Blitzscaling At Larger Organizations with Reid Hoffman and Sarah Guo | Greymatter

Hi listeners. I'm Reid Hoffman. This next episode of Gray Matter dives into sections of my new book, Blitzscaling the Lightning Fast Path to Building Massively Valuable Companies. We share stories and advice from entrepreneurs who've grown companies from zero to a gazillion. To learn even more about how to scale at a dizzying pace and blow competitors out of the water, you can pick up my book on blitzscaling.com, amazon or at a US bookstore near you. Enjoy. Greylock Partners Podcast Grey Matter thank you.

Hi everyone. Welcome to Grey Matter Greylock Partners podcast that offers perspectives and stories from some of the world's top tech entrepreneurs and business leaders. I'm Sarah Gua, General partner at Greylock and I'm joined again with Reid Hoffman and Chris Yehudis for the last episode in the five part series where we dissected their book Blitzscaling the Lightning Fast Path to Building Massively Valuable Companies and shared stories and lessons from Greylock investors. Welcome back, Reid and Chris, great to.

Be here with you, Sarah, as always, it's wonderful to be here.

Many of the examples we discussed in the series around Blitzscaling talks about Silicon Valley tech companies, but obviously you wrote this book with the intention that these principles apply far beyond this domain. Why is Blitzscaling important for everyone to understand?

So blitzscaling is the speed at which industries are transforming, is accelerating both domestically and around the world. We live in a much more connected, a hyper connected world. Competition come from anywhere. Customers can be all around the world, talent is all around the world that is setting the tempo at which all industries are changing. For example, there's this thing called the topple rate, which is the number of companies that fall out of the s and P500 that's accelerating. And so all companies, all industries want to understand what this acceleration clock looks like, what's driving it, and then how do they navigate it? How do they essentially say, okay, I reinvent myself, I pivot, I change, I elaborate, I defend, and what are the ways that I need to operate now that the world is moving at this new speed?

And one of the interesting things to note is that even though blitzscaling is clearly something that people associate with Silicon Valley and also China and with high tech, we give a number of examples in the book of non technology companies that have achieved massive scale extremely quickly, ranging from the shale oil and gas drillers in the United States that sparked this energy boom, to companies like Zara Inditex, which is actually a fast fashion retailer that has used the principle of Speed to become one of the most valuable clothing companies in the world. So there's nothing about the principles of blitzscaling that say you have to be a technology company. It certainly helps to be a software company or an Internet company. But blitzscaling is relative, which means if you're able to move much faster than your competition and achieve scale and drive some sort of long term competitive advantage, and it doesn't matter what industry you're.

In, let's talk about advantage and disadvantage then. What about companies that are already at that nation state scale? Can you talk a little bit more about how they should apply blitzscaling principles?

So the choice of blitzscaling is frequently, is a competitor going to do that or do you need to do that in order to get to scale? Those are the most central places to make a decision about blitzscaling, frequently for the traditional industry or for existing nation state companies. The question is how is the landscape changing and will there be new blitzscaling competitors to the products and services you're offering, in which case what you want to do is think about, okay, well what should be my response? Should I try to elaborate the value of my product or service that kind of build the moat more deeply? Should I try to do a blitzscaling thing myself and be somewhat self disruptive? Should I try to essentially collaborate with them and kind of make room for them or should I try to move to a different industry, different business? Should I pivot like for example IBM, we're not going to focus on actual hardware as much. We're now going to shift to services. Which of these things am I going to do and what's the wisdom and the decision choice given what the landscape of that new technology is, the new marketplace that is opening up and that is a key portion of the management decision which will vary by specific company and by specific industry.

That resonates with me. I spent a lot of time at Greylock Talking to Fortune 500 Global 2000 executives of tech and non tech companies. And they're often partners and customers with our portfolio. But one thing we're seeing more and more is the first thing you touched on. Our competition is not just our traditional competition. More and more these executives think, I don't want to be Netflixed, Ubered, Amazon. And I know this disruption is coming to my industry and it's coming faster than we've been able to execute in the past. So you talk about some advantages that these nation state companies have in the book. Amazon is one that's the envy of everyone. What was Their strategy.

