Blitzscale or Die: A How to Guide For Startups & Founders with Chris Yeh of Blitzscaling Ventures

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January 27, 2022

Chris Yeh is the General Partner of Blitzscaling Ventures and author of the book Blitzscaling.

Chris co-wrote the book with his good friend Reid Hoffman (who - as many of you probably know - is the founder of LinkedIn). The book explains when and how to focus on scaling rapidly to beat the competition in a winner-take-all market. The nuance is the concept of prioritizing speed over efficiency in an environment of uncertainty.

Blitzscaling is certainly a popular strategy in today’s startup world where everything is moving a million miles a minute, but - as you’ll hear us discuss - it’s not necessarily the right move for everyone. Chris and I talked about some exceptions, including a few companies I’ve personally seen play the long game of organic growth and outlast their competition.

In addition to the book, we chatted about the VC fund Chris started called Blizcaling Ventures - where he leverages the blitzscaling concept to inform his investment strategy.

Chris also shared some awesome life hacks, a hilarious story from the early days of the internet and a pretty awesome personal story about the time he competed on - and won - a game show. Enjoy and thanks for listening.

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Transcript (this is an automated transcript):

MPD: Chris, welcome! How are you?

Chris Yeh: I'm well. How are you?

Happy new year, by the way.

MPD: Thank you. You're actually our first recording in the new year. I don't know when this will be released, but it's early January right now. I want to start off, you, you've got a lot of things you're known for one of your, your big catches is your book. Could you give us an overview.

We just start with led scaling. You explain that concept to everybody and what the book is about.

Chris Yeh: Absolutely. So blitz scaling is my most recent book. I wrote it like I did my other book with my old friend Reed Hoffman. Who's a pretty famous guy and blitz scaling is all about the phenomenon that allows companies to grow so much more quickly than.

And we started writing the book because we're looking around, we were seeing companies that were just growing so incredibly fast and we're like what's behind this and why are there so many unicorns, what exactly is going on? And after really looking through it and looking at here in Silicon valley, looking at China, looking at these different ecosystems around the world, we said, okay, I think we know what it is and what we define blitz scaling as.

The pursuit of rapid growth by prioritizing speed over efficiency in the face of uncertainty. So it's an all out growth strategy and the reason you undertake it is because you're trying to win a valuable winner, take most market.

MPD: I think there's a lot of emphasis on that last bit. When people think strategically about a lot of these markets, they're not all network effect games, right?

We've got markets where there's a lot of big companies that are winners, right? You've got constant contact and MailChimp and many others in the newsletters. It's not a winner take all, but it's a big market. So this specifically focuses on spaces where there's a network effect. Is that right?

Chris Yeh: So there are other ways you could have a winner take most market, but network effects are certainly the primary way that happens. And you know, if you think about blitz scaling, the classic kinds of business models that really lend themselves to blitz scaling are things with strong network effects.

So a social network, for example, has a strong network effect because everyone wants to go where everyone else is going. A two sided marketplace has a strong network effect because the buyers want to go where the sellers are and the sellers want to go where the buyers are. So these are the kinds of companies where if you find yourself in that industry and you're going after.

You got to beat your competition to critical scale because once someone gets to critical scale how many of the auction sites other than eBay, do you remember how many of the social networks from the early two thousands beyond Facebook, do you remember how many travel sites beyond Airbnb? Do you remember?

It's really difficult to succeed. If somebody else has already achieved critical scale. And conversely, if you yourself are the one who's achieved critical scale. The ability to have an impact and the financial rewards are incredible. So who should be reading this book? So obviously the people that we most want to read the book are entrepreneurs, and we want them to read it because now one of the funny things about entrepreneurship and especially about the blitz scaling spread.

Is that historically the only people who employed this strategy were the people who were essentially megalomaniacs, right? Because you had to have this incredible confidence in what you were doing, and you can look at somebody like an Elon Musk is a great example of somebody who's enormously talented, but also has that drive and that utter confidence in himself.

And that's great. And folks like Ilan have done a lot of good for the. But I also believe that there are many more people out there who could be entrepreneur. Who may not necessarily have that set of personality, characteristics who may have no greater sense of social responsibility or a sense of mission that they're trying to go after or something like that who maybe wouldn't have employed a strategy like blitz scaling instinctively.

But if they understand the reasons why it works and why it can apply to their company could actually employ it and build some of these big winners and hopefully build some great cultures as well.

MPD: So look, this is an obvious. For the venture capital world, right? Where there's companies raising tons of dough deploying against growth, it makes total sense.

