, writes an email every Sunday night to the entire company explaining what are some explaining what are some of the major issues he's thinking about, And that is a way to broadcast his vision, broadcast his ideas and make sure everyone's on the same page. The final one that I always like to mention is the transition between pirate to Navy.

So when we think about pirates like in Pirates of the Caribbean and there are these wacky, that's kind of what a company is like early on in its history. It doesn't have anything to lose. So it can take a lot of chances.

But as the company gets bigger and more successful, you have something to lose. It becomes important to go from being a pirate who is just risk taking and making decisions on your own to becoming a navy where you actually have an admiral, you have captains, you have a whole structure because you need to transition from being somebody who acts on impulse to somebody who carefully plans and figures out a strategy that other people can carry out. So it's very important to know that Blitzscaling is not something that you do forever on a given product.

Blitzscaling is a specific phase, which is to say a product starts off with low adoption, then it really ramps up, but eventually it taps out, right? When Facebook gets to 2 or 3 billion users, it can't keep growing at the same rate. There just aren't enough human beings in the world.

We'd have to discover alien civilizations. And so Blitzscaling is necessarily temporary for any given product. What is interesting is that a company may always be Blitzscaling somewhere.

A company like Apple that has many different products may be Blitzscaling different products at different times. As the Macintosh begins to tap out, here comes the iPod. As the iPod taps out, here comes the iPhone.

Who knows what might be coming next. But one of the things to know is when you achieve the natural domination of the marketplace, you have to be willing to start pulling back. And there is a classic cautionary tale here, which is Twitter.

So Twitter, interestingly enough, essentially hit its limit on number of active users in the year 2013. But the company didn't stop hiring. And the correct response at Twitter at that point would be to say, we have tapped out this market and we should use the profits from our more efficient operations to then develop new products.

So that's a great example of how as a founder or as a leadership team, you should recognize when Blitzscaling has come to an end, begin to operate for profitability and use those profits to invest in new Blitzscaling s curves. So let's talk about Facebook and Meta, and this is a fascinating example of, I think, appropriate focus on an interesting area, but poor execution. So when Facebook rebranded to Meta, it was part of an overall effort to say let's make the metaverse happen.

Now, this is an error that a lot of big companies sometimes fall into, which is to believe that they can create the market. Ultimately, the decisions are made by individual consumers. If we think about other products, Google put an enormous amount of effort into something called Google+ that was their big Facebook killer.

Guess what? It didn't matter that Google pushed it to every single Google user. People still didn't choose to use it.

And Mark Zuckerberg made the classic mistake of believing that he could make the market. None of us can necessarily make the market. We can just put something out there and see if the market picks it up.

If we look at OpenAI, OpenAI didn't launch ChatGPT first, they launched Dall-E 2 first, which was the image creation software, and that got a lot of attention. But it was ChatGPT that really brought the breakthrough. And do they necessarily know that ChatGPT was going to be the absolute thing?

Maybe. But they had GPT three and GPT 3. 5 before that accessible via API and nobody picked up on it.

So you have to try things, see if the consumers will adopt and if they do, as in the case of ChatGPT, you've got to aggressively home in on that and leverage that opportunity that the consumer adoption has brought you. So one of the things that I always have to emphasize to people is that Blitzscaling is relative and contextual. It's relative because it's about your relative speed and it's contextual because it has to take into account the reality around us.

We were in an incredible boom during 2020 and 2021, but we've seen a remarkable economic cooling. There are all sorts of macroeconomic issues that we are worried about the US debt ceiling, the war in Ukraine. All of these things are affecting investor psychology, which necessarily affects the abilities of startups and other companies to raise financing for growth.

You have to blitzscale differently when you're in a bear market because of the fact you can't just assume that you can raise more money. But it is still the case that Blitzscaling will work. In fact, in some ways it will work even better because the rest of your competition is subject to the same forces, so they may be retrenching.

And in fact, you can do a lot of things easier now than you could during the boom For example, many entrepreneurs tell me, it's really hard to hire great talent. They used to say, Google is going to hire and pay people so much. Facebook is going to pay people so much.

How can I compete? Now, Google and Facebook aren't hiring people. This is a perfect opportunity for you to improve your talent or get the kind of people in that you really want.

If other people don't have money to reach the marketplace and you do, you have a huge advantage. It's cheaper to buy market share during a recession. So absolutely you can still blitzscale you'll have to do it differently.

But keep in mind the overall principles. Am I moving faster than my competition? Am I achieving competitive advantage through scale?

So one of the things that is really new and that I'm going around the world talking about is the way that AI and Blitzscaling interact. Remember the model of Blitzscaling technology innovation triggers new markets and scrambles existing ones. Well, guess what?

AI is doing that left and right. So we are looking at this tremendous change in the marketplace and that's going to create those opportunities for Blitzscaling, those opportunities for business model innovations, those opportunities for new companies. So the message I want to give people is AI is coming.

It's absolutely going to have a huge impact and it enables even more Blitzscaling on several levels for existing companies who are looking to Blitzscale AI and its ability to amplify human productivity allows you to grow more with fewer people and fewer resources. And the companies that leverage AI will be able to out scale their competitors. On the other side, AI based companies can really tap into the principles of Blitzscaling because AI really has strong winner take most market dynamics thanks to the fact that if you build a better model, you attract more users.

If you attract more users, you have more data to build a better model to attract more users. There is this incredible virtuous circle that really helps the existing players like OpenAI and we're going to see this play out in many different AI based markets and we expect that Blitzscalers that are being established right now in the next couple of years to ultimately dominate the world of AI. So as you've heard today, Blitzscaling is a strategy that involves prioritizing speed over efficiency in the face of uncertainty.

You blitzscale because you have an opportunity to win a valuable winner take most market, and if you do so, you will ultimately keep that market for decades and print money along the way. The reason you should want to blitzscale is not just the financial gain though of course that's important. It's because Blitzscaling is the best way for your startup to maximize its lasting impact.

So the final tip I would give to founders is the following always be learning. And that means you need to be constantly taking in new information, but also spend time with human beings. We are in an era where everyone's like, I will do everything.

I'm like, AI is incredibly powerful, but what's really powerful is the ability for human beings to connect one on one, for you to learn from people who are out there doing new things. All of us are out there trying to understand new technologies and it's too difficult to understand it on our own. We need to build a whole team of learners that can learn together and ultimately figure out how to best build businesses to tackle this new world.