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Driving Exponential Growth Very Fast Is Not Easy
The volume, velocity, and complexity of change thrust upon us leave little room to avoid transformation. The only constant is change, and transforming ourselves and our organizations is the only way to withstand such change. In this article series titled “Transformation Blueprint,” we explore the various levers of transformation available for an organization and offer practical tips and tools on how to activate them. This article explores the concept and practice of blitzscaling.
What Is Blitzscaling And Why Is It Important?
In their book Blitzscaling, Reid Hoffman and Chris Yeh define blitzscaling as growing operations in an organization really fast, placing a focus on speed without much concern for efficiency, with the goal of obliterating the competition in a highly uncertain business setting.
Blitzscaling is not easy and can be detrimental if not done correctly. When a start-up company focuses on speed rather than efficiency, this means it does not pay attention to common strategy approaches, including careful planning, efficient allocation of resources, and solving all problems. Instead, blitzscaling is like building the plane while it is flying and then grabbing onto one engine and flying even faster while still building the other plane components.
Blitzscaling is important because it is a proven strategy to grow fast, given the increasing speed of change and uncertainty in business and the world at large. The authors define four growth drivers and two growth limiting factors. The growth drivers are market size, distribution, high gross margins, and network effects. Additionally, the two growth limiting factors are lack of product or market fit and operational scalability.
The size of the market your organization is offering its products and services to is critical. You need a market size big enough so you can grow your customer base exponentially. A great example here is PayPal, which, in the early stages of its growth, was growing the number of customers by 10% per day. This is exponential growth, and in one month, you can go from 16 customers on the first day of the month to 320 by the last day of the month. Typically, online markets are easily accessible and easier to grow exponentially. To blitzscale successfully, you will need to be able to access a large market very fast.
When you blitzscale, you will need to select the channels that will allow you to grow your reach to customers exponentially. There are numerous channels and ways to distribute your product, including organic growth through word of mouth, leveraging existing networks like Airbnb used Craigslist to get started, or using incentives such as bonus cash for the existing customer and all the friends he or she introduces to the product, as PayPal did.
High Gross Margins
For an organization to blitzscale successfully, it needs to generate high gross margins to finance the fast growth. Gross margin is defined as the amount of money a company earns after subtracting the cost of goods sold from net sales. The cost of goods sold is the cost related to producing the goods. Net sales are gross revenue minus returned goods, allowances, and discounts. If a company has a gross margin of 35%, this means that it retains a profit of $0.35 on each dollar of revenue it earns. Organizations manufacturing their own goods and selling directly to consumers (B2C) should aim at 40–60% gross profit margins. Companies selling or reselling goods should be aiming for 25–30% gross profit margins.
Networks are robust and can have significant positive effects on a digital platform. The more users join the platform, the more the value generated by the platform increases for all involved. A simple example of network effects is the value offered by the internet and by social media platforms. In the beginning, access to the internet was difficult, and there were very few users, including mainly members of the military and academia. As the internet became more accessible both technologically and monetarily, the more the users, the higher the value it generated through content, information, knowledge, and service. As more companies and individuals created websites, more users joined. As more users joined, the internet offered more products and services. This exponential growth of users, products, and services was generated by network effects.
Incorrect market fit can be a limiting factor to successful blitzscaling efforts. To blitzscale successfully, organizations must continuously adapt their product or service to meet customer expectations. This is where pivoting quickly comes in. Successful pivoting implies that you are developing a product or service using the agile process, which allows you to pilot a minimum viable product (MVP), gather user feedback, iterate, and relaunch the product or service within a very short time frame, usually days or weeks. For example, Instagram pivoted from a local networking app to a picture-sharing social platform with more than 1 billion users.
An organization that wants to blitzscale needs to sustain its exponential growth with enough margins to allow for the people, processes, and technologies required to create the products and services the company offers. If you are not able to sustain the expenses of hiring more people, buying or building more tech, and designing new processes, you are unlikely to blitzscale successfully.
While blitzscaling is extremely risky and challenging to achieve, if its foundational tactics are applied concurrently and deliberately, it can prove quite rewarding and lucrative for the organization. The foundational tactics include market size, distribution, high gross margins, and network effects, and must be driven concurrently.
Additionally, as organizations explore blitzscaling, they must also consider two critical limiting factors: incorrect market fit and lack of operational scalability. Both of these factors can derail your blitzscaling efforts.
Finally, the overarching element of blitzscaling is the focus on exponential growth at extreme speeds with little regard for efficiency until growth has been achieved. Blitzscaling may not be a fit for many, yet it is a proven successful approach for many of the organizations dominating the product and services market today.