It's culturally aligned everything about that. Squares. Does this apply to any businesses outside of the traditional venture backed

Chris Yeh: companies? Absolutely. Now it applies in slightly different ways. One of the things that we like to tell people is that blitz scaling is really about relative. And so it's going to vary, depending on the context, obviously in the world of venture growth rates are incredible.

I was just talking to the CEO of a company this morning. They grew 40 times 40 X in 2021 that's venture backed growth, and they have a great investor and hopefully we're going to invest in them. But then there's plenty of other industries where growing 40 X is not required in order to be a blitz scale, or you might be able to grow, 50% a year, but where the rest of the industry is growing 10% a year.

So you can absolutely look outside the traditional tech world. And it's also possible to blitz scale, even things in the social enterprise side. I'm a big fan of social enterprise, big fan of having impact on. And it is absolutely the case that I've gone in and taught. How do you blitz scale social movements?

Because they too can benefit from getting to critical mass.

MPD: Okay. So I get this model in early stage venture, but I think to a lot of folks who are hearing the idea that you're ruthlessly prioritizing speed over efficiency, as you're growing might sound a little reckless. How do you do this without driving off the.

Chris Yeh: And it certainly happens that some companies do drive off the cliff or at least come very close. And there are a couple of different elements to this. The first is we want people to have a deep understanding of blitz scaling itself and why they're doing it. The reason they're doing it is because that speed, that growth confers strategic value.

Now that strategic value may not translate into revenues and. But it is value that you should be able to measure and actually check whether or not your growth is delivering value. If your growth is not creating more value than it costs, then you're destroying value. And that's obviously not a good thing.

The other element of it goes beyond just, okay. Is it a good idea for us to blitz scaling out like the old saying your scientists were so concerned about whether they could do to think about whether they should do it? That's the other thing you have to think about, which is what are the consequences of.

It's one thing to say, Hey, you know what all I'm doing is I'm just building this little business. It's no big deal. I don't really do think about the bigger picture. When it comes to blitz, scaling companies can grow so fast. They got to think about the big picture much sooner than before. And one of the things that we did in the book is talk extensively about the importance of responsible blitz scaling of anticipating.

Hey, what happens if the things that we do now are blown up. To the scale of a global giant is that actually the kind of world we want to live in. And how can we do this in a responsible way? And it really boils down to understanding and assessing the risks, determining to what extent did the risks exist?

How dangerous are those risks? How severe are the consequences, how much uncertainty is there. And you're never going to be able to get rid of all the risks, but if you actually ascertain what risk you think exists, then you can take steps to ameliorated.

MPD: There is a, there are a lot of times where going for speed is certainly appealing and makes sense.

Are there times even within the venture world where the opposite strategy is the right one, even though in venture, going for efficiency over speed is generally counterintuitive. Have you

Chris Yeh: seen that work? Absolutely. There's two different scenarios under which you would probably want to do. The first scenario is the one that applies when a lot of companies are starting out, which is to say, you are trying to figure a bunch of things out.

This is the land of the lean startup. And in that period of time, as you're trying to figure things out, you probably don't want to be burning a huge amount of cash. You want to extend your runway up because you don't know how many turns of the screw it's going to take for you to actually figure out the product market fit and your approach.

So we definitely believe that early on, especially if people are bootstrapping, they're going to try to pursue efficiency because they need just need a certain amount of time and a certain amount of iteration. And there's a limit to what you can accelerate that with money. Now, the other side of it is after a company grows because we don't believe that blitz scaling is a state that a company necessarily remains in forever.

Right? There'll be a time when a business reaches a certain level. It no longer makes sense to blitz. And what we advise entrepreneurs to do is to actually look at leading metrics. And before the trailing metrics actually get to the point where it tells you a, you should slow down, actually look at those leading metrics.

So the example that I often give is Twitter. Twitter is a company which obviously grew very fast for a period of time, but has largely plateaued. And the interesting thing is that Twitter's user count essentially started plateauing in the mid two thousands. And you could see the user growth just level out, but the company kept hiring more people and growing, and the reason was their revenues were continuing to grow.

The company was getting better at monetizing, more and more people were comfortable with advertising on Twitter. So the revenues were still growing. So they kept growing. They're still. But very soon the revenues also plateaued, because guess what if your users plateau, your revenues are eventually going to plateau as well.

They ended up having to lay off a lot of the people they hired. Now, if they were looking at the leading indicator of the number of users and being honest with themselves and saying, oh, if we aren't getting more people in, that probably means we're not going to keep growing. Then they could appropriately say, okay, now we need to manage a bit more for efficiency, which would then give us resources that we could use to try to get.

