I have started reading “BLITZSCALING - THE LIGHTING-FAST PATH TO BUILD MASSIVELY VALUABLE COMPANIES” by Reid Hoffman and Chris Yeh

“Prioritizing speed over efficiency... In any business where scale really matters, getting in early and doing it fast can make the difference... This is important for big, established cos too... Even a few months of hesitation can mean the difference between leading and chasing.”

“The key was an aggressive, all-out program of growth that we call blitzscaling. Blitzscaling drives “lightning” growth by prioritizing speed over efficiency, even in an environment of uncertainty.”

“There have been other revolutions in the past - steam, electricity, and radio spring to mind - but what makes the impact of the Internet so unique and so far-reaching is the fact it has made everything so much faster.”

“Everyone should learn how blitzscaling works, because it is already impacting their lives. And once they know how it works, they can use it to reshape the world. People should be part of building the future rather than feeling like the future is being forced upon them.”

“Silicon Valley’s 150 most valuable publicly traded technology companies ... account for over 5% of the entire world’s market capitalization. That’s a lot of value created by a region with an estimated 3.5 to 4 million residents, or roughly 0.05% of the world’s population.”

Someone should put together and sell an ETF made of Silicon Valley’s 150 most valuable publicly traded technology companies.

“There’s a common misconception that Silicon Valley is the accelerator of the world. The real story is that the world keeps getting faster - Silicon Valley is just the first place to figure out how to keep pace.”

A QUICK NOTE ON THE TERM “BLITZSCALING”

“The classical approach to business strategy involves gathering information and making decisions when you can be reasonably confident of the results... This cautious and measured approach falls apart when new technologies enable a new market or scramble an existing one.”

“When a market is up for grabs, the risk isn’t inefficiency - the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant.”

“Today’s new technologies impact nearly every part of the economy, creating many new opportunities. This trend holds tremendous promise. ... Blitzscaling can help these advances spread and magnify their sorely needed impact.”

BLITZSCALING TECHNIQUE #1: BUSINESS MODEL INNOVATION “technology is no longer as strong a differentiator, while figuring out the right combinations of services to bring together into a breakthrough product has become a major differentiator.”

BLITZSCALING TECHNIQUE #2: STRATEGY INNOVATION “Blitzscaling businesses play in winner-take-most or winner-take-all markets. The greater risk for a successful, growing business is to move too slowly and allow its competitors to win market leadership and first-scaler advantage.”

BLITZSCALING TECHNIQUE #3: MANAGEMENT INNOVATION “The kind of growth involved in blitzscaling typically means major human resources challenges.”

“Great companies and great businesses often seem to be bad ideas when they first appear because business model innovations - by their very definition - can’t point to a proven business model to demonstrate why they’ll work.”

Anyone who says he/she can consistently spot these winners while still young is probably lying.

GROWTH FACTOR #1: MARKET SIZE “The most basic growth factor to consider for your business model is market size. ... Ideally, the market itself is also growing quickly, which can make a smaller market attractive and a large market irresistible.”

GROWTH FACTOR #2: DISTRIBUTION “business model innovators who have succeeded have had to find ways to get broad distribution for their product - without spending a lot of money. These distribution techniques fall into two categories: leveraging existing networks and virality.”

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.”

VIRALITY “”Viral” distribution occurs when the users of a product bring more users, and those users bring additional users, and so on ... Virality can either be organic - occurring during the course of normal usage of a product - or incentivized by some kind of reward.”

GROWTH FACTOR #3: HIGH GROSS MARGINS “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.”

“The key insight here is that even though gross margins matter a great deal to the seller, they are irrelevant to the buyer. ... you focus solely on the cost to you, and the perceived benefits of the purchase. ... If possible then, a company should design a high-gross-margin bm.”

GROWTH FACTOR #4: NETWORK EFFECTS “the final growth factor plays the key role in sustaining that growth long enough to build a massively valuable and lasting franchise.”

FIVE CATEGORIES OF NETWORK EFFECTS

“The Internet has driven the cost of discovery for products lower than ever... the efficiencies enabled by the Network Age make it easier to sustain the pace of rapid growth... the remarkable profitability of these cos gives them the financial resources to invest in the future.”

GROWTH LIMITER #1: LACK OF PRODUCT/MARKET FIT “Product/market fit means being in a good market with a product that can satisfy that market. ... Unfortunately, it’s far easier to define product/market fit than it is to establish it!”

GROWTH LIMITER #2: OPERATIONAL SCALABILITY “Airbnb founder Brian Chesky describes this strategy succinctly: “Do everything by hand until it’s too painful, then automate it.””

PROVEN PATTERN #1: BITS RATHER THAN ATOMS “The central event of the 20th century is the overthrow of matter... 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.”

PROVEN PATTERN #2: PLATFORMS “These platform revenues tend to have very high gross margins, which generate cash that can be plowed back into making the platform even better.”

PROVEN PATTERN #3: FREE OR FREEMIUM “But sometimes a product doesn’t lend itself to the advertising model, as is the case with many services used by students and educators... Here is where the innovation of freemium comes in... The free product was a tool for discovery”

PROVEN PATTERN #4: MARKETPLACES “Although marketplaces, even local ones, have always been a powerful business model, the changes ushered in by the Network Age have made them potentially more valuable than ever.”

PROVEN PATTERN #5: SUBSCRIPTIONS “Subscription sales and delivery model provides a larger market size and better distribution than traditional models... A less obvious benefit: the predictability of its revenue streams allows it to be more aggressive with long-term investments”

PROVEN PATTERN #6: DIGITAL GOODS “In addition to enjoying the advantages of any bits-based business, digital goods tend to have nearly 100% gross margin, since they are purely digital and usually do not add significantly to infrastructure or overhead costs.”

PROVEN PATTERN #7: FEEDS “One of the most underrated and underappreciated proven patterns is the news feed. ... Twitter, whose product is essentially one long news feed, ... scaled massively because of the power of business model innovation, not product or technology innovation.”

UNDERLYING PRINCIPLE #1: MOORE’S LAW “Moore’s Law no longer refers specifically to transistor density; rather, it predicts that computing power tends to double every 18 months...it appears that the true limit of Moore’s Law is human engineering ingenuity, not solid-state physics”

UNDERLYING PRINCIPLE #2: AUTOMATION “Blitzscaling companies use automation. If they have the ability to perform a task (which is a big if), computers are almost always faster, cheaper, and more reliable than human beings.”

UNDERLYING PRINCIPLE #3: ADAPTATION, NOT OPTIMIZATION “This emphasis makes sense in an environment where companies need to seek product/market fit for new and rapidly changing products and markets.”

UNDERLYING PRINCIPLE #4: THE CONTRARIAN PRINCIPLE “Being contrarian and right gives you a huge advantage because you get a head start on achieving scale. ... Being contrarian doesn’t mean that dumb people disagree with you; it means that smart people disagree with you!”

This is why generating alpha over the long term is so difficult and unpredictable: you must be both contrarian and right, which means that smart people disagree with you and are wrong. And you must sustain this kind of performance for many years. Is it a game you want to play?

Analysis of Market Size, Distribution, Gross Margins, Network Effects, Product/Market Fit, and Operational Scalability, for LinkedIn, Amazon, Google, and Facebook follow.

Strategy Innovation A BIG NEW OPPORTUNITY “The cost of blitzscaling, even when successful, is usually quite high. It simply isn’t worth the risk and pain to use blitzscaling to pursue a small opportunity.”