One of the most amazing things about Amazon is that they have built this incredible Amazon Web Services business. And by the way, this service was built after Amazon was already a nation stage company. Amazon had 17,000 employees when they introduced Amazon Web Services. And one of the interesting things about Amazon's development of Amazon Web Services is the fact they're able to leverage the scale of the company rather than suffering from the scale of their company. So the fact that Amazon already had a massive technology infrastructure and had done the work to make that a service oriented architecture, a modular architecture so they could easily add or subtract computing power was what enabled them to launch Amazon Web Services. If somebody tried to build Amazon Web Services from scratch as a startup with five people in a room, it would have been nearly impossible. But Amazon was able to do it because they leveraged their existing assets.

What about a less well known story? Quicken Loans and Rocket Mortgage In a very competitive environment, I think people expected Amazon to be a winner in its markets.

Well, I would actually say that people weren't necessarily sure. I remember very distinctly a BusinessWeek cover story about Amazon which featured Jeff Bezos and had the headline, jeff Bezos wants to sell you computing power, but his investors think he should just mind the store. So there was a lot of skepticism about Amazon Web Services as well. But when it comes to something like Rocket Mortgage and Quicken Loans, it demonstrates that you can apply these principles of blitzscaling in a radically different industry. In this case, it's not even technology, it's providing loans, although it is of course enabled by technology. Now, Quicken Loans was already one of the market leaders in making it relatively easy to originate mortgages. But by building Rocket Mortgage as a standalone Internet consumer focused brand, the they were able to dramatically improve their overall revenues. I think that Rocket Mortgage generated something like $9 billion worth of mortgages in its first year, which helped propelled Quicken Loans to an even greater position of prominence and leadership in their field. And this is something that occurred because they were willing to actually undertake the effort to build a separate product, to build a separate business line, and to apply the principles of blitzscaling to build it.

And one of the key things that both the examples of Amazon and AWS and Quicken Loans and Rocket Mortgage is sometimes what you're thinking about when you're an established company is there are assets that can allow you to do something that where you can blitzscale in a new direction, where you have a maybe unique or maybe very small competitor set where you can establish a New set of things. So for example, in the case of aws, that's. Well, we already have a whole bunch of servers. We have to have them because we have to have run peak time during the holidays. And so we actually have this all during the rest of the year. And so we already have something where we can start offering and we can start iterating this product where other people don't. And we can essentially blitzscale into this area, which makes it very difficult for either startups or many other, not all other, but many other competitors come in. Similarly, if we have an infrastructure for acquiring customers for making financial decisions, we can also say, well, we can launch a new mortgage product and we can say, okay, we can use that to go out and do that. Where a startup might have to establish that we can leverage that in order to move faster and get into this new market in a way that suddenly we move from zero to very large at a speed that we then dominate and are the leading product in the market.

What about iteration as an advantage? Scale seems intuitive. Iteration as an advantage for a big company seems counterintuitive.

So one of the things that people misunderstand about innovation is that actually, in fact, an important set of innovation that is in many of the products that we love and adore is through iteration. You can see it in cars, which start with, okay, this is how we get improved safety and safety bags and music systems and GPS systems and fuel efficiency. And all of that just iterates year by year. A personal example that I really like is Microsoft and Xbox. When they launched, people were like, well, but there already are consoles and they already have developers and they already have hit titles on them. How can you possibly establish a new valuable franchise in this area? And Microsoft's grit at staying with it and saying, look, we know that year by year we can make this better. We have expertise in computing, we know supply chains, we have a lot of relationships with developers. Now we need to do that in the entertainment side in the game space. But by continuing to do it, eventually they got hit titles, eventually they created a whole ecosystem that works on Xbox. And now it's a hugely valuable franchise that literally you can see people sharing pictures of themselves like hugging their Xbox because that's the level of love and engagement within the product.

In the example of Google and Waymo, in the book, you see a company that has overcome some of the obvious disadvantages of being nation scale, slow speed, inability to take risk, to take on a project that is very unique. Talk a little bit about what the Advantage was that they leveraged there.

So one of the key things to thinking about how do you blitzscale once you're an established nation state company is to think about where do you have unique assets that allow you to extend into a market where a whole bunch of startups don't necessarily have that. That can be like the enduring commitment by Google with Android. But another particular interesting one in innovation is Waymo and the autonomous vehicles group, because they said, look, we think that this is a solvable problem and we can just work on it for years. We have the economic wherewithal and we have the leadership commitment that will hire some of the best talent in the world. Chris Urmson, for example, from cmu. And we will build this new product and by staying with it and by continually iterating and not saying, oh, that mountain is too difficult to climb, but also exercising judgment about which mountain you're climbing and how you do it, and being very systematic like Chris Urmson, that allowed them to essentially show the world that autonomous vehicles were not only possible, but actual.