New avenues. Imagine if Twitter had created the equivalent of Tik TOK, right? That would have been a way for them to continue their growth, try something different. Instead they just kept hiring more and more people to keep selling to the advertisers, the same audience they already had. And guess what there was limits to where that would go.

MPD: It's fantastic. There's there's a business case study that comes to mind when I think about this early phase. The focus really is on efficiency. So a company we invested in called course hero companies perform phenomenally well. It's based out in the valley. It's a unicorn at this point, but the story's really novel.

The founders started the company around 2008 out of college. And at the time he started, there were three or four other competitors. All of his competitors got funded. He didn't couldn't raise. One by one, they paved over the cracks with capital and those companies fell apart and he picked up their assets in some cases, but he methodically built the engine, the machine, the marketplace, and he is the one company's still standing today.

And he's now sitting on a very large success. I'm sure he turned over to blitz scaling at the right point, but his focus on not scaling in the beginning actually ended up being the make or break decision for. What's the right KPI or set of heuristics to think about, to know when to switch from focusing on efficiency to

Chris Yeh: blitz scaling.

So I think the number one thing I will stop and look at just one thing and one thing alone, which is the engagement and it all boils down to this value is created when users engage with the. The only product I could think of where that's not true is insurance, right? Because it is a user of insurance.

You don't want to engage with the product. You want to just buy it and hope you never have to use it. And everywhere else, how much you use the product really has huge bearing on the value of it. Think about the things that are most valuable in our lives today, whether it's apple or Google, or what have you.

These are things we use every single day. Sometimes every single. And so what I'm really looking for is what I call the frequency intensity of usage. And the frequency of usage tells me, okay, this is something that people are actually habitually going to use. The famous example is the toothbrush test that Larry Page describes know the best products pass the toothbrush test.

There's something that you use at least once a day, which means it's very easy to actually develop the habit and always use. And Google is a great example of a product that's like that. But if you just use something once a day for 30 seconds, that's not actually great. I actually want something that you're using all the time, like your smartphone, for example.

And so the intensity of usage is also a big factor. So if you've got something which people use all the time, And they use extensively. That means they value it. That means that you've got something on your hands that could potentially be really valuable. And that's the point at which it really makes sense to blitz scale.

Now, there are times when you might have to start the growth period before you have definitively achieved that kind of product market fit. And then when you do that, But the reason you take that gamble is because you're worried that the other competitors in the space are going to take the same gamble.

And if they happen to be right and they claim the market and they find the fit as they're scaling up, then you're going to be locked out. In the example, of course, hero. What made that strategy work is the fact that there was just so much. To be figured out and notoriously. If we think about the MOOCs and all these other things, people were not finishing them.

People were not getting value out of, they were failing the engagement test. And so they gambled that they would figure it out. They didn't, he made the right bet or she,

MPD: Hey Andrew. Yeah, absolutely. So now this is the second book you've co-authored with Reed Hoffman. Can you tell us about the. Yeah.

So

Chris Yeh: our first book together was the Alliance, which is actually read second book. He wrote a previous book called the startup view with my friend Ben Casnocha. And then the three of us wrote the Alliance together. It came out in 2014. Now the story behind the Alliance is we were trying to write about the changing world of work.

The startup view is all about the fact that as an individual, you have to think of yourself as the CEO of a company. Everyone has to think like a nudge. But the logical corollary to that is okay in a world where everyone thinks like an entrepreneur, how do you manage those people? And so that's where the book, the Alliance was born.

And we originally wrote an article for Harvard business review and Harvard business review liked it so much. Can you expand it into a book? And that's where the Alliance came from. And the basic principle behind the Alliance is that in a world where everyone should think like an entrepreneur, the old models of how employment works are.

There is a model in people's minds. A mental model of a company is like a family that doesn't really work because it's so rare these days for someone to be with the same company, their entire career, you and I are pretty loyal individuals. It's not like we've spent our entire career working for a single large company.

And as a result, When you have this family metaphor, it means that when somebody leaves, you pretend they didn't leave or you pretend they never existed. So the Chuck Cunningham syndrome from happy days where the guy Ritchie's brother disappears up the stairs and just never comes out again, and that is messed up and it doesn't reflect the.

But then the other thing that people do is they go too far the other way. They say, you know what? Okay. Business is just business. There's the famous saying from the godfather it's just business, which basically says, oh, it's okay to act like a psychopath or sociopath when money's involved with that doesn't seem like a good lesson either.

And people think of themselves as mercenaries. As you and I know how many great companies are built by mercenaries, especially mercenaries who are always on the lookout for a client, who's willing to pay them. And so the Alliance is that middle ground, which says, Hey, you know what, employees and employers, employees, and managers, it's not like a parent child relationship.

