There are many different paths to scaling a company, and blitzscaling is one that has become popular over the last 10 years. However, a recent study published in the Strategic Management Journal found that while this technique can be effective, it’s not the best fit for most startups.
What is blitzscaling?
Blitzscaling refers to startups that scale as quickly as possible with the goal of taking market share and outpacing the competition. Startups that blitzscale are usually attempting to serve a large and global market.
The term was popularized by Reid Hoffman, who helped found PayPal and LinkedIn. Facebook, Google, and Amazon are all examples of companies that implemented blitzscaling techniques. For example, Amazon’s fast growth set the stage for the e-commerce industry and created thousands of jobs in the process.
The downsides of blitzscaling
It’s easy to look at companies like Amazon and Facebook and see the benefits of blitzscaling. But there are many downsides to implementing this strategy. Let’s look at four reasons why it may not be the best choice for your startup.
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Increased rate of failure
The biggest problem with blitzscaling is that it comes with a high rate of failure. For every startup that has used this tactic and succeeded, there are many others that grew too fast and failed unnecessarily. WeWork and Theranos are just two examples of companies that achieved fast and unsustainable growth.
The study found startups that begin scaling within six to 12 months of being founded are up to 40% more likely to fail. And the risks of blitzscaling don’t seem to be offset by any unique rewards. For example, there are very few noteworthy instances of startups going to IPO or having a large acquisition because they scaled early.
The process of growing quickly means you’re going to burn through a lot of capital, which could lead to inefficiencies in your organization.
Limited experimentation
Blitzscaling can also be problematic for companies that haven’t established a product-market fit. It causes many startups to fail because it limits their opportunity to experiment, test the market, and validate their business idea.
In particular, the study found companies that scale too quickly are less likely to engage in A/B testing. And contrary to popular belief, blitzscaling doesn’t meaningfully reduce the risk of having competitors imitate you.
Potential to waste resources
Blitzscaling prioritizes speed over efficiency, so it requires a large financial investment. This strategy prioritizes sales and brand recognition, so you can expect to invest a lot of money in marketing. The process of growing quickly means you’re going to burn through a lot of capital, which could lead to inefficiencies in your organization.
Because blitzscaling is so expensive, you’re also going to have to look for investors. However, it can be difficult to find investors who are willing to take a chance on a startup, especially if you have low gross margins.
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Diluted company culture
Companies that want to blitzscale are going to have to hire a lot of people in a short period of time. It’s difficult to hire quickly and maintain company culture at the same time. Ineffective hiring practices can dilute your company culture, leading to internal conflicts and low employee morale. Plus, hiring quickly makes it hard to scale your management structure effectively.
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Alternatives to blitzscaling
A limited number of startups will be successful with blitzscaling, but it’s not the best fit for most startups. According to the study authors, slow and sustained growth is the best alternative for most companies.
Slow and sustained growth focuses on profitability and building a strong foundation of operational processes before scaling. Take the time to fully develop your business idea and test it out in the marketplace. Once you’re certain there is a product-market fit, you can begin to focus on hiring employees and increasing your customer base.
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