Blitzscaling: What it Takes to Scale Companies to Great Heights
Last updated: 11/9/2023
This content is intended for past participants of First Row’s workshops and is on an invite-only basis. If you’d like to share this content, please reach out to Yoko or Minda.
About
Chris Yeh, Founding Partner of Blitzscaling Ventures and co-author of the book, Blitzscaling, joined us to share stories and insights about the idea of blitzscaling and what he looks for in companies. Minda met Chris during a Sutton Capital fund manager accelerator last year and enjoyed his perspective.
Chris noted that it can be hard to identify companies and founders that are ready for blitzscaling before Series A or B. Since First Row invests in the pre-Series A stage, it was helpful to hear how he looks at and identifies the companies where he thinks that applying the blitzscaling methodology would help them win the market.
A good chunk of our discussion also focused on assessing the potential for hyper growth within company leadership. The point about both providing resources to employees (such as a stipend) as well as modeling usage within the leadership team were helpful tactical examples that help extend some of the discussion we had with founders around hiring and retention in Q4.
Video
Notes
Idea behind 1K Project is very much blitzscaling in philanthropy: How can we grow as quickly as possible. (Plug for 1K Project Ukraine — ping Minda if you are interested in hearing more!)
90-sec summary of the book (Blitzscaling): “I wanna go fast, and if you ain’t first, you’re last.” (Thanks, Talladega Nights)
Looking for winner take most situations. For Chris, this means that about 5% of the deal flow he sees passes the criteria. So it’s rare, but important when it exists.
For these founders and company growth, they must prioritize speed above everything else.
Q&A
Q: What are the specifics you look for in qualifying companies? Tell us about this concept of the Reverse Pitch?
Reverse pitch: We look at companies, then go to CEOs where we think we’re interesting/that blitzscaling would apply.
In general, we work with the top firms, as they have the ability to attract top talent and investment. Sometimes there are VCs on our list that may no longer belong (Kleiner Perkins, etc.) — but those names are still meaningful in attracting LPs.
However, we don’t wait for the VCs to bring us deals, since we’re often fighting our way into a deal. We never lead, but work to get allocation in deals that are oversubscribed. To do this, the relationship with CEO must be strong enough that we can get in.
We review 250+ deals/mo. Scored on 1 -10 in 7 categories. Top 2 categories are: Winner take most; Distribution strategy (is there a scalable distribution strategy that allows them to grow quickly). We also look at things like market size, gross margin, PMF. Lastly, overall organizational and operational scalability — some companies are built around hacks, so no longer can grow efficiently at a certain point.
Operational challenges aren’t a dealbreaker: Sometimes, companies are operationally challenging (Amazon), but at scale, makes it hard to enter. Similar stories/idea with businesses based in SE Asia.
It’s hard to identify a blitzscale opportunity at the earlier stages. The signals start to show up more often at A, B etc.
Q: Founder demographics: Is blitzscaling only available to who fits the mould?
For the fund: We have set of rules (see above). So often have to deal with upstream challenges and biases. However, we work to counteract this in a number of ways:
Make LP base diverse.
Build blitzscaling fellow problem that is diverse - they help to scout in different regions.
In a world of winner-take-most markets, not taking risk is the biggest risk = no chance that you will be the winner.
For example, the company I was a part of (Ustream). We competed with Justin TV (>> Twitch).
Investor friend saw the same pitch at YC when we were working on UStream — there’s often something “in the air” that brings similar ideas to fruition at the same time.
UStream sold for $130M to IBM (6x), but not the billion $ outcome of Twitch — they found a specific vertical that really allowed them to grow faster.Presentation Slides
Q: Leadership team and their ability to grow and learn quickly. What are the ways that companies can structurally set themselves up for growth?
Leadership must be open to learning. Focused on “let’s think this through.” — I see this in VCs that say “my gut says this isn’t going to work” — Tell me why! Be an explicit learner so you can share and spread the idea. Gain the support for your point of view.
There has to be some investment in learning structure. Both resources AND modeled usage. Classic = stipend for learning, but leaders need to be modeling usage for it to have an impact.
Be willing to let things play out differently than you’d like. CEOs often have a desire for “enterprise control”. You’ll never grow otherwise. Need to accept imperfection of others not thinking like you — this is a feature, not a bug.
Q: When you’re asking CEOs to do something so differently from what has gotten them to that point (executive control), what are the examples of wheels falling off the bus?
Uber CEO is a great example of a good early-stage person who did not scale or adjust. Management technique also didn’t make sense at the size and scale of companies.
Q: Are there examples of when you’ve given feedback to CEOs where it has generated change?
CEOs and founder CEOs are often set in their ways, so very hard to have them change.
One CEO worked with Bill Campbell to work with them, but could not change the CEO.
Q: Balancing “great idea (seeing something that others don’t) that got you here” with growth.
Tell me why you aren’t listening to others?
If someone is acting on what they’re actually observing and be an explicit learning that can share whether they are willing to listen to unreason. Elon Musk is a good example of this - has some core insights that are based on something and often has the ability to tell you why he isn’t listening to something. Delivery could be improved, of course.
Q: Ethics since you wrote the book. How has your thinking evolved on the set of tradeoffs you make, or the active harms within blitzscaling?
Chapter on responsible blitzscaling. Many founders skip this. But fact of the matter is that rapid scaling makes it really dangerous and it’s not always apparent.
For LPs and angels: Ask yourselves. What are the potential harms that could be produced by what we’re doing. How severe are the consequences? How widespread are the consequences? How systemic are the consequences? (Are there cascading effects)
Facebook is a good example - did anyone in 2012 know that it could be the downfall of democracy? For example, they were tasked with generating more engagement above all else.
Q: When a company is scaling and succeeding, you get the copycats. What’s your advice?
Layer 1: If you are in business with a lot of network effects, then you’re OK — can copy features, but not copy network.
Layer 2: Internal expectations of team. Making sure they understand competitive advantages.
Layer 3: Ask whether they’re doing anything different that could give them an advantage. Look and see what the product actually does - see if it actually does the thing they said it does.
When there’s big companies (Google, etc.) in the space: Doesn’t matter how much market power you have until you start to see the distribution start to work.