It's not like a mercenary client relationship. It's like an Alliance or relationship between two independent parties who are voluntarily coming together for some reason. And the idea behind the Alliance is that let's just make it really explicit. What those reasons are. If I'm an employee, I want to know what's my name.

What constitutes success and what's that mission going to do for me and do for the company and same thing for the company wants to achieve certain goals, launch a new product, open a new office. Let's find the person who can make that mission happen successfully. And if everyone knows what mission they're on, and everyone knows the success conditions of what they get out of it, it also means that as they come closer towards the end of that mission, you can figure out another.

And it could be within the same company. We definitely encourage people to have people have longer job tenures, or it could be at a different company, but then you could maintain an Alliance that's independent of the employment relationship. You can still have great relationships with your alumni and be able to work together with them in the future.

MPD: So there's probably a lot of folks who think about this framework at some level. And there's a lot of managers out there who probably haven't given it any thought. But there are habitual things. People do that they've either learned from other people who had mentored them, or they saw people doing who had managed them.

What are some of the pitfalls that people do in the kind of the new state of employment that you think are commonplace and are easily avoidable?

Chris Yeh: There's a bunch of things that just drive me up the wall. So one of them is the notion of internal mobility. So almost every company I've ever talked with, I've worked with a lot of large companies, as well as startups will say, we really want to develop our people.

We really want our managers to develop the people that work for them. I said, that sounds interesting. What is the specific bonus or benefit that those managers get when they enrich their people and send them to work for other people in the company? And the answer is all as well. None I'm like, okay, so let me get this.

You want to encourage your managers to develop their people and then take their best people whom they rely on to make their numbers and get their bonuses and let other people have them and then get no reward for that. They're like when you put it that way, it doesn't seem like it makes much sense.

I'm like, yeah, it does. And so that's what it really boils down to. There's so much of this fear of development because of the improper incentives that are there, managers will sometimes say crazy things like, oh, I don't want to pay for this training or send to these classes because if I do what, if they leave, I'm like, yeah, that's true.

They might leave if there's a better opportunity somewhere else. And if you had a better opportunity somewhere else, you'd leave. Your question you should be asking is not, can I starve my people of development so they never leave the question you should be asking yourself is how can I make this, the kind of place where people will continually volunteer to be a part of it so they can accomplish great things.

I love that.

MPD: Okay. So you've been writing books at Reed Hoffman. He's obviously a big name. Is there a backstory on how you guys became co-ed there's

Chris Yeh: absolutely. And it actually goes back a long way. And even before reading and I knew each other, ironically enough. So we finally met for the first time when Reed was starting LinkedIn.

And I was interested in LinkedIn because LinkedIn was part of this first crop of social networks, essentially Friendster, tribe, and LinkedIn all came out at the same time. I became aware of them because I met Jonathan Abrams, who is a, now a venture capitalist with a capital, but he was the founder of friends.

And he told me about Friendster before it came out. I said, wow, that's a fascinating idea. And so I was following the concept of social networking very closely because oddly enough, before a couple of years earlier, when I was still in business school, one of the things I was thinking about, I didn't know the term social network at the time, but one of the ideas I was looking at is can I do.

What is essentially a social network of people in the south, in the startup space. I never ended up doing that. Perhaps we wouldn't have been a good idea or perhaps it would have been too early. It's almost hard to say, because if you may remember you and I are old enough to remember this, there were things back then that were a big deal, like round zero, which ultimately never went anywhere.

Although I do think that the connection has benefited the founders. Anyways, when the social networks came out, I looked at him. I said Friendster, that's good for getting dates, but I'm married. So that's useless to me and tribe. That's good for people who are like in a motorcycle gang or into polyamory.

And that's not me either. So that's useless. And then there's LinkedIn, which is for people who want to stay in touch with their business contacts. I'm like, that is something that fits me like a glove. I'm actually one of those people who back in those days, Had their Microsoft outlook folders and their contact list.

And I would actually type into the contact list. Here's how I know this person. Here's the name of their kid. And here's something that we talked about just so I would have all that context and what do they do? And so on and so forth. And then here it was, LinkedIn was automating that for me. So I was like, wow, that's fantastic.

I'm going to sign up. It turns out I'm roughly user number 3000 globally overall in terms of chronologically. So I came in really early. And I saw that the founders were all fellow Stanford alums. That's where I went for my undergraduate work and I just reached out to them. And that's how I got to know Reed and the other founders of LinkedIn.