One final advantage that is often limited to companies at nation state scale is M and A. How is that part of somebody's blitzscaling strategy?

Well, one of the key things is acquire a company that's blitzscaling. You can also acquire a company that you can facilitate blitzscaling. And one of the examples I really like is Facebook with Instagram because it's a little bit of both. Instagram already had this massive growth curve. It's one of the reasons why John Lilly from here at Greylock had invested in it. And Facebook looked at it and said, well, this sharing of pictures is really key to our mission. And if we acquire it, we can actually make it grow even faster. We can provide the infrastructure for the servers, we can provide the user analytics to understand the growth channels, the engagement channels, and we can provide the economic models that allow the compounding business model to facilitate that growth. And Instagram has been one of the literally picture perfect acquisitions by large companies of nation states, of established companies, of up and comers, and creating incredible new product areas. The other one I also of course had personal experience with was selling PayPal to eBay, which was another one that was accretive revenue per share in the first quarter because of the way that.

You put them together so suddenly in this capital environment, just in the last year or so, there are various funds offering hundreds of millions of dollars to companies at earlier and earlier stages. If you think about that, how does that change how entrepreneurs should think about their blitzscaling strategy.

So obviously, in one part, with blitzscaling, the ability to have blitz capital, the ability to have a lot of capital in order to move fast, is important. Now, as these capital numbers begin to also change orders of magnitude, there's an obvious opportunity, which is how do you out distance the competition? How do you break free of the competition by using that capital? And if you have a strong management team and a strong discipline how to do that, that's something worth considering and worth potentially doing. But it also has a parallel, almost like the blitz failing, which is you can raise too much capital and the capital can kill you. You can start making bad decisions, you can start thinking, oh, I've got a ton of capital, so it doesn't really matter that I make these decisions in effective ways. And it isn't just capital efficiency as much as which strategy do you take. And so you have to be very cautious about, not to say don't do it, but very cautious about the decision to take that capital. And usually that's important, not just have a strong management team, but have strong partners in your financing partners, and to do that as part of a proactive strategy, rather than just a simply defensive strategy.

So entrepreneurs and leaders around the world are going to read this book and we're going to see a lot more blitzscaling companies, which means we're also going to have to defend against them as incumbents or as new founders. What are the defensive strategies here?

So if we were to summarize those defensive strategies, we would say that you can beat them, you can join them, or you can migrate away from them. And it boils down to those three simple choices. Blitzscaling is winner take all. And that means that either you have to be willing to make the commitment to actually win that battle, or you have to decide, I'm going to become a part of the winning effort. If you are unable to do either of those for whatever reason, then you need to find a new playing field. And as we've talked about in the past, companies like IBM said, you know what? Personal computing is not for us. We're going to become a services company. So it's possible to make that migration even if you're a very established company, even if you've historically been a market leader in a particular space.

One thing that we've recognized at Greylock is about half the world is B2B companies, and half the world is B2C companies today. And it would be intuitive to say that this blitzscaling strategy is really oriented toward B2C companies. But we see an interesting dynamic today where with the consumerization of IT and more network effects in enterprise businesses, it's applicable in B2B increasingly. And so I think one of the things that we focus on at Greylock is figuring out as markets and enterprise also become increasingly winner take all. How can we counsel companies to implement these strategies effectively too?

This is one of the strengths that I think Greylock brings as a partner to the entrepreneurs, which is we both have experts within the enterprise and the B2B Arena. And how do you essentially focus on companies as your core customers? You build salesforces, products that have the right fit, et cetera. And we have a consumer practice, which is, how do you build marketplaces? You've got everything from helping get Palo Alto networks off the ground in the enterprise side to Airbnb on the consumer side. There are key lessons that you learn that actually go both directions. And so by actually having expertise in both of them and by having an expertise in kind of company building, and the fact that how do we actually go through these various levels of scale that we describe in blitzscaling is one of the things that I really like working with my partners here at Greylock.

Me too. Chris, you mentioned migrate as a possible reaction to facing a blitzscaling competitor. That can be interpreted as a pivot, a death sentence for a very focused early stage company. How do you guys advise entrepreneurs in this position?

So when it comes to figuring out how to migrate, that's something that's actually quite a challenge. Obviously, entrepreneurs begin with a vision in mind of the market they're going to attack and the product they're going to build as a result of that. And so for them to give up on that vision and switch to something else can be very difficult. But when it comes to blitzscaling, sometimes you have to be unemotional. You have to evaluate the market, evaluate your position in the market, and decide, do I have a realistic chance of winning or not? Because if you don't believe you have a realistic chance of winning in the marketplace, you need to find a new game. And I would just sit down with entrepreneurs and ask them to really look within themselves and say, do I realistically believe I'm going to win? And if the answer is no, the answer is either to pivot or. Or to try something new.

