Blitzscaling – another Unsustainable Model?

  • Blitzscaling – another Unsustainable Model?

    updated 10 months, 2 weeks ago 1 Member · 1 Post
  • freeman

    Organizer
    April 18, 2023 at 12:32 am

    The video discusses the phenomenon of Blitzscaling in the startup world, where companies prioritize rapid growth and market dominance over profitability. It highlights how some companies have achieved billion-dollar valuations in remarkably short periods, compared to traditional companies that took much longer to reach such milestones. Two approaches to growing a company are discussed: the traditional method of focusing on making money and scaling up gradually, and the more innovative approach of scaling up a product or service that initially loses money, with the expectation of eventually finding profitability.

    Blitzscaling is particularly prevalent in network-effects businesses, where the value of the product or service increases as more people use it. The strategy involves acquiring users at a large scale, leveraging network effects to reduce user acquisition costs, and later monetizing the dominant position by raising prices. This approach often requires substantial capital investment, which is made possible in a low-interest-rate environment where future profits can be discounted at minimal rates.

    They cite examples of companies like Deliveroo, Getir, and Gopuff, as well as the deployment of rental bicycles and electric scooters in urban centers, to illustrate the blitzscaling model in action. It emphasizes that while these businesses may not currently be profitable or have a clear path to profitability, their valuations have grown rapidly.

    The origin of the term “Blitzscaling” is traced back to Reid Hoffman, the founder of LinkedIn, who drew inspiration from the military tactic of blitzkrieg. The video explains that the approach involves taking on greater risk and moving quickly to achieve scale, which is necessary for offensive reasons (creating value by reaching a critical mass of users) and defensive reasons (establishing a dominant position to fend off competitors).

    The Softbank Vision Fund, a prominent venture capital fund, is highlighted as a major player in the blitzscaling ecosystem. With its substantial capital, the fund can finance one startup in a sector and provide a significant competitive advantage through aggressive customer acquisition. Examples like Airbnb and Uber are discussed to illustrate how blitzscaling has allowed companies to dominate their respective industries, even at the expense of short-term losses.

    However, the video also acknowledges the social costs and risks associated with the blitzscaling model. Competing businesses can be adversely affected or destroyed, resulting in the loss of traditional jobs and disruption of industries. The impact on workers, as well as potential consequences for consumers in terms of price hikes and reduced benefits, could be adverse side effects.

    It concludes by suggesting that the current prevalence of unprofitable companies supported by venture capital funding may not be sustainable in the long term. The future profitability and success of the blitzscaling model will be revealed as the business cycle progresses. Additionally, it also briefly touches on the idea of universal basic income as a potential outcome of blitzscaling, where growth is prioritized, and profitability is addressed later.

    Main Points:

    Blitzscaling is an offensive strategy where you take the market by surprise; build a long-term competitive advantage before anyone else; and get the attention of investors as the new market leader.
    It is also a defensive strategy in that you set a pace that leaves competitors gasping to keep up.

     

    In my opinion it is a cut throat strategy that is based on human survival instincts and hustle culture. To be frank, I used to be a fan of this when it was introduced to me a few years ago by someone in my workplace. But as time passes, your perspectives change and I have come to think of it as another manifestation of Capitalism’s cut throat mentality and greed at any cost kind of thing. Some might disagree. But whatever it might be, I’d be curious to know your thoughts on this, so feel free to comment below and brainstorm.
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