Transcription
When we think about blitz scaling, we think about all the successes. We don't think as much about the massive amounts of failures.
Let's go through like a 25-year history on this, right? So like people blitz-scaled in 1999. The reason was because we believed in this new economy. We believed every brick-and-mortar business was going to go out of business and be replaced by an internet company. Does that sound familiar to AI today? Yeah, a little bit. I think nothing went wrong with it the first time. I love the sarcasm.
Now the crash happens in 2001. People think the internet's a fad. Entrepreneurship is a fad. But that's when amazing businesses are built. The first name brands in the dot-com age were born out of that when we weren't blitz-scaling.
All right, Mark. Today talking about my favorite word in business, blitzscaling. You were the first to write a book that touched on this, but I want to hear about the arguments for, arguments against, and kind of the evolution of like where Blitzscaling stands today.
You're referencing the sales acceleration formula. Yeah. Um, your first book. Yeah. I think it was 11 years ago, something like that. I think the official Blitzscaling book by Reed Hoffman and Chris came out maybe three or four years after.
The concept of blitz scaling was is you have to go ridiculously fast, burn a lot of money. It's almost like this like um space shuttle analogy where like there's so much force needed to like get out of orbit, but once you're out of orbit, you're like there. And so like the the concepts there are whoever like gets the most customers fast can then raise the big round. And when you raise the big round, you get the TechCrunch article and the Wall Street Journal article. And because of that, all the customers want to come to follow you. And because of that, the big engineers want to join your team. And because of that, you have a better product. and that leads to more customers and then that leads to the bigger series B round and it just like spirals on top of each other and you have to do that to be able to like get out to orbit.
I think there's a lot of validity to that. We certainly did that to some degree at HubSpot. I think what's confusing for people, one, it's not the only way to have entrepreneurial success. Uh, because it depends on context. Most companies scale too early or too late. Both can. That's why I created the revenue leaders guide to scaling. It shows you exactly when to accelerate growth using my framework and templates. You'll hear from 10 plus CRO and sales leaders who've done it successfully. Stop guessing when to scale and start using data. It's free. Check out the link in the description.
There are a lot of very successful businesses that were bootstrapped. Clavio just had a a successful IPO. Kind of a bootstrapped business. Zoom Info a couple years ago had a very successful IPO. Bootstrapped business, right? So like it's it isn't the only way. And I think like when we think about blitz scaling, we think about all the successes. We don't think as much about the massive amounts of failures. That's I guess where the science of scaling comes in is many of those failures I think were unnecessary. And so like these are not mutually exclusive works. It's not like you either believe in blitz scaling, you raise a ton of money and you try to go as fast as possible and burn and either make it or break it like go big or go home and you've got a 1% chance of winning. And the science of scaling is don't do that and and grow slow. That's not true. The science scaling is more like what do you need to have in place to blitz scale? Like when are you ready to blitz scale? And when you say blitz scale, quantify that. Are we talking about like doubling revenue and burning $10 million next year? Are we talking about 50x-ing revenue and burning a billion dollars next year? Like where is that and how do we calculate that?
So they're like there works that can come together. But don't some people wouldn't someone just be like it's just going to burn as much investment as we have to grow however much. So you could be like 50x for $10 million but some people be like I'm not even worried about the first part. I'm just worried about we're burning $50 million. We're going to grow as like fast as possible as much as possible. I think that's how people think and I think that's very wrong.
There's a couple dimensions to this. First off, they think, okay, I'm doing a tech startup. I need to raise venture capital and blitz scale. That's just not correct. It's not appropriate for certain business ideas. There are certain business ideas that are meant to be sold to a major platform. And like, you know, there are a lot of entrepreneurs who do blitz scale. They go out and raise a bunch of money and build a company that's worth a billion dollars. And after all that dilution, they own 10%, so they make $100 million, which is awesome. And then there's a lot of people who bootstrap a business for three or four years. Maybe they raised a million dollar like SAFE or something. So they own 90% of the company. And 3 or 4 years later, they get it to $10 or $12 million. They sell it to for $150 million, which is like not a big acquisition to some platform play, and they make $120 million. It's the same thing. Yeah. Right. So it's just like there's this factor of risk. At the end of the day, the the right answer is you have to choose the capitalization strategy that's right for your business and then part of that will dictate your growth strategy.