One of the key parts of the wisdom that the Silicon Valley network teaches all the people in it is the virtues of failing fast. Because you'd much rather fail fast than fail slow. Because if you fail Fast you can learn, you can pivot, you can change. And so how I advise executives, founders is to say you have an investment thesis about the path you're on, the project you're doing. If over time, your confidence is just going down in your investment thesis and the best ideas you have to change that prospect, your judgment about what you can do, those aren't working. That's when you go, now is time to change. It's a pivot. It's a jump to something new. Don't just keep doing the same thing you were doing and hope for the best, because that almost always ends up in failing slowly.

And for people who are really interested in the topic of pivoting, I think one great resource for them is the Masters of Scale episode on the Pivot, which features Stuart Butterfield of Flickr and Slack, both of which represented major pivots from his original idea.

I think it's actually going back to the ability to recognize the signal and take risk. It's a privilege to see some of the companies that have emerged from this, as Reid said, successfully early in their lives, as companies. Right? So as examples that range from Docker to Nextdoor to Discord to Slack, these are companies that in their first few years saw decreasing confidence in the thing they were doing and a signal in something else. Zooming out a little bit, we've talked all about the benefits of blitzscaling for a broad audience. It's clearly important for entrepreneurs to also understand the unintended consequences of blitzscaling and where they need to check their strategy. How do you think about that?

Obviously, in an ideal world, from an individual's, entrepreneur's point of view, blitzscaling wouldn't be as important because you'd have all the time to do things perfectly, to do things with minimum error rate, to craft exactly what you like, and to make all those decisions very thoughtfully. It's because we're living in an accelerated world, this networked age of hyper competition. That means that blitzscaling is a key strategy that sorts between those who thrive and those who fail to survive. And so that tends to lead you to this view that, well, just blitzscale and nothing else matters. But of course other things matter. It matters what kinds of company you build. Do you have the right kinds of culture for diversity and inclusion? It matters. What's your impact on society? Are you proud of what your company does? Are you proud of the product or service that hopefully massively improves people's lives? So the pattern that you need to do is not to say you Ignore these questions, but you sort them in terms of, well, which of these things do I have to solve right now? Because they will only be good later if I solve them right now, and which are ones that I can say, look, I can solve that later. Like, I can get to it later, because I'm just going to punt on it, not because it isn't important, but because it's something I can solve and refactor later. And in the book, we go through some of these, like, well, is this going to be a systemic risk? Is this going to have severely negative impact on. On people's lives? Is it going to create the cultural genetics that are going to be wrong in your company? And what are the things that you should invest in and do early, both before you get into blitzscaling and as you're doing it in order to make sure the output is a company for the ages? Something that people go, this is a company that we're proud to be part of. This is a company that society goes, wow, we wish we had many more of those. And the customers feel like, this is something that I'm delighted not only to be a user of this product or service, but to feel that this is a good company in the world. And that obviously has to be top of mind within a Blitzscaler's mind.

Let's talk about a contentious example. Elizabeth Holmes. And Theranos is an example of very aggressive scaling. Is she an example of blitzscaling?

So Theranos, which critics of Silicon Valley like to hold up as an example of what's wrong about Silicon Valley, actually, in fact shows many things that are right about Silicon Valley, because actually, Silicon Valley operates as a network. And part of how we actually make judgments about which things to blitzscale or not is there's this intelligence going on about, is that ready to scale? Is that worth the capital? Is that the thing we should be pulling into? And that's part of the reason why companies like LinkedIn, Airbnb, other kinds of kind of key companies, which people go, oh, those are transforming people's lives. It's transforming their ability to get economic outcomes. It's transforming their ability to earn more income or to connect to local communities as they travel. Those ones are in the right ones to blitzscale. We're going to do that. The oddness about Theranos was it was completely off the Silicon Valley grid when we'd call people and say, well, what's going on? What are they doing? They seem to be raising these big rounds. No one knew, no One knew, no one knew what they were doing. It was an exact example of the way that the network of Silicon Valley actually helps identify which ones to really put capital behind, which ones to really trust, which one to really go behind in these iterative judgments. It was kind of off the grid. And so when I was asked about it, I said, look, it's either going to be an act of genius because they did it without any of the resources and help that is cored at Silicon Valley, or there's something really bad going on and it's going to fall over in a really bad way. And I obviously always hope for the genius versus the failure. But the kinds of things that Theranos allegedly did are the kinds of things that blitzscaling companies should never do. You should never lie about the quality of your product. You should never mislead your investors with what your numbers are. These are the alleged things out of the SEC complaints, out of the reporting of the book that literally people shouldn't do. And so if those were done, those are examples of very bad behavior. But in fact, because they happened by this company that was avoiding the Silicon Valley network, the Silicon Valley core decisioning process, it's actually an example of how Silicon Valley helps with high quality blitzscaling and actually even good decisions relative to society and talent and investors and everything else, versus actually in fact blitz failing.

