Blitzscaling summary

The word “blitz” has an unfortunate but instructive history. It goes back to the German word “blitzkrieg,” which means “lightning war.” This became the name of a military strategy that the German military implemented during World War II.

Inspired by British military thinkers and later adopted by the Allies, this strategy represented a radical shift in how militaries approached warfare. In the past, they would advance slowly and cautiously into enemy territory, aiming to secure their supply lines and paths of retreat before moving forward.

Traditional businesses prioritize the efficient use of capital; they seek to get the most bang out of each buck at their disposal. A coffee shop, for example, is spending wisely when it buys its paper cups in bulk – a big box of cups only costs a few dollars but it enables hundreds of future sales.

But blitzscaling companies do things differently, prioritizing speed over efficiency. That’s why local taxi companies shudder when a peer-to-peer ridesharing company like Uber rolls into town.

Growth factors are things that can boost the growth of a company, and there are four that every blitzscaling company should seek to maximize: network effects, market size, distribution and high gross margins.

The first, network effects, can be a huge boost to any company scrambling to gain first-scaler advantage. Essentially, “network effects” occur when a network’s value increases for users as more people begin using it.

Gross margins are a pretty simple concept. They’re a measure of how much money your business takes in after costs are covered.

Let’s say that your product costs you $0.50 to produce and sell. That’s your cost of goods sold, or COGS. Then you sell the product for $0.75 per unit – that’s your revenue.

You might have a brilliant product and a well-defined market clamoring for it, but getting it into the hands of customers isn’t just a technicality.

Distribution is also a growth factor, and distributing a product or service on a massive scale can happen in two ways.

To generate the level of sales and revenue that blitzscaling requires, you need to identify a good market and offer a product that satisfies that market – in other words, you’ve got to achieve product/market fit. This fit is the first of two growth limiters that blitzscaling companies need to watch out for.

The greater the product/market fit, the greater the chance of rapid growth. But immediately achieving perfect product/market fit isn’t easy. To improve the fit, most companies have to adjust their product to make it better suit the market’s demands.

The challenges of scaling up are complex – and they become increasingly complex as a company grows.

Consider just one of the challenges: company organization. If you start a company with three friends, organization can be pretty informal and based on one-to-one relationships. After all, there are only six pairs of unique relationships between the four of you.

For a company that wants to be successful at blitzscaling, there’s no one-size-fits-all solution for developing a business plan that can convert massive growth into equally massive profits. However, there are seven general patterns that successful companies have followed. Three of these relate directly to the advantages of doing business digitally.

The first pattern involves the advantages of selling a product that is purely digital. For example, consider an extra, purchasable outfit, or “skin,” for a character in a video game. Since it only exists virtually, a skin costs practically nothing to make and sell. This means gross margins of nearly 100 percent. Purely digital products have become a very lucrative line of business for many tech companies, especially in the video game industry.

If you’re buying or selling a product in the current networked age, then you’re probably familiar with the go-to platform for conducting your business. For example, if you’re a music label, an ebook publisher or a movie distributor, the iTunes store has become one of your go-to selling platforms.

That’s the fourth successful pattern – leveraging the power of platforms. If you can establish your product or service as the standard platform for buying and selling products, creating documents or doing any other kind of revenue-generating activity, you yourself stand to capture a large share of that revenue. Apple, for example, takes a hefty 30 percent cut of the proceeds from products sold on the iTunes store.