And I actually had read, come and speak at events for Harvard business school to tell them why they should as Harvard business school, alumni joined this new thing called LinkedIn. It's pretty obvious now, but it wasn't then. And we developed a relationship and had co-invested in a dealer too. And so that's how we knew.

But it actually goes further back than that, because the interesting thing is that Reed and I actually had similar experiences in thinking even before then. So Reed also went to Stanford, as I mentioned, he went five years before me, so we were never overlapped on. But we did many of the same programs and it was that balance of the humanities and technology.

That's pretty rare. So Reed was a part of something called structured liberal education, which I am as well, where you spend your freshman year at Stanford, reading philosophy, history, art, and literature, and basically having these two to three hour discussion groups every day. About these great books and works.

And so we had gone through that similar experience. And then I had also again, had that humanity scientist split read, studied symbolic systems, which was very new when he studied it. It's essentially a combination of computer science and philosophy. And then I have a degree in product design engineering, which is a combination of mechanical engineering and studio art.

And then I also have a degree in creative. So we had a lot of these things in common and the final sort of odd coincidence is that Reed's first startup was a failed social network called SocialNet. He started it up during the.com boom. It didn't work out. And one of the few people to sign up for social net was one Chris gay, who signed up for social net with the handle net revolution.

MPD: Great handle. Okay. So here's a question. A lot of people wonder when they see books written by known names. Did you guys actually write it? We actually

Chris Yeh: do. And ghost writer in there. You know, this is one of those interesting things you can absolutely get a ghost writer in. And there are a Mo I had a friend who was a very prominent ghost writer, had worked with a lot of big names, including one that you and I may remember, but most people don't know Kevin Mitnick who at one point was the most famous hacker in the world.

And it is a very lucrative. But in the case of Reed and myself, our interest actually is in the process of writing the book, as well as having written the book. A lot of people, they just want to have the book written and I get it because writing a book is really hard work, but both Reed and I, we think of ourselves as intellectuals.

And part of the fun is working through the idea. Although, I will say that we have a division of labor. I will tell people say what does that mean? That you write all the books and no, no, we write it together. But I do the majority of the typing. So I will definitely admit to that. I do the majority of the typing, but the way it works is a lot like we're doing now with this podcast, we'll start just by having a conversation.

And sometimes we'll record it and turn it into podcasts. And sometimes we write. And then we'll build it, those ideas. And after we've talked through the ideas enough where especially this is what Reed excels at, he's put it into a framework like these three elements go together. These four elements go together, then I'll say, okay, I've got all these notes.

I've got all these transcripts. I'm going to go off and write like a chapter. And then we'll come back. We'll work through the chapter together. So that's how we do it. That being said, there are a lot of people who help us along the way. We've had researchers come in and help pull that information.

It's not just him and I Googling and looking for these things. We've had friends of ours who've contributed. I know when we were working on the Alliance, for example Adam Grant that we had written Adam Grant saying, Hey, here's what we're working on. And he wrote back to wow, that sounds great.

And here's six scholarly articles. You should check out. I'm like, whoa, thank you, Adam. Again, I have no idea how a guy that important and that prolific has to have time to help everyone, but he helped us. So we certainly didn't do it by ourselves. We had tons of support, but we do believe that there's value in actually writing the books.

MPD: Yeah. I feel the same way. I wrote a book. I'm the worst book promoter on her. I make zero effort to tell anyone about it. It's out there in the ether on Amazon. But I wrote it to learn the content, heard a book on how to raise venture capital as an entrepreneur kind of sheep in Wolf's clothing within the VC game.

And by writing it, I just learned so much about how to think about doing the job as a VC and how to coach entrepreneurs. Speaking of VC, let's switch over. So you've parlayed your book into a fund. Do you want to give us the overview of what you do?

Chris Yeh: Absolutely. So I have a fund called blitz scaling ventures, truly original name, as and what we do is very straightforward.

We follow the activity of the top 30 or so venture capital firms. We look at all the deals that they do. Grade them on blitz scalability. That is, to what extent are they tackling a winner take most market that's highly valuable. To what extent do they have the kind of virality or other distribution that will allow them to grow quickly?

Are they going to be profitable? Are they going to be able to scale? Have they achieved that product market fit and engagement I was talking about. And based on that, we take the deals that those companies do which is probably about 1500 deals a year. We narrow it down, get it down to something like a five to 10 companies a month.

Then we dig into them, research them, try out their products and ultimately out of that 70 or so companies per year, we'll pick for a year to invest in. And obviously, there's a lot of value to being able to pick these great companies. We feel like we're almost cheating because we're picking from the companies that have already attracted investment from the best VCs in the war.

But then the big trick is how do yo