Because the networked decisioning that the Valley has is a check against certain types of actions or certain unknowns, but not a check against aggressive risk taking.

Exactly.

You suggest the principles of blitzscaling also apply to non business entities. And one example you discuss is Barack Obama for president. How did his campaign apply this strategy?

So the Obama campaign in 2008 is a fascinating case study because when he launched his campaign, very few people gave him a chance of winning. They felt like he was going up against a former first lady, a senator, a prominent figure in his political party, Hillary Clinton, that he would be unable to defeat. And if he had tried to take her on with conventional means and played on the same playing field that she had, he quite possibly would have lost. But he had a stroke of good fortune very early on. His campaign was interested in new technologies and social media and the online world. And they happened to reach out to Facebook. And Facebook co founder Chris Hughes was an admirer of Obama and decided to leave Facebook to help lead the technology effort for his campaign. So literally, the Obama campaign was the first political campaign that had on board people who had blitzscaled in the past in Silicon Valley. And what they did is they took an approach which had typically been very hierarchical and top down and done in the same way year after year and, and said, how do we apply the kinds of technologies, the bits versus atoms that could really make this work? So among them there was my Barack Obama the social Network, which allowed them to organize 200,000 events and raise over $30 million. That was only possible because they built a decentralized network for Obama supporters to connect. They had a canvassing tool called Neighbor to Neighbor. In the old days, you just gather a bunch of people in the room and then have them make phone calls to every number in the phone book. And instead, Neighbor to Neighbor used data to figure out who were the people who were potentially willing to change their vote, match them up with volunteers who were the most similar to them in terms of background so they would be relatable, and then help those volunteers go through those calls. And they made over 8 million calls because of that tool. Finally, they had a vote for change registration system that helped young people figure out, do I register in, in my home state or do I register where I go to college? Which states is this gonna matter in? And all of these different tools helped drive a massive election win, both in the primary season and ultimately in the general election.

And I'm sure in order to achieve dominant success in these dimensions, they had to lose sight of their supply lines in other traditional campaign methods.

Exactly. When you looked at the fundraising strategy for the Obama campaign, the Obama campaign ended up raising more money in 2008 than any other presidential campaign in history. But they were also spending that money at a furious rate. And if they hadn't come up with their fundraising innovations, it's quite possible that they would have run out of money along the way.

So, last question, Reid and Chris. For readers of the book Entrepreneurs, business leaders, government leaders, Agents for Change, this is a lot of strategy to keep in mind for somebody making day to day decisions at rapid speed. What are a few rules for making these decisions tactically?

Obviously it's impossible to summarize an entire book and an entire podcast series in Masters of Scale in only a few pithy answers. There's lessons in each one of these things, but a key thing is to realize that it is in fact actually deeply chaotic and you need to triage. So, for example, on Masters of Scale, we call it let fires Burn. You're going to be going home as an entrepreneur and as a founder, as a CEO, as an executive, every day, every week with mission critical things that are going to burn down your company. And destroy and you're triaging. You just figure out which ones you have to do first. You also are going to try to figure out how to make decisions at such speed that you can make the growth curve and you can solve the problems much faster than your competitors. So one of the things that we talk about which I think is very interesting here in Silicon Valley and also in the book and in the podcast is OODA loop which is observe, orient, decide, act which is fighter pilot terminology. The fighter pilot with a faster OODA loop survives, the other one dies. We in the valley and obviously in blitzscaling and master scale talk about OODA loop as a key thing both for individuals and for organizations. So the speed at which you make those decisions is key to the difference between thriving and not surviving.

For the lessons behind those pithy answers please read the book. Thanks Reid and Chris for sharing your insight for best practices for scaling massive companies on gray matter today.

Great.

Thanks Sarah.

Thank you guys.