4 Reasons Why Entrepreneurs Need Rightscaling More Than Blitzscaling Outside Silicon Valley by Forbes – Entrepreneurs

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Reid Hoffman makes some very interesting points in his new book, Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies.

But can everyone use Blitzscaling? Can it be used in all situations? Is this a solution for growth-seeking entrepreneurs inside or outside Silicon Valley?

According to Hoffman, Blitzscaling is “prioritizing speed over efficiency in the development of a company even in the face of uncertainty” (Fortune, 10/1/18, p. 42). But here are a few issues with Blitzscaling:

  1. Prioritizing speed over efficiency means pouring coal on the fire, adding money to the till, or venture capital into the venture on a non-stop basis. This may be fine for ventures with access to the huge resources of Silicon Valley VCs, but what about the others?
  2. Estimates are that about 99.99% of ventures do not get VC or fail with it. Would they be better off with an alternate strategy?
  3. Estimates are that only about 15-30 ventures become home runs each year, which are the unicorns. This is about 1% of the ventures funded by VCs. And most of these unicorns are funded by Silicon Valley VCs. What should the others do?
  4. Estimates are that about 20 VCs, mainly in Silicon Valley, earn about 95% of VC profits, according to Andy Rachleff, formerly of Benchmark Ventures which is one of these 20. These are the few VCs with unlimited resources to fund Blitzscaling. What about those who have to rely on angels or small VCs with more limited resources and cannot fund Blitzscaling?

Hoffman notes that some entrepreneurs do “fast scaling.” My interviews and analysis of unicorn-entrepreneurs in Silicon Valley and outside is that some also do “slow scaling” before Aha, when it is tough to get resources due to a lack of credibility and no proof of competitive edge.

What can we do about the dreams of entrepreneurs elsewhere and the dreams of entrepreneurs in Silicon Valley before they have reached Aha, when their potential is evident? The reality is that more than 90 percent of Silicon Valley unicorn-entrepreneurs used VC, but most of them used it after Aha to keep control of their venture. And more than 90 percent of unicorn-entrepreneurs outside Silicon Valley avoided VC. They took off, and grew, with skills and smart strategies.

Entrepreneurs need to know “Rightscaling,” which include the full arsenal of tools that entrepreneurs can use. Rightscaling means choosing between “slow scaling,” “fast scaling,” and “Blitzscaling” at the right time, stage, and location. Not only is one speed not right for all, but one speed is also not right for the same venture at different times. Rightscaling means growing at the speed of control, i.e. the right speed at the right time to control the venture and the market. Control is important because unicorn-entrepreneurs who controlled the venture kept 200%-600% more of the wealth created than unicorn-entrepreneurs who did not keep control (The Truth about VC). To find the speed to grow with control:

  • Grow at cash speed and cash flow speed before Aha because running out of cash means that you could run out of venture
  • Grow at market speed because trying to run faster than the market means that you could run out of cash
  • Grow at industry speed till Aha, and faster after Aha to dominate the industry.

Based on his track record, Mr. Hoffman would have to be included in any list of the world’s most accomplished entrepreneurs and VCs. But the world outside Silicon Valley is not filled with VCs ready to sow gold wherever they see opportunity and tolerate a high level of losses. And it is filled with entrepreneurs who want to build the venture and keep control of the wealth created. Entrepreneurs have to learn how to grow with skills. This is what 94% of unicorn-entrepreneurs did. My book, Nothing Ventured, Everything Gained: How Entrepreneurs Create, Control & Retain Wealth Without VC, shows how they did it.

MY TAKE: It’s good to learn from Silicon Valley’s leaders about how to grow when you have capital to burn. Blitzscaling is fine in Silicon Valley for the 15-30 entrepreneurs per year who will get unlimited VC and build home runs. But even Silicon Valley entrepreneurs need to get to Aha with limited resources, and they get to keep more of the wealth they create by delaying VC till Aha. This means Silicon Valley entrepreneurs need to practice Rightscaling before Aha, and Blitzscaling after. But outside Silicon Valley, and everywhere before Aha, there is no money to burn. Entrepreneurs outside Silicon Valley and those who have not proved their potential need to take-off with skills and smart strategies. And here is the surprising fact – most of America’s unicorn-entrepreneurs did just that. 94% took off without VC, and 76% never used it. They used skills and smart strategies. Imagine what could be done everywhere, and especially in capital-starved areas, by teaching more entrepreneurs the right skills to grow more with less. The reality is that Rightscaling can do more than Blitzscaling – unless you have money to burn. Ask Richard Burke who built UnitedHealthcare with a second mortgage of $40,000 (in 1977 dollars).


January 2, 2019 at 11:41AM
Forbes – Entrepreneurs