Okay. So there there's that piece of like the contextual obsession with like the only way to build an awesome startup is to raise a bunch of money, to try to get on the front page of TechCrunch, to earn a ton of money, etc. That's not true. And we've just talked about a couple examples. Now, if you are going down that path, I agree with the work of Blitzcale by uh Chris Yane Reed. There is like some semblance of a first mover advantage of getting the round cuz you box out other people from getting the big round cuz they're concerned the competition's there. It's kind of like a moat. Yeah, there is a moat there.
I will say that there is rigorous research that shows that first mover advantage is not as prevalent as you think. Google was not the first search engine. Salesforce, HubSpot were not the first cloud-based CRM. Chrome and Edge were not the first browsers. There's a longer list of third, fourth, fifth entrants that won than there is that first entrant that took it. Okay? So, that that's a little overplayed. So, we got to be careful.
Now, what's interesting about Reed Hoffman and Chris Yey's work is like it's hard to appreciate the slice of the business community you're seeing because of your background. So, as a early employee at HubSpot, I think I see a lot of go-to-market tech. Reed founded LinkedIn. He sees a lot of social networks. Now granted, he's at Greylock, I believe, and like he's since now invested in all these amazing companies and sees a widespread things, but like he's known for LinkedIn at his foundation. And so he sees a lot of stuff that's like network effect. And I would say if you have a network effect, there's a massive first mover advantage. There was a massive first mover advantage to LinkedIn, much more so than like other types of plays. So there might be a slight bias to the work toward the sector they sort of grew up in, but I do think it still has validity that like you can box people out.
I'm the science of scaling I believe complements the work because it tells you when you're ready for that blitz scale and it quantifies the blitz scale for you in terms of how fast that is. Does that make sense?
That makes sense. I guess like how is that today? Like are people people aren't still like just blindly buying blitz scaling of like if I start a company I need to blitz scale if it's in tech I'm blitz scaling today or like are you still seeing people doing that or like how has that evolved to like right now?
So it's a great question because it depends on the macro economy and the entrepreneur community always goes up and down. Let's go through like a 25-year history on this. Right. So like I wasn't an entrepreneur before like 1997. when I was still in college and I don't even think like entrepreneurship was like tiny compared to what it is today. It was because of the internet the dot craze before that my perception of entrepreneurship was just like it wasn't accessible to to everyday people and then it became really popular. Now people blitz-scaled in 1999 the reason was because we believed in this new economy. We believed every brick-and-mortar business was going to go out of business and be replaced by an internet company. Does that sound familiar to AI today? Yeah, a little bit. I think nothing went wrong with it the first time. I love the sarcasm.
So, yeah, we have to learn from that point. So, certainly you had some massive blitz-kill in there and that was terrible. And I think like compared to what we know today about entrepreneurship, we didn't know what the hell we were doing. I mean, we had companies go public without revenue. Like, it was like stupid. Right?
Now, the crash happens in 2001. People think the internet's a fad. Entrepreneurship is a fad. Go back no blitz scaling like no venture capital but that's when amazing businesses are built you know like in that next five, six years I think HubSpot, Salesforce took off then Google really became popular then I think Workday, I think Service Now. The first name brands in the dot-com age were born out of that when we weren't blitz-scaling. Okay, probably like a back to basics like let's get to profitability faster. Let's think about unit economics. And you could because there was less competition then.
You fast forward to like, okay, now cloud starts to take off again. Now we're in a 2010, we're in a 2012. Yeah, venture is enormous now. They always say like it was just like the heyday of cloud and there was massive blitz scaling and that leads all the way to like 2020 that we all remember. We're in COVID. We don't know how long this is going to last. The world shuts down for 4 months and all of a sudden that summer we have this V-shaped recovery in tech. Like the economy goes crazy. Public companies and software that were priced at like 10x their revenue are now priced at 40x. That thing goes up for everybody. There's tons of money. Interest rates are low. Venture capital is flowing. All these startups are being priced ridiculous. And they're blitz-scaling because they can because the money's there and they think that that's like the way you have to do it. And that's going to be a bad vintage for venture. The investments that were done in 2020, 2021 is just it's going to be really bad because they blitz-scaled.
