We often see entrepreneurs take concepts from Blitzscaling and misapply them to growing their business. During a recent conversation with my friend and co-author, Reid Hoffman, I asked him how investors can tell when operators are doing this while trying to blitzscale and how can they can manage this.
Watch the video to hear Reid's complete answer.
Here's my summary below:
- If you're a skilled salesman, of course there are ways you can look back after a ton of money has spent and say "well, it's a huge TAM.
- You can mask what what is fundamentally not very good business or a broken business, whether that's due to risks or margin structure, through raw growth by spending capital. That's one of the most common mistakes where blitzscaling is misapplied.
- People may think they have a blitzscalable business because of its amazing growth rate. And assume that something that looks like really good revenue and huge TAM will work itself out later.
- But actually, it's just the Blitz-capital buying a market where the end market isn't that interesting.
- You have to look at a combination of the positive cases, you know, like the Airbnb's and LinkedIn's, and the negative cases, because both part of the canonical thing for making decisions on investing and making decisions as an entrepreneur.
- It's challenging when, for example, your competitor might be Blitzscaling even though that's kind of a dumb idea to be doing. And the unfortunate thing is that generally speaking, when you're competing against a Blitzscaler you want to either be Blitzscaling more and faster, or you want to be shifting the battlefield.
- That may help you avoid the worst case scenario where either they win or nobody wins because they can also blow up and pollute the whole area.
- Capital markets are very skeptical now of blitzscalers because of WeWork, and can put pressure to show margins and so now it's an endurance game and a survival game for them, versus being able to raise significant capital and prove you're not like WeWork
- If you have a competitor who's Blitzscaling you have to make a difficult choice to blitzscale, even If you think the market isn't actually the right one, or right one yet, because the asteroid's coming. Whether it's an asteroid of partial success for them or possibly great success, you either have to blitzscale or get out of the way.
- In conclusion, there is a difference between entrepreneurs erroneously choosing to blitzscale vs doing so in less than favorable circumstances because they believed (rightly or wrongly) that they had no other choice.
My partners and I at Global Scaling Academy and Blitzscaling Ventures have converted the Blitzscaling framework into a series of useful tools that can help investors better discern whether a company can or should blitzscale. Members of our community have regular opportunities to work with us to learn to apply the tools, including the Blitzscaling for Investors course, the Blitzscaling Investor Network and our monthly event series "The Blitzscaling Breakout."