How long of a tail is that? Like it's going to be bad or a bad decision for 5 years, 10 years down the road. Venture capital vintages, which is also translated to startup vintages, cohorts, they're almost like wine. They're like they co go by a year. Oh, what? That's the 2022 vintage. That's how you talk about it like venture capital. But with VC funds and the vintage in 2020 is going to be terrible. And it like you're kind of saying, how long does that last for? That's just permanent. Almost all of our companies are still alive and some are accelerating. So, we just don't know if we still have a, you know, massive unicorn in there. But, it's just like it's always hard when normally you're paying 10 to 20x on topline revenue for the valuation in that year when everyone's now paying 100x. It's just hard to make like a really strong return.
So, now you get to 2022 where everything crashes. Interest rates go up, venture capital dries up, everyone realizes that they just met a bunch of like way overpriced valuations, demand goes way down, and everyone's talking about like back to basics efficiency. Efficiency is the name of the game. So Blitz scaling goes out of flavor.
So now where are we in 2025? We have like multiple economies happening at once. We have these businesses that were funded between say 2018 and 2022. They probably did a massive round then they blitz-scaled so they probably burned through almost all of it. They can't raise more money because like it's a blitz scale. It's a messy cap table. They've already taken a lot of money. So they're operating more like rule of 40. We've had some people on the show around that. Rule of 40 means you add your profit margin plus your growth rate. And if it's 40 or above, that's a very good business in the eyes of private equity. So if you're growing 20% a year and you have a 20% profit margin, that's good. So that's how they're operating. They're trying to get to profitability. They're not blitz-scaling. They're arguably at risk of going too slow and missing a window. It just depends on how strong their moat is.
Then you have everybody funded since 2022. That's not AI. That looks a lot like what I'd say has been the median of venture and startups over the last 25 years. Regular price seed, regular priced A, regular burn rate, maybe burning a couple million a year, growing 100%, 200%, 250% a year. Just like what you'd consider as the median healthy venture thing.
Then you have AI. It's blitzing. It's blitz-scaling. I mean like you're right back to like 1999. People are paying 100x times their top line. People are going from $0 million to $5 million to $20 million. And it's an interesting time there because I think the mainstream narrative in the tech ecosystem is like this is the new reality. And I'm trying to figure out if it is or if it's like the new economy from like you know what we're saying in 1999 that all crashes.
I think there's a lot of data evidence that it's still more like the new economy. I would believe it that this is the new reality of like an AI efficient startup that you go from 0 to 5 to 20 to 100 whatever the numbers are. If you looked under the hood and you saw salespeople producing like $5-$10 million a year each, you saw engineers writing like a quarter's worth of code in like 3 days, which you see a little bit of that. You see like revenue per employee off the charts because of all these like really dramatic new ways to build an organization in an AI first way. You're seeing a little bit of that, but not much. The reason why it's happening is everyone's trying to figure out AI and they're testing a bunch of stuff and so you have all this massive growth into more like test projects as opposed to like mission-critical projects and a lot of people are just like the tools aren't working. I mean I'm like still like everyone's like hey how can I like scale my demand gen without hiring SDRs? We've been looking forever like it's just really difficult still.
Blitz scaling comes and goes as highly in favor depending on the macro conditions and today we're seeing a mixed economy depending on what you are and I would say the science of scaling is always relevant. Both of them are always relevant but I think the science of scaling is critical to decide how much risk you want to take around that blitz scale. Blitz scaling and the science of scaling are not two mutually exclusive options in terms of how to scale your business. The science of scaling tells you when you're ready to blitz scale and how fast you're ready to blitz scale. So, they're both applicable. Pretty. That's number one. Number two, be careful interpreting that blitz scaling is the only way to achieve entrepreneurial success. It's contextual to the type of business you're starting. We laid out some examples where people they built great products and great companies and generated wealth for themselves and wealth for their employees just as much as that big IPO by not going the venture capital route and by not going the blitz scaling route. So just be careful to confuse that that's the only way to do it. And then point number three would be there is tremendous rigorous research that shows that investors and entrepreneurs overweight first mover advantage. There is first mover advantage. It is stronger in areas where there are things like network effects like a LinkedIn but it's just not as much as people think. There's a much longer list of those that were the ultimate winners that were the second, third, fourth entrant. So, just keep that in mind as you're considering your scale pacing.
So, that's it for our segment today. Be sure to check out those links that I threw in the description. Good luck scaling. Happy scaling. [Music]